Exploring Solar PPA's: What is a Solar and Battery PPA and is it right for me?

Unlocking Sustainable Power: Domestic Solar and Battery Power Purchase Agreements (PPA's). The Advantages and Disadvantages.

As the world shifts towards cleaner and sustainable energy solutions, domestic solar and battery Power Purchase Agreements (PPAs) are emerging as an accessible pathway for homeowners to embrace renewable power without hefty upfront costs. There are however certain aspects that you need to be fully aware of so that you can determine if such a product is right for you, so let's delve into the concept and benefits and concerns of domestic solar and battery PPAs.

Understanding the Domestic Solar and Battery PPA:

In a Domestic Solar and Battery PPA, a homeowner partners with the PPA provider to install solar panels and a battery storage system on their property. Unlike traditional solar system purchases, where homeowners own the equipment, a PPA allows them to access the benefits of solar and battery technology without the burden of upfront expenses. The homeowner does not own the system.

How Does it Work?

Installation: The company providing the PPA install solar panels and batteries on the homeowner's property, assuming ownership of the equipment.

Energy Generation: The solar panels generate electricity, and excess power is stored in the battery for later use. Any energy not needed in the house or battery is exported back to the grid.

Energy Purchase Agreement: The homeowner agrees to purchase the electricity generated by the solar panels at a predetermined rate. This rate is often lower than standard electricity rates and can provide immediate savings (but not by much in some cases). This rate should be index linked so that it rises in line with inflation and it should always be below the price that you pay your energy provider when importing from the grid. This is critical to ensure that you don’t end up in a position where you are paying more than you would with your energy company, so make sure there are guarantees in any agreement.

Reading through the agreement you are considering signing is critical to ensure there's no nasty surprises.

System Maintenance: The energy provider takes responsibility for system maintenance, ensuring optimal performance throughout the agreement. This means that they will need access to your home to provide maintenance (sometimes annual) to ensure that their asset is performing at its highest potential.

Key Considerations - Benefits and Concerns:

Cost Savings: With no initial investment required, homeowners can enjoy the benefits of renewable energy at a predictable, often lower, rate than the electricity costs from your electricity provider. As mentioned above, it is imperative that you have guarantees in the agreement that ensure you will be paying less than the cost to import from the grid at any time (per unit of electricity). Incidents have occurred when people are paying more than they should, and the price from the grid is cheaper. Also ensure you are only charged for what you use, and not what the system generates. It is important to note that you will still be importing from your standard electricity provider when the panels are not generating enough electricity or there is none in the battery. For example, October through to March this will be a regular occurrence.

Environmental Impact: By opting for solar and battery PPA’s, homeowners contribute to reducing carbon footprints and promoting sustainable energy practices.

Predictable Energy Costs: PPA rates remain fixed over the agreement's duration or are index linked and increase with the rate of inflation, shielding homeowners from fluctuations in utility prices.

Zero Upfront Costs: The absence of upfront costs makes solar and battery solutions accessible to a broader range of homeowners who may not have the savings to install and own the system themselves.

Considerations for Homeowners:

Contract Terms: Understand the terms of the PPA, including contract length, pricing structure, and any clauses related to performance guarantees (if the system turns off, or you turn it off, then there could be penalties) or potential buyout options. Ensure that you only pay for the energy you use, and not what the system generates. If you agree to a deal that you pay for everything that is generated, you are paying for energy you won’t use and is a sure fire way to ensure that you will end up with a higher bill than if you just continued to pay your electricity provider for the energy you use when needed

To get around this concern of potential PPA’s users, the providers allow an option to take up to 2-4 weeks ‘holiday’ per year. So if you are going on holiday, you don’t need to pay for the energy that is generated. You shouldn’t fall for this, and it is a red flag that the scheme will not work for you. The fact is that throughout the 52 weeks of the year and every day, there will be energy generated that you don’t use, so taking a holiday is not enough to make the business case stack up for you as a homeowner in reducing your annual energy bill.

Energy Consumption Analysis: Assess your household's energy consumption patterns to ensure that the PPA aligns with your needs. If you are out during the day when energy is being generated, then a lot of the energy will be exported to the grid once the battery has filled up (this is because you won’t be in to use the energy). If the contract requires you to pay the agreed rate for whatever is generated from the system, you will be paying for electricity you aren’t using.

Provider Reputation: Choose a reputable energy provider with a proven track record in installing and maintaining domestic solar and battery systems. This would mean one of the big 6 energy providers (who at the time of writing do not provide a PPA), rather than a company that is not a household name.

Challenges and Solutions:

While domestic solar and battery PPAs offer numerous benefits (they can certainly work for commercial installations), homeowners should be aware of potential challenges. For instance, some agreements may have limitations on system customisation or may require the homeowner to commit to a long-term contract. However, these challenges can be addressed by carefully reviewing and negotiating the terms with the provider.

Here at SolarandBatteryCompany.com we emphasise in exercising caution before committing to a Power Purchase Agreement (PPA). Historically, such agreements have raised concerns for homeowners during property sales. Mortgage providers often express reservations about a PPA provider having a claim on the property they finance. While awareness of PPA’s with mortgage providers has grown over the past decade, instances of failed house sales persist due to mortgage providers' reluctance to approve mortgages linked to PPA’s. We strongly recommend verifying with your current mortgage provider whether they are comfortable with your decision to enter into a PPA as an indication the appetite of other providers. You need to be aware that if you do want to sell your home in the near future, then some mortgage providers from potential buyers may want to review the PPA contract that you have signed and they may refuse to offer a mortgage to your new buyers. There will be an option in the PPA agreement to purchase the system from the fund providing it which could eradicate this issue, but this could be as much as the cost of the installation in the first place.

Conclusion:

Domestic Power Purchase Agreements can open doors for homeowners and businesses to install solar panels without the financial barriers, but we advise to exercise extreme caution and to seek expert advice. Unfortunately, there tends to be one main winner in this scenario and it is not the homeowner with the majority of the returns going to the fund providing the finances for the installation and charging for the energy used/generated from the system.