Power purchase agreements (PPAs) will lead the industry in the post-subsidy environment according to a panel of solar developers speaking on the first day of Solar Media’s Clean Energy Summit.
During a discussion focussed on success strategies for UK solar following cuts to government subsidy, speakers from Lightsource, Lark Energy and Green Hedge all agreed that a combination of growing corporate responsibility and energy price volatility would lead to wider take-up of PPAs.
Nick Boyle, chief executive of Lightsource, said: “I think for the next period of time - while challenging numbers-wise - the hard-wire, private-wire PPA into large electricity users is definitely going to be a focus. The advantage is the fact that you are competing with retail rather than wholesale.”
This point was picked up on by Tess Sundelin, managing director of Green Hedge, who said the added costs within wholesale energy made private solar farms an attractive offer for commercial clients.
“I think because of how corporate energy bills look nowadays, only about half of it reflects the cost of generation while half is a combination of levy costs and network charges. If you do behind the meter and do solar there, you can offer your clients really quite an attractive deal and I think that’s clear,” she said.
“There is a dawning understanding - the more you look into it you realise yes, it is stacking up. Something what was a bit of a green corporate responsibility project now makes economic sense, so it is getting there.”
According to Jonathan Selwyn from Lark Energy, this sector within the solar industry has actually benefited from cuts to government subsidy. With solar less of an attractive offer for direct revenue from the Renewables Obligation or the feed-in tariff, PPAs offer financial incentives within a more comfortable timeframe.
“We’re seeing a lot more PPA activity now that we’re on a much lower FiT rate and therefore higher PPA rates. I think part of that is that it feels like more of a stable market now so they [corporates] can take more time making decisions but they can ultimately make those decisions. So we’re pretty optimistic about the PPA market this year,” Selwyn said.
Boyle added that PPAs also offer benefits to solar developers, not just their clients who are more than willing to stump up the cash for a long term deal.
“A PPA is most attractive. I’ve got a promise to pay from a treble A or treble B rated company that says for the next 20 years they are definitely going to buy my electricity. I’ll take that every day over FiT. The problem is getting to a price that works, not whether or not when you get there that there are individuals that will actually finance it,” he said.
However, despite the significant potential of PPAs in a low subsidy environment, Sundelin warned that the solar industry will need to step up to the changes prompted by the new way of doing business.
“We have to up our game to deal with that opportunity. It’s a much more professionalised market and we have to get better to give more confidence and deepen that market,” she said.
The comments of the panel echo those made at Solar Media’s Finance and Investment event held back in February. A similar panel concluded that the reduced and certified costs offered by a solar PPA made them extremely attractive post-subsidy.