By Zharin Atanasov-Lankes, Financial Solutions Manager, BayWa r.e. Power Solutions GmbH
In the race against the climate crisis, businesses are coming under increasing pressure from investors and customers to transition to green power supply. Despite the urgency, corporations must ensure that the purchase of electricity from renewable sources is competitive and reliable. For this reason, flexible financial solutions that do not require initial investment – and ultimately do not put pressure on a company’s line of credit- have gained popularity in the corporate world in recent years.
The benefits of these financial solutions are multiple, but often businesses are unsure where to start with the transition to green energy. There are multiple routes that corporations can take to reach the same goal: making a positive contribution to the fight against climate change, without impacting financial results.
Power Purchase Agreements (PPAs)
PPAs are an increasingly popular model for companies that wish to obtain energy from renewable sources, such as wind or solar. It is a contract between a company and an energy producer to buy energy– at a pre-agreed price and for a specified period of time. The agreement stipulates the commercial terms of the sale of electricity: duration of the contract, point of supply, delivery times, volume, price and product. Electricity purchased through a PPA can come from power plants located either outside of the customer’s property (off-site PPA) or on-site (from a newly built project).
This model allows the customer to pay only for the electricity consumed without initial costs or risks associated with ownership. In this case, it is not necessary for the client to manage the operation and long-term maintenance of the system, as these services are covered within the PPA. This type of contract makes it easy to plan and forecast within a given timeframe.
Finance Lease (Lease)
Another route for corporations is leasing, a financial solution that allows the integration of renewable energy as a means to generate electricity for business operations, without the need for initial investment – and without putting pressure on the bottom line. Per the requirements of the leasing model, the company is charged by monthly rates, until ownership of the renewable energy plant is transferred at the end of the lease. Within the contract, the cost is predictable and adjustable to inflation levels. Leasing contracts are shorter and more flexible in comparison with the PPA model and in general much more straightforward. Another advantage is that under most standard accounting practices, the customer can claim depreciation of the asset.
BayWa r.e.’s financing solutions are offered through third party leasing providers. Contracts can be extended or the terms modified. In any case, clients are advised throughout the negotiation and signing process. In short, a leasing option can be a way to save on a company’s electricity bill while maintaining total control of its level of investment, including the individual customization of specific terms and conditions required by the client.
Operate Lease (Renting)
A further option for companies committing to green energy is Renting, very similar to the previous model of Leasing, however with an important difference: the customer does not automatically end up owning the asset when the contract ends and as such under some circumstances, assets under renting may not appear on the balance sheet of the customer. Additionally, the costs associated with this model can be fully recognized in the company’s income statement as operating expenses.
Direct Investment (EPC [Engineering-Procurement-Construction] project)
Finally, the customer has the option to directly invest in their renewable energy solution tailored to their specific needs – be it PV-based roof-top, ground-mounted, a carport including e-mobility and a battery storage solution – or even a floating installation if a suitable water surface is part of the area in question. Another long-term benefit for businesses is the reliable generation of green electricity for the owner. Of course, such an installation requires an initial investment, yet mostly with over-average payback times.
A company wishing to transition to renewable energy solutions – without taking the risk of a long-term investment – is in the right place when considering one of the described options and the benefits derived thereof.
With exactly those benefits in mind, many innovative companies of today are now accepting the challenge of being part of the energy transition, aware that a forward-thinking and proactive strategy can unlock the full potential of a green business and significantly increase value.