A star power purchase agreement differs from a regular PPA in that it involves installing renewable energy on the property of the entity entering the PPA. Solar panels are installed on the buildings of the business property, and then that business buys the energy generated via those solar panels. The rate at which the business buys this energy is purchased at a set rate for a certain period.
How long does a solar PPA typically last?
Solar PPAs can vary in length, and this is an element of your contract that will be negotiated with the energy producer. The contract length cannot usually be amended once the contract starts, so it's important you understand how the length of a solar PPA may affect your business should you choose to enter one.
Standard contract length (10-25 years)
Typically, a solar PPA lasts 10-25 years, but some shorter-term solutions can be as short as 5 years. It all depends on the business's needs and how long it requires the PPA.
Factors that determine the duration
Many businesses would undergo an energy consultation, which will build the PPA, including the length, based on business and, in particular, energy needs. An energy consultation allows a tailored solar PPA to be created, encompassing the fixed price and length. The possibility of a business growing and requiring an expansion of the energy system so that more energy can be generated later, is also an option.
Factors that affect the length of a solar PPA
Certain parameters will affect the length of your PPA. When drawing up the agreement, you’ll want to consider elements that benefit both the energy producer and the energy procurer.
Financial modeling and cost-effectiveness
Solar PPAs allow a finance model that allows businesses to invest in renewables on a much more personal level. By generating renewable energy on their own premises, businesses cut out utility providers, resulting in cost savings. As prices are fixed for the duration of the PPA, businesses are not at the mercy of the energy market, meaning they can energy budget for the entirety of the solar PPA. Solar PPAs also allow businesses who want to invest in the technology side of renewable energy the opportunity for financing, bolstering the renewable energy industry while fixing energy costs.
Maintenance and performance guarantees
Solar systems are low-maintenance and designed to operate for 25+ years. Routine inspections and occasional cleaning are usually all that’s needed to ensure the system continues to perform efficiently. Most systems come with performance monitoring, allowing issues to be identified and addressed promptly without any impact on school operations.
Business energy needs and consumption patterns
While most PPAs are fixed from the moment a contract is entered, there are variation of contract that allow flexibility of elements like pricing and output, though these will need to be agreed upon by both parties entering the agreement: the energy producer and the energy procurer. While most solar PPAs aim to fix prices to avoid energy price spikes, more flexible agreements that take into account business energy needs and consumption may allow for more participation in market risk.
Market and regulatory factors
Changes in energy policies, government incentives, or regulatory frameworks can also influence PPA length and terms. Staying informed about evolving energy laws is crucial when negotiating contracts.
What happens when a solar PPA ends?
Solar PPAs run for a fixed time, which is decided at the commencement of contract negotiation. We examine what happens once your solar PPA ends.
At the end of a solar PPA, businesses have several options:
Renew the PPA: extend the contract with updated terms reflecting current energy market rates.
Buy the solar system: purchase the system outright and continue generating on-site solar power.
System removal: have the provider remove the solar array, often at no cost.
Long-term vs. short-term solar PPAs: pros and cons
Benefits of long-term solar PPAs
Lower rates: longer contracts often offer cheaper electricity rates than shorter agreements.
Price stability: businesses can secure fixed energy prices for 20+ years, shielding them from market volatility.
Sustainability benefits: hosting on-site solar directly supports ESG goals and carbon reduction targets.
Drawbacks of long-term solar PPAs
Reduced flexibility: committing to a long-term contract limits the business’s ability to switch to emerging renewable technologies or cheaper energy sources in the future.
Changing energy needs: as operations evolve, the fixed energy commitment might exceed or fall short of actual consumption.
When does a short-term solar PPA makes sense?
Flexibility: short-term PPAs are ideal if your business expects energy needs to change rapidly or wants to keep options open for new technology adoption.
Market participation: businesses with flexible PPAs can sometimes capitalise on lower energy prices if market conditions shift.
Is a solar PPA right for your business?
Before signing a solar PPA, businesses should carefully consider:
Current and future energy needs: will the system size and contract length match your expected growth?
Budgeting and price stability: are fixed rates more beneficial than fluctuating market prices for your business?
Sustainability goals: is integrating renewable energy part of your ESG strategy?
Market trends: are energy prices expected to rise or fall in your region?
A well-structured solar power purchase agreement can provide cost savings, energy independence, and environmental benefits. However, businesses must evaluate both short-term flexibility and long-term stability to choose the best PPA type for their unique needs.
