Boosting Solar PPA Tranparency
Installing solar panels offers loads of benefits to companies, from strong financial returns, to immediate tax advantages, to impactful environmental benefits.
In this two-part blog post, we’ll outline how a solar advisor can help companies maximize the benefits of switching to solar. Previously, we’ve talked about how using a solar advisor can lower the cost of going solar by 30%. Now we’re going to dive a bit deeper into how this works with various financing options.
In this first post, we’ll focus on third-party owned solar, which is typically done via a Power Purchase Agreement (PPA). In a later post, we’ll cover the benefits of using an advisor in a “direct ownership” deal, when the company plans to own the solar panels themselves.
How a PPA Works: With a PPA, a solar provider installs solar panels at a company’s property, owns the system, and sells the power to the company at an electric rate lower than the utility. It’s an excellent way for a company to cut their energy costs immediately, with no up-front investment or ongoing maintenance expenses.
What Determines the PPA Price: In this arrangement, the PPA Provider sets a PPA rate and contract length that allows them a return on their investment. For example, if a client pays $0.10 per kWh to the utility, a PPA Provider will offer a rate of $0.07 per kWh, providing a 30% discount compared to utility rate. The higher the rate the PPA Provider charges the customer, the higher return they get. But other variables impact the PPA Provider’s economics as well, such as:
- Cost to install the system: this can vary widely depending on the PPA Provider;
- System Maintenance: some are experts at keeping their systems in top shape to maximize energy production.
- “Hurdle Rate” or the rate of return they’re willing to do business at. Some firms are simply willing to accept lower returns than others.
Always Negotiate a PPA! Because of these various factors, any company interested in a PPA should negotiate with multiple PPA Providers. However, solar is technical and the market lacks transparency, so it can be difficult for a company to even know what a fair PPA price is.
How an advisor can help: A solar advisor should have their finger on the pulse of the market and can ensure a company negotiates a fair electric rate with the PPA provider. They should know how much the system should cost to build and maintain. A good advisor knows what industry-standard financial returns are and can identify which PPA providers offer below-market PPA rates. Not only can an experienced advisor bring a large number of PPA Providers to the table, they also have an ongoing relationship with these firms, and hence are less likely to be misled.
Finally, an advisor can help companies troubleshoot any non-financial questions or concerns the company may have. They can walk them through the PPA contract’s terms and conditions and confirm that all the technical aspects of the solar installation are in order.
Overall, using an advisor to help pick the right PPA provider can save companies both time and money. Perhaps most importantly of all, an advisor can ensure that, when the company signs that PPA contract, they have peace of mind knowing that they are getting the best deal on the market.
SolarKal, a commercial solar advisor, was named the winner in New York State’s 76 West Clean Energy Competition. They help companies navigate the transition to solar, from the first site visit to the final installation.
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