Power Purchase Agreements (PPA) and Asset Finance: Funding Solutions for Businesses

Asset Finance and Power Purchase Agreements (PPAs) are two distinct financial arrangements used to fund rooftop solar installations, Heat Pumps, LED Lighting, Smart Meters and more. Funding these installations requires careful consideration of the available financial options. Two popular methods to finance solar projects are Asset Finance and Power Purchase Agreements (PPAs). While both options aim to make renewable energy accessible to businesses, they differ in terms of ownership, cost structure, and long-term benefits. Here’s a breakdown of how they work and their respective advantages.

Asset Finance

What is it?
Asset finance allows businesses to borrow funds to purchase a solar system outright. The system is treated as an asset, and the borrower repays the loan over time, with the option of outright ownership once the financing term is complete.

Key Features:

• Ownership: The business owns the solar system from the beginning.
• Financing Types: Loan, lease, or hire purchase agreements are available.
• Repayments: Payments are fixed and made monthly or quarterly.
• Residual Value: At the end of the term, the business fully owns the system (in loan or hire purchase cases), or may have an option to purchase (in lease cases).

Pros:

• Full Ownership: Businesses can increase their property value and gain long-term financial benefits from solar energy.
• Tax Benefits: Owners can often take advantage of tax incentives, depreciation, and rebates.
• No Ongoing Energy Costs: Once the system is paid off, the energy produced is essentially free, excluding maintenance costs.

Cons:

• High Upfront Cost: Even with financing, businesses must bear the full cost of the system, which can be substantial.
• Risk and Responsibility: The business assumes all risks, including system performance, maintenance, and potential energy savings fluctuations.

Power Purchase Agreements (PPA)

What is it?
A Power Purchase Agreement is a contract in which a third-party developer installs, owns, and maintains the solar system on the business's property. The business agrees to purchase the electricity generated at a predetermined rate, lower than utility prices.

Key Features:

• Ownership: The developer owns and operates the system for the duration of the contract.
• No Upfront Cost: The business does not pay for installation or maintenance.
• Energy Payments: The business only pays for the electricity generated, at a lower rate than conventional utilities.
• Contract Term: PPAs typically last 10 to 35 years, with options to renew, buy the system, or have it removed at the end.

Pros:

• No Initial Investment: Businesses can adopt solar without any upfront financial commitment.
• Stable Energy Costs: PPAs offer fixed or index-linked rates, often cheaper than utility rates, providing predictability in energy expenses.
• No Maintenance: The developer handles system maintenance and performance, reducing operational burden on the business.

Cons:

• No Ownership: The business does not own the system, missing out on tax benefits and depreciation.
• Long-Term Obligation: Businesses are locked into a long-term energy purchase contract.
• Potential Price Increases: Depending on the terms, PPA rates may increase over time, although options such as a tracker can help mitigate this risk.

Summary Comparison

• Ownership: With Asset Finance, the business owns the system, while under a PPA, the developer retains ownership.
• Upfront Cost: Asset Finance requires significant upfront capital or financing, whereas a PPA typically has no upfront cost.
• Control: Asset Finance gives the business full control and responsibility, while a PPA shifts the operational and maintenance burden to the developer.
• Financial Benefits: Asset Finance allows businesses to take advantage of tax incentives, which are generally unavailable with PPAs.

Which Option is Best for Your Business?

• Asset Finance is ideal if your business wants to own the system, has access to capital, and can benefit from tax incentives and long-term financial gains.
• PPAs are a good option if your business wants to avoid upfront costs, prefers lower immediate financial risk, and is comfortable with a long-term energy purchase agreement without ownership.

Tailored Solar Financing Solutions

We partner with a wide range of Asset and PPA finance lenders to offer customised solutions that help your business invest in solar energy. By reducing your energy costs, you'll save money and take significant steps toward achieving carbon neutrality.

Whether you’re seeking full ownership of a solar system or prefer to enjoy the benefits of solar without the initial cost, we can help guide you to the best financial arrangement for your business’s needs and goals.

Power Purchase Agreements and asset finance are valuable tools for businesses looking to transition to renewable energy while minimising financial risk. These models offer flexibility, cost savings, and a path toward sustainability that can benefit businesses of all sizes and industries.

Clever Energy Midlands is well-positioned to help businesses navigate the complexities of renewable energy adoption, offering customised solutions that align with both operational and financial objectives. Whether through a fully funded PPA or an asset finance model that allows for ownership, businesses can benefit from reduced energy costs, a smaller carbon footprint, and a strong commitment to sustainability.

For more information around how you can apply for PPA's and Asset Finance, contact Clever Energy Midlands to discuss your requirements further please contact Adrian at:

cleverenergymidlands.co.uk

[email protected]

0800 002 5148