Top 3 Financial Benefits of a Solar Power Purchase Agreement (PPA)
According to a recent Council for Scientific and Industrial Research (CSIR) study, retail electricity tariffs in South Africa increased by just under 400% in 10 years, and its set to continue on this upward trajectory for years to come. One solution to this trend is a Solar Power Purchase Agreement (PPA). Financial Director of Fibon Energy, Bonnie Cornish-Bowden unpacks the top 3 financial benefits of a Solar Power Purchase Agreement (PPA).
1. Mitigate the risk of increasing Tariffs
From 2019 to 2021, South African companies are likely to experience a minimum increase of 29% in your electricity charge. That means if you are currently spending R150,000 per month, you can expect this to increase to around R194,000 per month. By entering into a PPA, your company will no longer be at the mercy of tariff hikes. Committing to a lower renewable energy price will decrease your financial risk with respect to increasing electricity prices.
2. More reliable Long Term Opex Forecasts
Entering into a long-term PPA allows your financial team to forecast utilities far more reliably. You will know what your tariff is with certainty and then the only variable will be your company’s energy consumption. The below graph depicts the difference between what you could be paying monthly for traditional power in 20 years’ time, compared to when using a PPA.
3. No Capex approvals required
A PPA will come through your Income Statement, having no impact on your approved Capex Budget. You’ll receive a long-term benefit with no upfront capital investment requirements.