Community Solar Farms generate and sell electricity directly to homes, businesses and public infrastructures within a given community. The power is sent into the grid and only the subscribers – members of the community – draw it from the grid.

The revenue generated from the sale of electricity is distributed among the members of the community who own shares in the project. Additionally, community solar farms allow community members for credits. This refers to the practice of offsetting an individual’s electricity bill by the amount of electricity generated by their share of the community solar farm. Basically, members of the community buy shares in the solar farm and receive credits on their electricity bill for the energy their share generates. The credits are typically applied to the electricity bill at a fixed rate, which is set by the local utility company or electricity supplier. The amount of credit a member receives depends on the size of their share in the solar farm and the amount of electricity generated by the farm. If your credit is worth €100, then you will have a €100 reduction in your electricity bill. In some cases, the credits can exceed the amount of electricity used, resulting in a negative electricity bill.

The Benefits that community solar farms can deliver to the community members are multiple.

Reduction in Electricity Bills without installing rooftop solar PV

Community members can benefit from the decreasing electricity costs brought about by solar PV without the need to install PV systems on their own house. This is especially beneficial for homeowners who do not have space or financial resources to install solar rooftop panels.

Greater Independence from the Public Grid

Producing electricity for a certain quantity by themselves, a community relies less on the public grid, reducing the likelihood of power cuts and shielding its members from energy price volatility.

Positive Effects on the Public Grid

By decreasing electricity demand from the public grid, especially in moments of peak demand, a community solar farm might even be able to bring down utility prices. Additionally, by spreading out power production, it can make the public grid more stable.

Clean and More Reliable source of Electricity

By consuming electricity produced by solar panels, the community relies on a clean and sustainable source of energy, decreasing its dependence on fossil fuels and reducing its carbon emissions.

A Power Purchase Agreement (PPA) is a long-term contract between a solar developer and a utility or commercial entity that purchases the electricity generated by the solar project. PPAs typically involve fixed prices for the electricity generated by the project, which helps to reduce the risks associated with fluctuations in electricity prices. In most cases, the solar developer retains ownership of the solar project and is responsible for its construction, operation, and maintenance. The PPA defines the conditions of the agreement, such as the amount of electricity to be supplied, negotiated prices, accounting, and penalties for non-compliance. It is a bilateral agreement taking many forms and being tailored to the specific application.

Merchant PPAs vs Corporate PPAs

PPAs can be distinguished based on the identity of the off-taker. Accordingly, Merchant PPAs involve the solar developer stipulating a contract with a regulated utility provider that purchases the electricity produced and distributes into the grid. Usually, the solar developer retains the ownership of the solar plant. Differently, a private or public institution (be it a company in the financial sector or a pension fund or a government agency) might also decide to commission to a solar developer the construction of a solar power plant and then sign a Merchant PPA with a utility provider.

On the other hand, Corporate PPAs involve a bilateral contract between a solar developer and a consuming company, university or government agency. A Merchant PPA can also be turned into a Corporate PPA if the utility provider decides to continue serving a specific company with the electricity generated by the solar park.

Types of PPAs

PPAs cannot be fully classified with ease due to the wide range of possible contractual agreements. However, the one below can be a sufficient summary.

