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Businesses, when it comes to Energy purchasing, is a PPA your new BFF?

August 14th, 2020

How to secure the best energy deal for your business

All over the world, we’ve been seeing macro-indicators of the impact of Covid-19 — large-scale demonstrations of what happens when society grinds to a halt. From satellite images capturing the dimming of streetlights across Europe to reports of dramatic reductions in India’s air pollution that the Himalaya mountain range became visible for the first time in two generations, the pandemic is changing the world as we know it.

Here in Australia, the macro-indicators are less dramatic, but no less telling. Demand for electricity fell across the country, dropping by 6.7% on average, while South Australia hit a record low after a fall of 11%. This has been accompanied by falling prices across the board, although the Australian Energy Market Operator (AEMO) has denied that there are any issues regarding the strength and supply of the system.

Analysts remain uncertain on how Australia will bounce back from this slump. Some predict a rapid “v-shaped” bounce, while others hint at the flatter, “u-shaped” curve of slower recovery. Regardless of how we return to normal, the consensus is that it will be at least a year before regular energy service is resumed.

So, how do business owners ensure that they are getting the best deal during this phase of recovery? 

Renewable energy as the only certainty

While it’s difficult to say for certain how a company can secure a great energy deal from one year to the next, one point of consensus can be reached: Renewable energy is going to play a major role.

As fossil fuel supplies dwindle, prices for coal-fired energy will increase exponentially. There is no way around this, and renewable energy sources will quickly become a more affordable option for businesses.

But which renewable route is the best for businesses?

Simply saying “renewable energy” is insufficient. Instead, we need to explore different renewable energy models and decide on which one represents the best deal for businesses.

With varying degrees of investment, businesses can tap directly into their own solar power resources. In some cases, larger businesses may be able to invest in their own wind, geothermal, hydroelectric, or even wave-power infrastructure.

These businesses then have complete control over their energy consumption.  It is possible to generate a small amount of revenue via surplus power that is produced via feed in tariffs.  However, this should be viewed as a win and not a relied upon revenue stream for any business.

There are some players that have entered the market with a unique approach.  They are targeting organizations with solar, generally roof top and purchasing the asset.  Then leasing it back to the organization; providing an injection of capital, which during these times could be valuable.  As many businesses try to become more asset free this could become a trend.

Is a corporate Power Purchase Agreement (PPA) the best way to go?

Investments like this may be ideal, but it’s not viable for many organisations. For businesses that lack the resources or capital to make such investments, a corporate Power Purchase Agreement (PPA) presents a more feasible option while also providing a valuable investment in the kinds of technologies that will support our planet in the years to come.

A PPA involves agreeing to purchase a set amount of energy from a certain provider. You and the provider negotiate your rate and the time over which you agree to use the provider’s services.  Then an agreement is drawn up. Depending on the terms of the partnership, your business and the provider may be able to sell surplus energy to the market at a higher rate.

Negotiation will be key as we move towards a new normal

The negotiation phase is critical here. But, even if your business doesn’t decide to explore the PPA route, negotiation will still have a part to play.   

As we’ve seen, demand has fallen, along with prices. This puts the consumer in a much stronger position than ever before. And, it is up to the providers to meet these new needs. Those who can best meet the needs of customers will be the ones who thrive.

Bear this in mind when negotiating the best energy deal for your business. As we look towards the post-Covid-19 world, the energy consumer is in the driving seat.