The Kingdom has made its commitment to becoming a world leader in solar energy known. With various planned mega-projects and Vision 2030 as the focus of the Saudi government, solar energy is here to stay. Solar is in its infancy as a power source in the Kingdom, as the industry sorts out the details and the Saudi people begin to embrace the new direction for energy leadership set forth by the royal family.
Many businesses are quickly catching on too, implementing solar energy as a way to realize cost savings and prepare their operations for the future. Many other businesses, however, are reluctant to adopt solar, largely due to questions and confusion about solar energy financing options.
Like the technology itself, solar energy financing is in a state of evolution, with new options rapidly entering the market. One such option that is likely to soon be available for Saudi businesses is the solar Power Purchase Agreement (PPA).
The solar Power Purchase Agreement isn’t new to the solar industry, but it is new to businesses in the Kingdom. The PPA is one of the most popular solar energy financing options in many countries — and for good reason.
The PPA allows businesses to reap the benefits of solar energy without having to pay for the equipment. The solar PPA comes in a variety of options, some with zero percent down payments that make solar easy to adopt. In many countries, simply signing a solar PPA triggers a variety of tax benefits, though incentives for Saudi businesses have yet to be established. One thing is certain though — solar energy will help Saudi businesses save significantly on costs. You can expect anywhere from 10-30 percent savings off of the cost of your electric bill immediately. And the PPA can help you get there.
A solar PPA is similar to a lease. You don’t own the panels, or the energy they generate. Rather, you enter into an agreement to purchase the power generated by the solar energy system at a fixed rate, for a fixed amount of time. It’s just that simple.
The solar leasing company is responsible for installation, maintenance and general upkeep. In return, the business receives a steady flow of power for far less than they would normally pay for electricity.
In a nutshell, solar energy financing with a PPA is the best way for Saudi businesses to adopt solar with little to no risk.
There are three main benefits for Saudi businesses that adopt solar power through a solar PPA:
There are plenty of reasons to adopt solar power. The Kingdom has made it a priority and is dedicating significant assets to alternative energy production. It’s better for the environment and the supply never runs out. The most important reason — especially for businesses — is that solar power delivers immediate and undeniable cost savings that businesses can reallocate to growth projects.
In business, unpredictability is the enemy of growth. Solar energy financing through a PPA removes all cost uncertainty from the equation, allowing businesses to precisely predict their energy costs for the length of the PPA contract. The traditional, oil-based energy market is both unpredictable and erratic. And in light of changes in the Kingdom’s approach to energy leadership, oil energy costs are likely to continue to rise significantly in the coming years. With a solar PPA, businesses are completely immune to the whims of the energy market.
Many solar PPAs offer a variety of contract lengths. Generally, PPAs can run anywhere from 5 to 30 years, though the typical PPA is in the 10 to 25-year range. For businesses looking for long-term cost predictability, a longer contract is optimal.
Some businesses, though, remain skeptical about the effectiveness of solar energy, and are hesitant to sign a deal that spans decades. The skepticism stems from the fact that solar is new to the Kingdom. But the technology has proven effective in dozens of countries across the globe.
Nevertheless, companies who would rather take a “trial” approach to solar can do so with solar energy financing through a PPA. On a 5- or even 10-year contract, companies will be able to make an informed decision on whether to continue with solar or revert to traditional energy at the end of the contract — and do so with little risk, as they will have cost certainty throughout the life of the contract.
As solar energy continues to spread through the Kingdom, solar energy financing options are following suit. With solar, the Kingdom will continue its role as the energy leader of the world, far into the future, and Saudi businesses are taking notice.
Sun Capture is a solar energy services company in Saudi Arabia helping businesses in the GCC bridge the gap between the current rising energy demands and costs, and the coming national move towards affordable renewable energy. To learn more about how solar can help your energy needs and bring your business in line with Saudi Vision 2030, contact us today.