If you are a sustainability officer or a savvy business leader eager to find innovative ways to simultaneously reduce your company’s operational costs and environmental impact, you are probably considering switching to solar. And if you’re contemplating going solar, you have likely heard reference to solar Power Purchase Agreements (commonly known as PPAs). What exactly are PPAs, what kinds of projects are typically funded by them, and why should you consider a solar PPA when assessing your 2022 budget?
Here we will answer all of these questions for you.
What Is A Solar PPA?
A solar PPA is a financial agreement where a solar developer invests the upfront time and costs of coordinating the design, permitting, and installation of a solar energy system on a customer’s property. In exchange, the developer sells the power generated by the array back to the host customer at a fixed kilowatt-hour (kWh) rate that is typically lower than the local utility’s retail rate. Companies may opt for a PPA over a direct cash purchase if they do not have the upfront budget to install a solar array or prefer to keep cash on hand. Additionally, PPAs are often used by entities without tax liabilities, like schools and municipalities.
PPAs typically last anywhere from 15 to 25 years. During that time, the project costs are amortized over the contract term and repaid via your monthly consumption of solar energy. At the end of a PPA contract term, the host has three options: extend the PPA term, remove the system at no cost, or directly purchase the energy system from the developer at fair market value.
PPAs are great for businesses that want to enjoy the benefits of reduced operational costs in the form of lower electricity bills and pay $0 out of pocket upfront while doing so. This is all while minimizing their environmental impact and achieving their ESG benchmarks by switching to renewable energy.
In sum, the perks of going solar with a PPA are plentiful:
- No upfront costs
- Lower energy bills
- No operation or maintenance costs; O&M responsibility is borne by the developer
- Reduced environmental footprint
What Kinds Of Companies Typically Seek PPA Funding for Solar?
According to a Greentech Media (GTM) report from 2018, the majority of commercial solar projects are funded by PPAs. GTM found that 53% of commercial solar was third-party-owned (TPO) at the time of publication and they projected an increase to 78% by 2021. What kinds of businesses are funding their solar energy projects with PPAs and could your business benefit from this method of financing?
One answer to this question is companies with ambitious sustainability goals. . Climate change is now a top priority for consumers, and businesses in all sectors are feeling the pressure to implement meaningful sustainability measures across their business operations. Solar is an impactful way for these environmentally-focused businesses to advance their sustainability goals, but not all of them are able or interested in paying for the upfront cost of installing solar. In these cases, a PPA is an excellent option. It allows businesses to meet their sustainability goals while putting zero money down and paying less on their monthly energy bill. Some of the largest corporate enterprises in America use PPAs to advance their clean energy procurement.
Companies with high operational costs are also looking to PPAs to fund their solar energy projects. The energy expenditure of buildings is increasing due to rising electricity costs, and for companies that require a lot of energy like grocery stores, restaurants, and office buildings this is a big problem for their bottom line. Solar PPAs are a great way for these companies to hedge against rising electricity costs and maximize their profits.
Case Study: Whole Foods
Whole Foods is an example of a company that fits into both of the above categories: it has significant environmental commitments and high operational costs. Pivot Energy worked with Whole Foods to install solar panels on 18+ Whole Foods stores across California, Massachusetts, and Texas. The total portfolio of the project is greater than 1.6 megawatts (MW).
Each location has its own PPA, which allows Whole Foods to save money on its utility bills and hedge against rising electricity costs. In addition, operation and maintenance of the system is included under the PPA agreement, making this a hassle-free arrangement.
Most importantly, these projects have allowed Whole Foods to meet its ambitious sustainability goals. Over the lifetime of the 13 projects, more than 2,689,895 metric tons of carbon dioxide will be offset. That is the equivalent of keeping more than 570,000 passenger vehicles off the road!
Why You Should Consider a PPA When Looking at Your 2022 Budget
As we approach Q4 2021, you are likely turning an eye toward your company’s annual budget for 2022. This is a great time to consider how a solar PPA can benefit your business.
As the above example illustrates, PPAs can help lower future operational costs, while simultaneously raising your company’s sustainability profile. And, the biggest bonus is that your company can install solar completely free of charge!
This means that as a sustainability professional in the company, the immediate cost benefits of financing with a PPA will be a much easier sell to company directors and/or board members. At the very least, you can highlight the fact that installing solar energy frees up space for other important line items in your company’s operations budget, such as lighting, essential repairs, or landscaping.
Learn Whether a Solar PPA is Right For You
Pivot Energy has more than 12 years of experience helping companies with large-scale commercial properties install solar panels on their roof or elsewhere on their properties. We have a team of professionals ready to support you with any questions and help you understand whether a PPA is right for you. To learn more, contact us today!