Many of our clients ask us a version of the same question. A company has approached them offering to install solar on the factory roof at no cost, then sell them the electricity at less than the utility rate. Is that as good as it sounds, and how does it differ from the other company promising to guarantee the savings?
The answer is not simple, because doing solar business covers work that varies enormously, and the information available generally comes from sellers, who explain only the model they themselves operate.
So we have written this to show the whole industry, not only the part we work in, so that you can compare the offers you receive on your own.
Who makes up the solar business
The first thing that keeps a conversation with a bidder on point is knowing where in this chain they sit.
| Stage | What it does |
|---|---|
| 1. Equipment manufacturers | Produce the photovoltaic panels, the inverters that convert direct current into alternating current, and the mounting structures |
| 2. Project developers | Find the sites or the customers, obtain the permits, and arrange the financing |
| 3. Design and installation contractors | Design the system, procure the equipment, and build it |
| 4. Asset owners and investors | Hold title to the equipment and take the return on the investment |
| 5. Operators and maintainers | Keep the system generating as designed for its whole service life |
| 6. Electricity buyers | The utility, or the factory or building that consumes the power itself |
| 7. Data and measurement providers | Make sure every party sees one set of figures that can be audited afterwards |
One company may cover several stages or only one. The company offering free installation in exchange for selling you power is operating stages 2 and 4. The company guaranteeing savings usually covers stages 2 through 5. That difference is what produces the different contract types described in the next section.
There are six solar business models in Thailand
| Model | Who invests | Who owns the equipment | What to ask for in numbers |
|---|---|---|---|
| 1. Self-investment | You | You | The payback period calculated from your own electricity bills, not from a market average |
| 2. Private power purchase agreement | An outside investor | The investor, until transfer under the contract | The tariff you will pay, against the utility rate you pay now, and the length of the commitment |
| 3. Energy service company | Depends on the contract type | Depends on the contract type | The guaranteed savings, the measurement method, and the baseline used for comparison |
| 4. Solar farms selling into the grid | Private power producers | The power producer | The tariff and the purchase volume in whichever round is currently open |
| 5. Households selling surplus power | The homeowner | The homeowner | The purchase tariff, the eligible system size, and the enrolment round currently open |
| 6. Direct power purchase agreement | Private power producers | The power producer | Whether you qualify at all, which at this stage is limited to very large consumers |
Three developments in the market at this stage.
First, the scheme buying surplus power from households opens and closes in rounds, the purchase volume is capped, and once it fills, enrolment stops until a new round is announced. If you are considering an installation in order to sell surplus power, check first whether the current round is still open, because finishing an installation and only then discovering the round has closed does happen.
Second, tax benefits exist for solar installations, for individuals and for companies, and the conditions are revised periodically. But these benefits have expiry dates, they have caps, and they have conditions on whether they can be combined with other benefits. Please verify them with your own tax adviser, because the amount saved through tax measures is often large enough to change the decision.
Third, direct power purchase agreements remain at pilot stage, and the first phase is aimed principally at large data centres holding investment promotion, while the rules for requesting access to the state transmission network have not been issued in final form. In practice, an ordinary factory cannot yet use this route. If someone offers it to you, ask to see the regulation that supports it.
The principle we have followed in this article is that we quote no tariff, no volume, and no benefit amount as a figure, because this class of information changes with each announced round, and an out-of-date number is more dangerous than no number. The figures you use to decide should come from announcements by the Energy Regulatory Commission, the Metropolitan Electricity Authority, the Provincial Electricity Authority, the Revenue Department, and the Board of Investment, checked on the day you decide.
What a PPA is
PPA stands for power purchase agreement. In the context of what a seller brings to you, it means an arrangement where an investor pays the entire installation cost and owns the equipment, while you commit to buying the electricity the system produces at an agreed rate for an agreed period.
The clear advantage is that you spend nothing on the investment and your electricity cost falls from the first month. But you are committing for a long time, so read all seven of these points in the contract.
- The contract term, which is the longest commitment in the entire offer. Compare it against your own business plan and whether you will still occupy this site throughout that period
- The tariff and the discount against the utility rate, meaning which rate it is measured against and how it is calculated
- The annual tariff escalation, meaning what it rises with and whether it is capped
- The minimum volume you are committed to buy. This one matters a great deal, because if the factory stops or reduces production, you may still have to pay for the minimum
- What happens when the system stops producing, covering equipment failure, grid outages, and instructions from the offtaker to curtail output
- The transfer of equipment ownership at the end of the term, meaning whether it transfers to you, in what condition, and at what cost
- The conditions and costs of early termination, for instance if you relocate the factory or sell the business
Two things called PPA that are not the same thing.
| Private power purchase agreement | Direct power purchase agreement | |
|---|---|---|
| Where the power comes from | A system installed on your own site | A private producer's plant somewhere else |
| How it is delivered | Used directly within your own building | Across the state transmission network |
| Is it available yet | Generally available today | At pilot stage, limited to very large consumers |
What an ESCO is, and how it differs from a PPA
ESCO stands for energy service company. Its role is to carry out energy reduction measures for you, from the site survey and the analysis through the design and installation to measuring the savings actually achieved, working through a contractual instrument called an energy performance contract.
