By Jakes Joubert, CEO of Red Energy
As electricity costs continue to rise and environmental sustainability becomes increasingly important, businesses should look at solar energy as a practical solution. When speaking to customers, it is understandable that the upfront cost of solar installation can be intimidating for many – especially growing businesses.
A Solar Power Purchase Agreement (PPA) offers an alternative that doesn’t require upfront capital, allowing businesses to access affordable, renewable energy without owning the system. But is a PPA right for your business?
Let’s dive into the pros and cons to help you make an informed decision.
What is a Solar Power Purchase Agreement (PPA)?
A PPA is a financial arrangement in which a solar provider installs, owns, and maintains a solar energy system on your business premises. In exchange, your business agrees to buy the electricity produced by the system at a predetermined rate, often cheaper than traditional utility rates. Unlike outright purchasing, PPAs are typically long-term agreements (10-20 years), which means you’ll be using the solar power generated on your site without the hassle of ownership or maintenance.
The Pros of Using a PPA for Your Business
- Zero Upfront Costs
- The biggest appeal of a PPA is that it requires no initial investment. The solar provider covers the cost of system installation, meaning you can access solar energy without draining your cash reserves.
- For growing businesses with limited capital, this is a great way to enjoy energy savings without the financial burden that comes with a full solar installation.
- Lower Electricity Costs
- PPAs often provide electricity at rates lower than those of traditional utilities. By locking in your rate, you’re protected from the steep annual increases in grid electricity costs.
- In South Africa, where electricity tariffs have been consistently rising, this can mean significant savings over time, helping you stabilise your operational expenses.
- No Maintenance Responsibility
- With a PPA, the solar provider is responsible for the upkeep of the system. From routine maintenance to unexpected repairs, the provider handles it all, giving you peace of mind.
- Solar systems require periodic cleaning and technical servicing, and these costs can add up if you own the system. With a PPA, this financial and logistical burden is covered.
- Environmental Benefits and Brand Boost
- By using solar power, your business reduces its carbon footprint, contributing to environmental sustainability. This aligns well with the shift towards green business practices and can improve your brand reputation.
- Many consumers and clients favour environmentally responsible companies, and promoting your use of renewable energy could attract more business.
- Flexible End-of-Term Options
- At the end of the PPA contract, you generally have options: renew the agreement, purchase the system, or have it removed. This flexibility can be beneficial as your business needs evolve.
Alternatives: Leasing vs. Buying vs. PPA
When considering solar, you’re probably also looking at other options like leasing or outright purchase.
- Leasing: Similar to a PPA, leasing involves no upfront costs, and you pay a fixed monthly amount. The main difference is that leasing is typically based on a fixed monthly payment, not a per-kilowatt-hour rate.
- Buying: Buying a solar system outright is a long-term investment. While it requires significant upfront capital, it gives you full ownership and control, plus access to government incentives like tax rebates and accelerated depreciation. Purchasing is ideal if your business has the capital to invest and you want the financial benefits of owning an asset that pays for itself over time.
Each option has its pros and cons, so it’s important to choose based on your business’s cash flow, risk tolerance, and growth plans.
Is a PPA Right for Your Business?
Ultimately, PPAs offer an accessible entry into solar energy, particularly for businesses that want immediate savings and hassle-free maintenance without the financial strain of ownership.
To make the right choice, consider these questions:
- What are your long-term business plans? If your business is stable and you don’t plan on moving locations, a PPA’s long-term commitment could work well.
- Do you have capital for a solar investment? If upfront costs are manageable, buying a system may offer better financial returns.
- Do you value control and ownership? If so, owning the system might be preferable, even if it’s initially more expensive.
Last thoughts
A Solar Power Purchase Agreement can be an ideal way to reap the benefits of solar energy without the costs and responsibilities of ownership.
For businesses in South Africa facing steep electricity prices and frequent power outages, a PPA provides an appealing, cost-effective, and sustainable solution. But like any financial decision, it’s essential to weigh the pros and cons carefully, consider your business’s specific needs, and consult with a solar partner to find the best fit.
With the right approach, your business could enjoy cheaper, greener energy and a brighter, more sustainable future.
