News & Information
Power Purchase Agreements Explained.
What are Power Purchase Agreements (PPAs)?
Power purchase agreements (PPAs) are, essentially, legal agreements between an provider and a purchaser for the supply and sale of energy.
These are increasingly being used for the supply of solar power to businesses that want to take advantage of the benefits of having an onsite solar array without the need to purchase a system.
In the role of purchaser, businesses entering into commercial solar power purchase agreements contribute plunge san diego onsite space (typically, rooftops) for the mounting of solar panels.
Their PPA provider takes on full financial responsibility for the solar system, including its installation and maintenance, and retains ownership of it. The purchaser buys electricity generated by this system from the provider, at agreed rates for an agreed timespan.
Why enter into a PPA?
By entering into a solar PPA, your business can enjoy benefits of an onsite system, such as lower energy bills, reduced exposure to energy price volatility, green brand benefits and more – all without having to invest your own funds in the solar infrastructure.
In short, there is no upfront capital required from your business.
This is because your PPA provider owns and maintains the solar PV system on your rooftop. As the owner, your PPA provider will also take care of all operational and maintenance costs associated with the system. This translates to virtually no financial risk for your business.
As an alternative to buying a solar system, a PPA frees up capital to invest in other energy-efficient technologies like LED lighting. Working in tandem with a solar system, improvements of this kind can further reduce your month-to-month energy expenditure and reliance on the grid. Such a strategy can make limited capital go further.
What’s involved for businesses?
For businesses, entering into a PPA involves legally agreeing to purchase electricity generated by the system at a set rate for a given period of time.
Cherry Energy partners with Ovida to offer the Cherry Solar PPA to our customers. We begin by assessing factors that may affect the details of your PPA, such as your electricity consumption patterns, existing electrical infrastructure and available rooftop space. We can then recommend the right system for your building’s needs and provide pricing options for your PPA. Once your agreement is drawn up, we’ll project manage the system installation.
The commercial solar system will incorporate a meter for the electricity it generates, separate to your grid electricity meter.
When you start using the solar system, you’ll receive a monthly invoice for the energy you draw from it. Your monthly solar energy bill, combined with your bill for any supplementary grid energy, will typically be significantly less in total than what you would pay if your energy was coming exclusively from the grid.
You aren’t liable for any repayments on the cost of the system, installation or maintenance – you only pay for the energy you’re using, at the agreed rate set out in your PPA.
Drawbacks & alternatives.
Some businesses do have the capital and capacity to own their rooftop solar system themselves and may benefit from lower energy costs in
the long run. In those cases, this may be the better choice – it all depends on the business’ long and short term financial situation.
It’s worth noting that…
PPAs involve the professional services of the provider being factored into your electricity bill. Even so, your expenditure will typically be less than what you were previously paying for 100% grid electricity. Depending on circumstances, though, it may eventually be possible to generate greater savings on month-to-month operational costs when your business has ownership of its solar system.
It is, however, possible to include a clause allowing transfer of contract when setting up your PPA. After your agreed PPA term, you can purchase the system from Ovida for $1.
Buying the system directly has the benefit of acting as an investment that you have full control over. This means that if you sell your commercial building, you’re able to sell the solar system along with it. You can’t do this under a PPA due to the system being externally owned. It is, however, possible to include a clause allowing transfer of contract when setting up your PPA.
Cherry Energy can assist with comprehensive assessments, pricing comparisons, and commercial solar finance options to help you arrive at the right decision for your business.
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NEWS & INFORMATION
Extension of federal and state incentives
Multiple federal and state incentives were set to end but recent announcements have extended various incentives that will reduce costs of energy efficiency upgrades for eligible businesses.
- Great news for business around Australia, the federal government has extended the?100% instant asset write-off?up to $150,000 to 31st Dec 2020! This means you still have time to upgrade your lights to LED and install a solar PV system and you may be able to instantly write these assets off*.
- The?Victorian Energy Efficiency Upgrade (VEU)?program that was suspended in April was reinstated last month. The good news is that commercial incandescent lighting upgrade incentives are available again.