There are two contract forms.
Under a guaranteed savings contract, the provider guarantees a minimum savings figure and must compensate you for any shortfall. The provider carries the technical risk, while you arrange the financing, whether by borrowing from a financial institution or using your own funds.
Under a shared savings contract, the provider arranges the financing and covers the implementation cost itself, then takes an agreed share of the savings actually achieved over the life of the contract. The advantage for you is that you carry no risk on repaying the investment.
Two things that are commonly misunderstood.
First, solar is only one measure within energy management, not the whole of it. Other common measures include upgrading cooling systems, replacing motors with high-efficiency models, and improving compressed air systems. If a provider offers only solar, that may be because they sell solar, not because solar is the most worthwhile measure for your factory.
Second, the heart of this work is not the installation but the measurement and verification, because savings that cannot be proven cannot be billed. So the pre-improvement energy baseline has to be agreed, and so does a measurement method both sides accept, before the work starts rather than after the installation is finished. This is the single most common cause of dispute in this kind of work.
| PPA | ESCO | |
|---|---|---|
| What is sold | Units of electricity | Energy savings |
| Basis of billing | The units the system produces | The difference between baseline and actual consumption |
| What must be proven | How many units were produced | How much was saved against the baseline |
| Scope of work | Principally solar | Several measures combined |
| Difficulty of measurement | Moderate, measured at the meter | Higher, because the effect of the measure must be separated from other factors such as changes in production volume |
In Thailand the Department of Alternative Energy Development and Efficiency is the agency supporting this business, and it maintains guidance together with a system for certifying providers. Asking to see a bidder's certification status is therefore a fair question and one you should ask, alongside asking to see a sample savings verification report they have issued to another client, with confidential details redacted.
Providers in Thailand fall into four groups
Each group comes from a different background, so each is strong in different things and typically weak in different things.
| Group | Background | Usually strong in | Check further on |
|---|---|---|---|
| Private power producers moving into solar | The power plant business | Financial standing and the ability to invest long term | Contract flexibility on smaller projects |
| Installation contractors moving into power purchase agreements | Construction and installation work | Installation quality and understanding of site conditions | Financial stability across the contract term, which is many times longer than an installation job |
| Energy service companies | Energy engineering | Seeing the whole factory rather than solar alone | The method used to measure and verify savings |
| Technology and data providers | Systems and software work | Collecting data, presenting it, and making it auditable | They neither install nor invest on your behalf |
We name no company in this article, because comparing companies by name while being one of the providers ourselves would not be fair to the reader. What we can do fairly is tell you what to check in each group.
What all the models have in common
Read all six models looking for what they share and you find exactly one thing: every model ties money to a measured unit of electricity.
- Self-investment. You need to know whether the system is paying back as calculated. If output falls below plan and nobody notices, you find out years later
- Private power purchase agreement. The investor bills you on the units produced. Every unit not measured is revenue lost to them, and every unit over-measured is cost you should not be paying
- Energy service company. Savings must be proven against a baseline before anything can be billed
- Solar farms. The units sold into the grid are the project's entire revenue
- Households. Units consumed on site must be separated correctly from units sold into the grid
- Direct power purchase agreement. There are three parties, the producer, the consumer, and the network owner, who must reconcile the units between them
The observation we would leave with you is this. The three models where the investor is an outside party, models 2, 3, and 6, involve two contracting parties who must believe the same set of figures, unlike self-investment where you are reading the data to run your own operation.
Once two contracting parties are using the same figures as the basis for billing, the measurement system stops being a support function and becomes financial infrastructure for the project. The question you should put to every bidder is this: which device does the data come from, who maintains that data, and can you reach it yourself or must you wait for their report?
Where DigitechX sits in this chain
We are at stage 7, the data and measurement provider.
We do not install solar, we do not invest on your behalf, and we do not guarantee savings. We say so plainly so as not to waste your time. What we do build is the system that collects data from the inverters and the site equipment, sends it to a processing platform, and presents it as auditable information, with alerts when the system behaves abnormally.
The details of that system are on the IoT Solar Rooftop Solution page
The reason we wrote this to cover the whole industry, when we work in only one stage of it, is that our work is only worth anything once you have chosen the business model that is right for your factory. Choose the wrong model and the best measurement system in the world will not help.
If you are weighing an offer from any provider and would like a view on the data and measurement provisions in that contract, you are welcome to send it to us to discuss, even if you end up not using our services, because better questions put to bidders make every offer you receive better.