How Solar Power Purchase Agreements (PPAs) Simplify Renewable Energy Adoption?
In recent times, solar power in India has emerged as a highly effective renewable and clean energy source for businesses. Perhaps several organizations find the clean-energy transition process challenging and complex due to high upfront investment, regulatory requirements, and complex technology choices. To ease this complex process, commercial solar clients recommend Solar Power Purchase Agreements, which are an ideal solar energy solution that allows a seamless transition from fossil fuels to renewable energy. Besides, with PPA, businesses are able to avoid the upfront cost and complex maintenance demands of owning the solar power plant system. Under this scheme, businesses have access to solar energy at a pre-decided tariff without owning, operating, or installation of a solar plant, as the financial, operational, and maintenance responsibilities lie with the solar power plant developer in India. Power Purchase Agreement is turning out to be a preferred model for businesses across India.
What is a Solar Power Purchase Agreement?
A Solar Power Purchase Agreement is a 10-25-year contract or financial agreement between a solar power plant developer in India and a business or institution. Under this agreement, the solar power plant developer in India has to bear upfront costs such as installation, operations, and maintenance of the solar plant either on the remote project site or at the business’s premises. The business is only liable to pay for the electricity generated at a pre-decided tariff, which is much lower compared to grid power. This model proves ideal for organizations looking for clean and cheap power, as this model guarantees cost savings, zero capital expenditure, and a fixed price for the energy.
Benefits of PPAs to Solar Customers
One of the biggest obstacles for businesses to switch to a solar plant is the huge initial investment that includes the cost of panels, inverters, BOS components, and installation costs. Thus, to avoid upfront investment barriers, businesses prefer the PPA agreement model to switch to renewable energy. The Power Purchase Agreement has emerged as an effective tool that smooths and simplifies the transition to renewable energy for businesses. Here are the following benefits of the PPA model:
- Low Upfront Investment: Businesses, while transitioning to solar power, do not have to make a huge initial investment, as the solar power plant developer bears the initial costs of buying and installing the solar PV system. The business has access to solar power as soon as the solar system becomes operational, without investing any amount in the installation and maintenance of the system.
- Reduced Energy Costs: With a solar Power Purchase Agreement, businesses have to pay a fixed and pre-decided cost of the electricity for the complete agreement duration. The PPAs are structured in two different ways; one way is the fixed escalator plan, in which the price business pays for the solar power rises at a predetermined rate that ranges between 2-5%. This is usually less than the expected price increase of the electricity. Another way is the fixed price plan, in which the businesses have to pay a fixed price throughout the PPA term, which saves them more on the utility bill as the electricity prices rise over time.
- Limited Risk: With the PPA model, businesses have limited risk, as the solar power plant developer is responsible for the solar system performance and operation. Operating a solar plant requires technical expertise in panel cleaning and maintenance, inverter repairs, electrical safety, and performance optimization. Businesses will find managing these activities challenging, and the burden is completely removed with the PPA model. The solar system developer manages maintenance, operations, performance monitoring, as well as regulatory compliance. Businesses receive energy without worrying about the complexities and risks.
- Simplify Regulatory and Compliance Requirements: Businesses usually find managing state policies, open access regulations, and DISCOM approvals time-consuming, but with Solar PPAs, all these responsibilities are transferred to the developer. The solar power plant developer in India handles licensing and approvals, weather assessments, grid connectivity compliance, and open access charges and scheduling. This further reduces administrative overhead for the businesses and ensures the smooth operation of the solar plant.
- Businesses Cater to Sustainability and ESG Goals: Solar PPAs provide a trusted pathway for businesses to cater to sustainability goals, as they are focused on ESG reporting, carbon neutrality, and green certifications. This further leads to a quick reduction in Scope 2 emissions, claim renewable energy credits, improve brand reputation, support India’s national targets for renewable energy, and achieve net zero emissions.
- Boost Renewable Energy Adoption for all Sizes of Businesses: Businesses, irrespective of their energy consumption need, can adopt the PPA model to have access to solar energy. This model is particularly beneficial for small and medium enterprises, as they don’t have to invest any amount, enjoy low-tariff electricity, minimal paperwork, and even enjoy quick installation. Large businesses adopt multi-MW solar PPAs to power their offices and factories with green energy.
- Supports Long-Term Energy Planning: With solar PPAs, businesses can plan their renewable energy strategy for 15-20 years. Pre-fixed tariffs allow businesses to forecast accurate operating expenses, stabilize energy budgets, and reduce uncertainty from rising grid tariffs. Businesses and industries with energy-intensive processes find PPA valuable as electricity accounts for a significant share of cost.
Conclusion
Businesses that are aiming to switch to renewable energy can consider the solar PPA model that has emerged as a highly efficient, cost-effective, and low-risk solution. Transition to renewable energy has never been easier for businesses, as PPAs eliminate upfront costs, simplify operations, ensure long-term savings, and also ensure compliance with sustainability goals. Businesses in India are taking advantage of the PPA model to transition to solar power with convenience to help India achieve its renewable energy goals. Businesses planning to adopt renewable energy to control energy budgets and future-proof their operations and strengthen their sustainability footprint are adopting the solar PPA model, that is offering a safe and secure path forward.