- The South Australian Retailer Energy Efficiency Scheme (REES) will be replaced with a Retailer Energy Productivity Scheme (REPS) on 1st Jan 2021. REPS will provide incentives for activities that either improve energy efficiency and/or shift the time when energy is used.
- The federal government is providing $20k grants to dairy farmers wanting to reduce energy consumption as part of the?Federal Energy Efficient Communities Program. Farmers looking to install solar could receive the grant to reduce the cost and carbon emissions and increase sustainability, cash flow and ROI.
On top of all these, there are more incentives and rebates available, meaning there are?tens of thousands of dollars available right now?for businesses to upgrade to LED lights or install solar and/or batteries. Instead of paying electricity companies for no ROI, invest in assets to improve cash flow and reduce carbon emissions.
Cherry are experts in Incentives and Rebates.
Environmental Upgrade Agreements
Environmental Upgrade Agreements (EUAs) are a Victorian and NSW council-based financing mechanism enabling building owners, tenants and investors to better access long term finance for environmental upgrades, including LED lighting and solar energy, to existing commercial and non-residential buildings on attractive terms.
- The building owner agrees to carry out environmental upgrade works.
- The building owner, council and finance provider voluntarily enter into an EUA.
- The finance provider agrees to advance funds for the environmental upgrade works.
- The council collects repayments for the environmental upgrade works through the rates system and then passes the repayments on to the finance provider.
- The building owner can ask tenants to contribute towards the cost of the upgrade through the savings achieved with the energy efficiency upgrade.
BUILDING OWNERS & LANDLORDS
Under an EUA, a lender provides finance to a building owner using the land or building as security and the local council collects repayments through the rates system.
Security?The use of the council rates system means that an EUA?loan is prioritised?over other debts attached to the land or building. The loan is therefore highly secure, making it possible to access capital at competitive rates over a longer period of time.
No Upfront Costs?Upgrades can be made at zero upfront cost, with lower monthly repayments than previous energy costs, resulting in dramatically improved cash flow.
Flexibility?The EUA is tied to the property and does not increase the personal debt of the building owner. If the property is sold, the EUA charge may be transferred to the new owner.
Win-Win?EUAs provide a mechanism to address differing incentives between landlords and tenants. Landlords can share the costs of improving the building in agreement with tenants who will benefit from the funded works through reduced energy bills. Victorian Legislation requires tenant consent before this can occur.
The tenant stands to benefit from day one of their environmental upgrade.
Energy Efficiency?Tenants can enjoy the benefits of a more comfortable, ambient and environmentally friendly tenancy with reduced operating costs and energy bills.
Win-Win?If the tenant is asked to contribute money towards the EUA, they can simply redirect some of the money currently being spent on energy towards a better performing tenancy. They will remain cash flow positive as the loan repayments will be lower than the energy savings.
If you are a tenant living in NSW?click here to read more.
EUAs can be used by councils to encourage business owners to increase the performance of their building and to save water, energy and greenhouse gas emissions. The council’s role is to levy the EUA loan repayments through the council charge system (rates) and remit that payment to the finance provider.
Reduced Environmental Impacts?Upgraded buildings attract investment, reduce environmental impacts, reduce pressure on infrastructure and increase the competitiveness and liveability of local building stock.
Opportunities?Building upgrades can boost local jobs and business opportunities for efficiency products and services.
EUA ADVANTAGES FOR BUSINESS
Upgrading buildings for greater energy efficiency is also a cost-effective way for businesses to:
- Reduce operating costs by cutting energy bills
- Reduce the risk associated with increasing energy costs
- Increase renewable energy
- Improve building value
- Reduce greenhouse gas emissions
- Improve working conditions
Make the most of the EUA scheme
If your building is in an area eligible for EUAs, we will present EUAs as a financing option in the quote for your energy efficiency upgrade.
