Move Energy Costs from Variable to Fixed
- jonnyjetsetter
- Mar 27
- 3 min read
Installing commercial solar panels and batteries through a Power Purchase Agreement (PPA) can help shift energy costs from variable to fixed by locking in the cost of energy over a long-term contract, typically 10-25 years. Here’s how this works:
1. What is a Power Purchase Agreement (PPA)?
A PPA is a contract between a commercial entity and a third-party energy provider (often a solar company such as AngliaSolar). The energy provider installs, owns, and maintains the solar panels and batteries at the commercial facility. In exchange, the business agrees to purchase the energy produced by the solar system at a predetermined price for the duration of the agreement.
2. How Does This Change Energy Costs?
Fixed Energy Rate: In a PPA, the price per kilowatt-hour (kWh) of electricity is usually fixed or escalates at a predictable rate over time. This means that, rather than being exposed to fluctuating utility rates, the business pays a stable or only slightly increasing price for the solar energy generated. The predictability in energy pricing contrasts with the volatility of utility rates, which are affected by factors such as fuel prices, supply-demand imbalances, and market conditions.
Solar Energy Generation: Solar panels produce energy based on sunlight, and with proper sizing of the system, they can offset a significant portion of the business’s energy consumption. The commercial entity can rely on the solar system to supply a portion of their energy needs and only pay for the energy provided by the system at the fixed PPA rate.
Energy Storage with Batteries: If the PPA includes battery storage, excess solar energy generated during the day can be stored and used during periods of higher demand (e.g., at night). The batteries provide additional cost predictability because businesses can use stored energy rather than relying on more expensive grid electricity during peak hours.
3. How PPAs Mitigate Variable Costs:
Avoidance of Utility Rate Increases: Utility prices often fluctuate due to factors like changes in energy sources (e.g., fossil fuel prices) or transmission costs. A PPA can help businesses avoid these price hikes by locking in a fixed price for solar-generated energy, effectively mitigating the risk of rising energy costs.
Performance Guarantees: Some solar providers offer performance guarantees in PPAs, ensuring the system meets a certain level of energy production. This further increases the predictability of energy costs.
Energy Budgeting: Because the energy price is fixed or predictable, businesses can better budget their energy expenses. This stability is especially important for companies with tight margins that need to account for energy costs in their overall financial planning.
4. Additional Benefits:
Lower Upfront Costs: Typically, there is no upfront capital investment required from the business in a PPA, as the solar provider covers the costs of installation and maintenance. This makes the transition to renewable energy more accessible and enables businesses to start saving on energy costs immediately.
Environmental Impact: Beyond cost savings, switching to solar can also help businesses meet sustainability goals and reduce their carbon footprint.
In Summary:
Through a PPA, a business can lock in a stable, predictable energy cost by transitioning to solar power and possibly adding storage. This can help convert energy costs from a fluctuating variable to a more predictable, fixed expense, enabling better long-term financial planning and protecting against utility price increases.
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