All About Solar PPA: A Game-Changer in Renewable Energy

The global shift towards renewable energy is no longer a trend, it’s a necessity. With rising energy costs, regulatory pressures, and corporate sustainability goals driving change, businesses and institutions are looking for innovative ways to embrace solar power. However, installing a solar energy system requires a significant upfront investment, deterring many organisations from switching.

This is where a Solar Power Purchase Agreement (Solar PPA) steps in as a practical and cost-effective solution. But what does PPA mean, and how can it help businesses and organisations transition to clean energy without financial strain?

What is Solar PPA?

A PPA is a long-term agreement between an electricity consumer and a solar energy provider. Under this contract, the provider installs, owns, and maintains the solar panels, while the consumer pays only for the electricity generated, often at a lower rate than traditional grid power. This model revolutionises the energy sector by enabling widespread access to solar energy without ownership burdens.

Types of Solar PPAs

• Physical PPA vs. Virtual PPA: A Physical PPA involves direct energy delivery from a solar facility to the buyer, while a Virtual PPA (VPPA) is a financial arrangement where the buyer pays for renewable energy credits without receiving physical electricity.
• Onsite vs. Offsite Solar PPA: Onsite PPAs involve solar panel installation on the buyer’s premises, whereas Offsite PPAs source electricity from remote solar farms.

How Does PPA Work?

A Solar PPA works by establishing a long-term agreement between a solar provider and an energy consumer and operates under a simple yet effective framework:

• A solar energy provider (third-party developer) installs and maintains solar panels on a business’s property or at an offsite location.
• The business or institution agrees to purchase the electricity generated at a predetermined price, which is often lower than the local utility rates.
• The contract typically spans 10 to 25 years, offering long-term energy cost predictability.
• At the end of the term, the organisation may have the option to renew the contract, purchase the system outright, or have it removed.

Since the provider retains ownership of the solar installation, they bear the responsibility for maintenance, repairs, and operational risks. This hands-off approach makes Solar PPAs highly attractive to businesses that want to reduce energy costs without the hassle of system ownership.

What Is a PPA in the UK?

In the UK, Power Purchase Agreements (PPAs) are gaining momentum, particularly among commercial and industrial (C&I) consumers seeking cost-effective sustainability solutions.

Unlike in some other countries, the UK’s PPA market is driven by both corporate PPAs (where businesses buy power from renewable energy projects) and onsite PPAs (where solar panels are installed directly at the consumer’s location).

Many organisations in the UK are choosing Corporate PPAs to source electricity from large-scale offsite solar farms. This not only allows them to lock in long-term energy prices but also helps them meet their carbon reduction targets under the UK’s net-zero agenda.

How Much Is PPA in the UK?

The cost of a PPA in the UK depends on several factors, including:

• The contract duration
• The energy pricing structure (fixed rate vs. escalating rate)
• The location and size of the solar installation
• Wholesale electricity market prices

Typically, PPAs offer energy prices 5-30% lower than standard grid electricity rates, making them a viable option for cost-conscious businesses.

Key Elements and Components of a Solar PPA

Every Solar PPA consists of several core elements that define the contractual obligations and benefits for both parties. These include:

Energy Pricing Model: PPAs generally follow one of two pricing structures:

• Fixed-rate PPA: The price per kWh remains constant for the entire contract duration.
• Escalator PPA: The price starts lower but increases annually at a pre-agreed percentage (e.g., 2-3% per year).

Contract Duration: Most PPAs last between 10 and 25 years, providing long-term energy cost predictability.

Performance Guarantees: Developers often include minimum energy output guarantees to ensure system performance, protecting consumers from underproduction risks.

Maintenance and Operations: Since the provider owns the solar installation, they handle all upkeep, repairs, and performance monitoring.

Understanding these key elements helps businesses assess the feasibility and potential savings of entering into a Solar PPA.

 

What Are the Benefits of Solar PPA?

A Solar PPA offers numerous advantages, making it an attractive energy solution for organisations across various industries.

• No Upfront Investment: One of the biggest obstacles to adopting solar energy is the high initial cost of purchasing and installing solar panels. With a PPA, the provider covers these costs, enabling businesses to access solar power with zero capital expenditure.
• Lower Electricity Bills: Since solar energy is often cheaper than electricity from the grid, businesses can significantly reduce their energy expenses.
• Sustainability and Corporate Social Responsibility (CSR): Many companies are under pressure to meet net-zero emissions targets. By signing a Solar PPA, businesses can demonstrate a commitment to sustainability and improve their ESG (Environmental, Social, and Governance) credentials.
• Protection Against Market Volatility: Electricity prices fluctuate due to changes in fuel costs and government policies. A PPA locks in energy rates, offering long-term price stability.

So, how much can you save with a solar PPA? On average, UK businesses can reduce energy costs by 10-30%, with even greater savings over time as grid prices continue to rise.

What Are the Risks of Solar PPA?

While PPAs offer significant advantages, they also come with some risks:

• Long-Term Commitment: Signing a 10 to 25-year contract means businesses must carefully assess their future energy needs before committing.
• Market Price Changes: If electricity prices drop significantly, a fixed-rate PPA might become less competitive than grid energy.
• Regulatory Uncertainty: Future government policies on energy subsidies or carbon taxation could impact the financial viability of a PPA.

What Is the Difference Between Solar PPA and Net Metering?

While both PPAs and net metering enable consumers to benefit from solar energy, they operate under different models:

• PPA: The solar system is owned by a third party, and the consumer purchases electricity at a predetermined rate.
• Net Metering: The consumer owns the solar system and receives bill credits for excess energy exported to the grid.

For UK businesses, PPAs are often the preferred option, as they remove ownership responsibilities while still providing cost savings.

Considerations for Implementing a Solar PPA

Before entering a Solar PPA, businesses should evaluate:

• Their long-term energy needs: Ensure the agreement aligns with future consumption.
• Contract flexibility: Look for options to exit or renegotiate terms.
• Provider reliability: Work with experienced developers who offer performance guarantees.

Taking these steps ensures that organisations maximise the benefits of a Solar PPA while minimising potential downsides.

Wrapping Up…

As energy costs rise and sustainability takes centre stage, Solar PPAs are emerging as a practical solution for UK businesses and institutions. They offer an opportunity to harness renewable energy without financial burdens, reduce long-term costs, and contribute to a cleaner planet.

At Low Energy Services, we make switching to solar energy easy, cost-effective, and risk-free. Our Solar PPA solutions provide businesses with a smart way to reduce energy costs, achieve sustainability goals, and gain energy independence, all without the burden of ownership.

Whether you’re a manufacturer, retailer, or commercial property owner, our tailored PPAs can help you take control of your energy future. Want to learn more? Contact us today to explore how a Solar PPA can benefit your business!