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Financing Options vs PPA: What is Best for a Business?

Owing to the multiple advantages of solar energy and its contribution to reducing climate change, governments around the world in general and Australia, in particular, are taking measures to provide incentives to the public for solar panel installations. 

Some key financing options

Some of the incentives provided by the Australian government and states include capital expenditure, energy-efficient loans and operating lease or rental agreements. The Clean Energy Finance Corporation has invested millions of dollars in financing banks providing energy-efficient loans to consumers for solar installers. You must repay a fixed amount to the company until you pay the total amount due under the operating lease/‘rent to own’ solar scheme. Once you complete all the payments, you can get ownership of a solar system. 

Power Purchase Agreement (PPA)

This is an interesting way to get solar energy at a lower rate than traditional grid energy. In this setup, the solar system is owned by a company that sells the energy produced by the solar systems to 3rd party companies at a lower rate than the grid energy. The agreement is between the two companies at an agreed rate that is less than the grid energy. In this system, you don’t need commercial solar installation or solar panel maintenance but can get clean and green energy. 

What is the best for business?

Now the real question is, what is best for business? Before jumping to a conclusion, let’s see the pros and cons of each financing option and PPA.

Capital expenditure: The positive aspect of this financing is that you immediately get the ownership of the solar system, and you don’t have to pay back anything. Moreover, you can also get a tax deduction of 5% p.a. for 20 years as per ATO guidelines. However, this requires a large up-front cost to buy the component of the solar system. This model suits businesses that have enough capital to spend. 

Energy-efficient loans: These also have their positive and negative aspects. The best part is that you don’t need to worry about the huge up-front cost as you can employ the use of energy-efficient loans to finance your expenditure. Moreover, you also get ownership of the solar system. The drawback is that you cannot claim the tax depreciation associated with current electricity bills. Further, your repayments are not tax-deductible.  

Operating lease/rental agreements: The positive aspect of PPA is that you don’t need to install the commercial solar system and don’t need to worry about solar panel maintenance. You use the solar energy produced by the solar system owned by the other company. The negative aspect of this model is that you don’t get ownership of the solar system. Furthermore, you have to pay two separate electricity bills: one for the PPA company and the other for the grid.

As each of the financing models and PPA has its own pros and cons, you can analyse their pros and cons and adopt the model that best suits your business. Solar Service Guys is a solar energy service provider based in Australia, providing its services in multiple cities. They have years of experience and expertise in commercial solar installation, residential solar installation, solar system maintenance, and others. You can always rely on them for any solar system-related services.

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