Power Purchase Agreements (PPAs)

On-site PPAs: system is installed on your site free of charge and you are billed for the power that the system generates directly into your daytime needs. This is usually at a cheaper price than your aggregated electricity price from your energy retailer. 

Behind-the-meter PPAs are great for onsite generation as they offset the most amount of costs from the energy bill. This is particularly valuable to customers with high demand costs that occur during sunlight hours. On-roof construction means that the owner most often ends up owning the system without any cost to the business at all. These types of PPAs can suit any business of any size, regardless of consumption size or capital cost and can incorporate other capital works programs such as roof restoration and carpark solar structures. 

However, there is a chance that the PPA contract price may, at some point, be higher than the grid price, and there is not normally a price reset mechanism. Unscrupulous PPA contracts may have significant balloon payments or high exit fees which can impact the business later in the project lifecycle. If you choose to leave the premises you either need to exercise the buyout of the system (at a reducing rate) or transfer the contract onto the new tenant/building owner. 

Retail-Sleeved PPAs: an agreement between the wind or solar farm and an energy retailer, which then passes on the renewable generation through a retail agreement for all your electricity needs. The PPA matches the renewable energy supply to your load at that exact time of generation. 

The benefit of this structure is that the retail electric supplier takes on the market risks associated with wholesale electricity and the customer gets a fixed price for the energy. This does require a long-term agreement with the retailer, usually this is a minimum of 7 years. 

Synthetic PPA - Virtual PPAs: Typically, these are between large businesses and directly to the renewable generator. They provide an opportunity to purchase renewables at a meaningful scale, allowing organisations the chance to purchase 100% of their energy as renewable energy via the PPA. A properly structured VPPA can provide significant positive cash flows. As the price of solar has decreased rapidly in recent years, it is now possible to lock in a VPPA rate that is consistently below the projected wholesale market price for power at the settlement location.  

However, these contracts have both inherent risks and opportunities. For example, if the wholesale market price the project achieves is greater than the fixed VPPA price, the off taker receives the difference. If the price the project achieves is less than the fixed VPPA price, the off-taker pays the project to make up the difference. In this way, a VPPA is a financial hedge against volatile electricity prices. Typically, the buyer receives the project’s Renewable Attributes, or REC’s/LGC’s/Other, but does not take physical delivery of the energy. 

Read more about these different PPA options in our blog, 3 Types of Solar Power Purchase Agreements (PPAs) Explained (smartcommercialsolar.com.au). 

PPAs are suitable for businesses of various sizes, ranging from small enterprises to large corporations. The reasons why organisations might prefer a PPA to purchasing a solar system outright vary, but the scalability and flexibility of these agreements make them adaptable to different energy requirements and business needs. For smaller businesses, solar PPAs provide an opportunity to access solar energy without the upfront costs, enabling cost savings and sustainability. Larger businesses can benefit from the added advantages of battery storage integration, such as energy resilience, time-of-use optimisation, and increased control over their energy supply.  

No, you do not need to own your premises to consider a PPA, but it is ideal to have long-term tenancy of your site. If your business leases the site from a landlord, the first step to solar is asking permission from your landlord to make sure they will allow the installation to occur. This should be further formalised in a Letter of Consent (LOC) as well as an amendment to the main lease, or letter of amendment (LOA) to state what happens in the case of the lease expiry or lease termination. This would refer to making good of the property, a condition that would already exist in the main lease. 

Once you have an in-principle agreement around the LOC and LOA you are then free to move on to the next step. These letters can be formalised down the track once you have approved the business case for the solar system. 

Read more about acquiring a PPA as a commercial tenant in our blog, Unlocking the Potential of Solar Energy for Commercial Tenants (smartcommercialsolar.com.au) 

For organisations that want to derive even more value from their solar PPA, battery storage systems are becoming a must-have complementary technology.  By integrating battery storage into the equation, the overall system offers: 

Increased energy reliability: Battery storage ensures a continuous and reliable energy supply, even during grid outages or periods of low solar generation. Stored energy acts as a backup power source, providing businesses with energy resilience and minimising disruptions to operations.  

Optimised cost savings: By utilising stored energy during peak demand periods, businesses can reduce or eliminate costly demand charges. Battery storage allows businesses to maximise their solar energy utilisation, further optimising cost savings and increasing the financial returns of their PPA investments.  

Enhanced energy independence: Battery storage empowers businesses to become more energy independent by reducing their reliance on grid electricity. By storing excess solar energy, businesses can decrease their dependence on fossil fuel-based grid energy and contribute to a greener, more sustainable future.  

It is possible to add battery storage to an existing PPA, and indeed many organisations take a two-staged approach to their renewable energy adoption.  

There is a caveat, however, in that it is essential to review the terms and conditions of your current agreement to ensure compatibility and consider any necessary amendments. This can become complex, so it might be a good idea to consult with a trusted solar energy provider with experience in battery storage integration when assessing the feasibility of adding batteries to your existing PPA. 

The PPA provider (in this case, us) is responsible for operations and maintenance under a PPA. 

With a PPA, you are completely protected against performance and operational risks. If a component fails or underperforms, we take care of everything for you. We look after your system until handover, and we make repairs at our own cost.   

Our PPAs also include zero maintenance costs. Because you’re only liable to purchase the energy the system generates, you can avoid the inherent operational risk involved in maintaining the system. We own the system and we want it to generate power reliably. That's why we take care in operating and maintaining the system at no additional cost to you. 

Smart works with a small selection of PPA funders who supply the capital required for each project. These include ClearSky Solar Investments (CSSI) - an innovative volunteer-run investment group on Sydney’s Northern Beaches. In the ten years since their founding, they’ve invested over $24 million across 83 projects totalling 18 MW of solar. 

We also partner with for-profit PPA funders if that suits the individual project. 

Back in 2013, when the solar energy movement was just gaining momentum, Smart Commercial Solar Founder Huon Hoogesteger helped establish ClearSky Solar Investments with the goal of making solar power more accessible and affordable for businesses. The volunteer-run group's mission was straightforward: to connect community investors directly with businesses looking to install large, high-quality solar systems. 

Since then, PPAs have become relatively commonplace in Australian commercial renewable energy procurement. Several variations have emerged in recent years, including sleeved and synthetic PPAs.