“Owning” a Solar Photovoltaic System: Outright Purchase or Solar Power Purchase Agreement (PPA)?

ARC News • November 19, 2020

“Owning” a Solar Photovoltaic System: Outright Purchase or Solar Power Purchase Agreement (PPA)?

 

Thanks to the continuous efforts from the government of Malaysia, more and more incentives and schemes such as Net-Energy Metering (NEM), Green Investment Tax Allowance (GITA), Green Technology Financing Scheme (GTFS), solar PPA etc are being introduced over the time to the public to attract business owner to opt for solar photovoltaic (PV) energy. Whilst realising the advantages that can be enjoyed through such incentives and schemes, the biggest challenge remains – whether to fork out the huge investment sum now and enjoy the savings in long term; or preserve the cash flow but at the same time able to enjoy cheaper and cleaner electricity.

 

What is Outright Purchase and PPA?

 

In short, outright purchase simply means that the solar PV system is installed and owned by the business owner vide its own money or through bank financing.  On the other hand, PPA is based on a zero upfront cost model whereby solar PV system is installed on the rooftop of building by an investor in exchange of an agreed monthly payment from the business owner for all solar energy generated by the solar PV system.

 

Set forth below the key differences between outright purchase and PPA:

 

No

Description

Outright Purchase

PPA

1

Ownership of solar PV system

 

Business owner

Investor

2

Cost of installation

Solely borne by business owner

 

Solely borne by investor

3

Cost of operation and maintenance

 

Solely borne by business owner

Solely borne by investor

4

Tax incentives

 

Enjoyed by the business owner

 

Enjoyed by the investor

5

Energy cost savings

 

Business owner able to enjoy the full energy cost saving derived from the installation of the solar PV system

 

Business owner able to enjoy the discounted energy cost saving from the purchase of solar energy at a discounted rate from the investor

 

 

 

 

                                                                                                   

Key Takeaways

 

Both outright purchase and PPA model have their own advantages and disadvantages to business owners. Ultimately, the business needs of different business owners will determine which model suits best for them. Nevertheless, any business owner who is keen in exploring either option shall put in efforts to understand thoroughly and clearly the applicable regulations, requirements, contractual and legal obligations before deciding which model to adopt.

 

 

This Article is co-written by Yeo Shu Pin (Partner) and Quek Li Thong (Legal Executive) of Messrs. Afif Rahman & Chong

Disclaimer: Every attempt to ensure the accuracy and reliability of the information provided in this publication has been made. This publication does not constitute legal advice and is not intended to be used as a substitute for specific legal advice or opinions. Please contact the authors for a specific technical or legal advice on the information provided and related topics.

 

2020-11-19T18:07:20+00:00