Understanding Power Purchase Agreements

Power Purchase Agreements

Power Purchase Agreements, also referred to as PPAs,  have been gaining popularity as Australian businesses look for security of supply, a smaller carbon footprint and more affordable electricity prices – but what are they and how can they help your business?

These agreements basically involve businesses buying electricity from one source – usually a renewable one – for a set period and at a set price – instead of from retailers, and they have become more in-demand because they are a no-risk, cash flow-positive investment.

PPAs began gaining traction when multinational companies including tech giants Google, Amazon, Facebook, and Apple made investments in large-scale solar and wind energy development through corporate power purchase agreements.

PPAs are also becoming more popular in Australia, with energy-intensive users such as Carlton & United Breweries, Telstra, Sun Metals and the University of New South Wales supplementing self-generated energy with power purchase agreements for renewable energy.

The demand for these was also likely bolstered by the country’s skyrocketing electricity prices which have left many businesses in dire straits as their overheads went through the roof.

Because PPAs allowed clients to know exactly what they were paying for, thus giving them more security, commercial and industrial energy consumers found these to be a suitable medium-term solution for their energy bill woes.

On-site PPAs

The main gist of on-site power purchase agreements is that you’re essentially allowing a solar generation company to install solar panels on your rooftop for free, and the electricity generated by these panels will be sold back to you at cheaper rates than traditional retailers might offer you.

You also won’t have to leave your current power supplier, so you can still tap into traditional grid power at times of shortfall.

Because the energy is generated on site, it is not subject to expensive network tariffs which distribution companies charge to transmit power from point A to point B.

Ownership is also a topic of concern for many prospective clients but many PPA providers will pass on ownership of the solar power system to you once the period specified in the agreement expires.

Basically, all of these mean that you’re availing of a risk-free, 100% cash flow-positive investment and in addition, the company will maintain and monitor the solar energy system to make sure that it’s always in peak condition.

Offsite PPAs

If you consume less than 25 to 50 GWh/year, partnering with other organisations may be the most effective way to underwrite the development of a new power plant.

Here, solar companies will assemble clients together to build a solar generator that will feed energy to these grouped customers accordingly. The drawback is that these businesses need to be physically close to each other for this to work, although technology is constantly evolving.

Multi-entity PPAs

Companies may also go into a multi-entity PPA. In this type of agreement, solar providers will combine several separate entities within the same state to get enough load to go into contract with the electricity generator.

Recent Australian examples of Corporate Power Purchase Agreements

2017 has been labelled the breakthrough year for corporate power purchase agreements in Australia. GFG Steelworks, for example, has announced that the only way for the business to remain profitable is to source all energy from renewable sources at their own sites.

Telecoms provider Telstra, Nectar Farms, Sun Metals, Westport and GMA Garnet have also entered into undisclosed PPA terms.

One Australia’s biggest breweries, Carton United, will be purchasing all its energy from renewable sourced PPAs, supplementing the shortfall with on-site generation.

Australian universities, Monash, UNSW, the UTS and Newcastle University have announced similar approaches.

Sydney Markets have also installed a huge rooftop solar installation in its drive to 100% renewable energy.

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We also provide ongoing monitoring and reporting solutions to help our business clients identify opportunities and monitor the implemented solutions.

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