At present, council areas offering EUAs include:
- City of Melbourne
- City of Greater Bendigo
- Hobsons Bay City Council
- Wyndham City Council
- Greater Shepparton City Council
- City of Greater Geelong
- Macedon Ranges Shire Council
- Mount Alexander Shire Council
- Wyndham City Council
- Central Goldfields Shire
- Cardinia Shire
- Horsham Rural City Council
- Maribyrnong City Council
- City of Moreland
- City of Monash
- Mornington Peninsula Shire
- South Gippsland Shire Council
- City of Greater Dandenong
- Brimbank City Council
- Mildura Rural City Council
- Moira Shire Council
- Yarra Ranges Council
- Baw Baw Shire
- Darebin City Council
- Moonee Valley Council
- City of Kingston
- Blacktown City
- City of Newcastle
- City of Sydney
- Lake Macquarie City
- North Sydney
- Parramatta City
For customers in Victoria, our partnership with the?Sustainable Australia Fund?allows a seamless process in providing finance for EUAs. We will process and complete the application on your behalf and take care of all paperwork.
In summary, an EUA provides a secure and transparent mechanism for tenants to either pay for the costs of the EUA using their energy savings to make repayments OR share the costs in proportion to the benefits they receive with the landlord. There is no residual payback owed by the tenant and the system basically pays for itself.
So what are you waiting for?
Talk To Us About EUA
Whether you’re familiar with LGCs or wouldn’t know one if it tap-danced across your desk, it’s worth brushing up. If you plan to move into the commercial solar arena it’s good to know what LGCs are, who can qualify, and what they mean for your business.
What is an LGC?
First up, LGC stands for large-scale generation certificate. In short, these certificates are a kind of currency for buying and selling renewable energy.
They’re a scheme created as part of the federal government’s?Renewable Energy Target, as part of a push to reduce emissions in the electricity sector and promote renewable energy generation.
LGCs regulate the trade of electricity from solar systems sized upwards of 100kW. Certificates are created per megawatt hour (MWh) of eligible electricity generated by a given system or power station. This amount of electricity is calculated on a monthly basis using a?formula?specified by the Australian Government’s?Clean Energy Regulator. This figure is used when applying to claim LGCs, which is typically done on a monthly, quarterly or annual basis. If deemed eligible, LGCs are created and added to the REC (renewable energy certificates)?Registry.
Once registered, LGCs can be transferred to other parties. For example, they can be sold to energy retailers, which have obligations to buy them under the Renewable Energy (Electricity) Act 2000. On the?wholesale market, LGCs are sold in parcels of minimum 5,000 certificates. Sale prices are negotiated between buyer and seller, with value depending on supply and demand.
For businesses with large-scale systems, LGCs can be a source of ongoing revenue that speeds up return on investment.
What counts as large-scale?
If you have a solar system of 100kW or larger, you count as a large-scale generator and qualify to claim LGCs on excess power generated by your system (that is, whatever is left over after powering your own operations).
To put this system size in perspective, residential systems are typically around 5 kilowatts.
By contrast, an in-development solar farm in north-western Victoria, will theoretically generate enough electricity to power?around 30 000 homes, weighs in at 110 megawatts (or 110 000 kilowatts).
This project has been contracted by the Victorian Government for the sale of LGCs, which will go towards powering Melbourne’s tram network and helping meet Victoria’s Renewable Energy Target.
What about smaller systems?
Many commercial systems that are considered large are sized in the realm of 100kW. Many of these are technically just under this size, clocking in somewhere between 99 and 100kW, which means they’re classed as small-scale systems. This is done because small-scale systems have their own advantages, even though they can’t be used for LGC trading.
Namely, they can generate?small-scale technology certificates. These are generated upfront, and generally claimed by the solar system supplier. This bonus is then passed on to the purchaser as a discount on the cost of the system. Many businesses prefer this to generating LGCs, as it helps manage cash flow early on. By contrast, financial returns from LGCs are unlikely to be immediate.
Read our blog post on?100kW solar?for more about these system size classifications.
WHAT DOES THIS MEAN FOR MY BUSINESS?
It’s possible that your commercial solar system qualifies you for LGCs, or could do in the future. If you have >100kW commercial solar, LGCs will likely play a role in maximising your return on investment.
If you’re thinking about installing commercial solar, whether you incorporate LGCs into your financial outlook will depend on your overall goals. Are you aiming to offset some or all of your power bills, provide power to a precinct or set up a solar farm? This will factor into what system size you choose and how you use it.
To find out more about large-scale solar or discuss what system size is right for your business,?contact?the commercial solar experts at Cherry Energy today.