•  On-site PPA. It is an agreement between a property owner and a solar developer to install a solar farm behind the metering point of the consumer or even directly on the consumer’s property (on-site at the company). The specific installation and the parameters of the PPA are determined by the consumption profile of the consumer. The electricity is generated near the property and sold directly to the owner at a fixed price determined by the PPA. The grid operator is involved to the extent that residual electricity can be supplied to the grid. The solar developer typically owns, operates, and maintains the solar panels, while the property owner benefits from the reduced electricity costs and lower carbon footprint. On-site PPAs are commonly used by commercial and industrial properties that have significant energy. Indeed, on-site PPAs are Corporate PPAs. On-site PPAs can provide long-term cost savings, energy security, and environmental benefits, while allowing property owners to avoid the upfront capital costs of installing solar panels.
• Off-site PPA. It is an agreement to purchase a quantity of electricity at a fixed price determined by the PPA. The electricity generated by the solar power plant is fed into the public grid and distributed to one consumer located elsewhere or multiple consumers scattered geographically. Therefore, an off-site PPA does not require proximity to the consumer. For this reason, multiple off-site PPAs are Merchant PPAs. Additionally, the solar developer benefits from greater flexibility as it can choose a location with optimal conditions or a plant that already exists. A solar developer might also decide to enter multiple Power Purchase Agreements with different consumers, who are given their share of electricity individually based on the contractual terms. The price for the electricity supply is agreed upon through negotiation, providing all parties involved with long-term price stability. However, it’s important to note that any applicable charges and grid fees must still be paid to the grid operator.
• Sleeved PPA. It refers to an off-site Power Purchase Agreement where an energy service provider acts as a middleman between the producer and consumer. The energy service provider may offer services such as balancing group management, aggregating electricity from different producers, supplying residual or surplus quantities of electricity, creating feed-in forecasts, marketing green certificates, or taking on various risks.
• Synthetic or Virtual PPA. Producers and consumers agree on a price per kilowatt-hour of electricity, just like a physical PPA. However, the electricity is not directly delivered from the energy generating plant to the consumer. Instead, the producer’s energy service provider, such as an electricity trader, takes the electricity into its balancing group and trades it on short-term power markets. The consumer’s energy supplier, such as a municipal utility, procures the exact feed-in profile provided by the producer’s energy service provider on behalf of the PPA partner. The procurement occurs through a platform, such as the spot market. In the synthetic PPA, this electricity flow is now supplemented by a contract for difference. Accordingly, the parties involved in the Power Purchase Agreement (PPA) intend to offset any differences between the agreed-upon PPA price and the actual spot market price. This means that each PPA partner has two payment streams, one with their respective energy service provider and one with the PPA partner. Both payment streams, when combined, add up to the PPA price agreed upon at the start of the contract. This arrangement ensures that both parties benefit from the desired price security.

Advantages of PPAs

PPAs are an advantageous contract that allows financing and stability in the long-term power delivery. In fact, Power Purchase Agreements are becoming increasingly popular, especially in the form of Corporate PPA. Below are some of the reasons.

Reducing Electricity Price Risks & Ensuring Long-term Price Security 

A fixed price determined by the contract in the long-term period helps consumers mitigate electricity price volatility and enhance their financial stability.

Risk-Sharing

PPAs allow both parties involved in the contract to manage and mitigate the risks associated with energy production and consumption.

Secure & Stable Investment Opportunities

PPAs return on investments are generally very stable. Utility-scale solar farms themselves have ROI ranging on average between 10% and 20%. They usually repay their costs within five to ten years and secure at least other 30 years of electricity provision. There are general estimates, as there are other factors influencing ROI, such as local weather, cost of installation, size of the system, technology used and others. Nevertheless, utility-scale solar remains a long-term investment with the potential for solid profit with recurring revenue for years to come.

Renewable Energy Adoption

By involving a more cost-efficient, clean and reliable source of electricity like solar PV, PPAs help promote the adoption of renewable energy by providing a stable revenue stream for renewable energy producers and by enabling consumers to meet their sustainability targets.

Energy Cost Savings

PPAs can help businesses and organizations save on their energy costs over the long term by locking in a fixed price for the electricity they consume. Additionally, utility-scale solar is regarded as one of the cheapest form of electricity, and one of the most competitive in Europe.

Local Economic Benefits

PPAs can help support local economic development by creating jobs and revenue streams in the communities where the renewable energy projects are located.

Strategic Advantages

Companies investing in utility-scale solar through Corporate PPAs can anticipate regulations. Indeed, the REPowerEU plan will gradually make it compulsory within 2030 for new and existing public and commercial buildings with useful rooftop area greater than 250 sqm to deploy solar rooftop. A utility-scale solar PV through PPA represents an alternative investment opportunity for a manufacturing facility to avoid upfront costs related to the acquisition and implementation of a large solar rooftop system. Additionally, a company, especially in the manufacturing sector, that powers its operations through solar energy can benefit from an enhancement of its sustainability image. It can develop a sustainable brand to attract and retain more customers. In fact, 85% of respondents from a 2021 global survey indicated to have shifted their purchase behaviour towards sustainability, with more than a third willing to pay extra for it. In addition, 55% of respondents from another global survey considered environmental responsibility crucial when selecting a brand.

Reduction of Carbon Emissions

By powering an enterprise activity, especially manufacturing operations, through a clean and sustainable source of energy like utility-scale solar, it is possible to drastically decrease carbon emissions, thus contributing to a cleaner future.