What Is a Solar PPA?

Utilizing solar energy in your home or workplace may be easier — and more affordable — than you think.

One of the ways that individuals and businesses can access solar energy without investing in their own solar panels is through a solar Power Purchase Agreement (PPA). 

In this article, we'll explain what a solar PPA is and how it works.

What is a solar PPA? 

A solar PPA is a financial agreement between a solar provider and a customer where the provider installs a solar panel system on the customer's property and the customer agrees to purchase the electricity produced by the system at a predetermined rate. 

The provider retains ownership of the solar panel system and is therefore responsible for its maintenance and operation.

Under a PPA, the customer typically pays a fixed rate for the solar electricity produced by the system, generally lower than the utility's retail rate. This can result in cost savings for the customer, especially in areas with high electricity rates or where there are local incentives for using renewable energy sources.

One of the main benefits of a solar PPA is that it allows customers to access solar energy without the upfront costs associated with purchasing and installing their own solar panel system. This can be especially appealing for businesses or organizations that may not have the capital to invest in solar energy but nonetheless want to reduce their carbon footprint and save on energy costs.

Another benefit of a solar PPA is that the provider assumes the risk associated with the solar panel system, including any maintenance or repair costs. This can provide peace of mind for customers who may not have experience with solar energy systems and don't want to take on the associated risks.

Ultimately, the PPA benefits both the customer and the provider, as it allows the customer to use solar power at low costs, and the provider reaps tax breaks and revenue from selling the system to the consumer.

Note that PPAs are generally only available to homeowners with good credit scores. If you have a low credit score, you may not be eligible for a PPA.

What are the drawbacks of solar PPAs? 

While there are benefits to accessing solar energy through a PPA, customers should also consider the potential drawbacks before entering into a contract.

One is that the customer may be locked into a long-term contract, which can limit their ability to switch providers or make changes to the solar panel system. Additionally, while the fixed rate for solar electricity may be lower than the utility's retail rate, it may not always be the lowest available rate.

Lack of ownership

With a PPA, you do not own the solar panels, and as a result, you are not eligible for federal tax credits or other incentives that come with owning a solar system.

Long-term commitment

PPAs are usually long-term contracts that can last between 10 and 25 years. This means that you may be locked into a contract for a long time, even if your energy needs or financial situation change.

Potential for price increases

The price you pay for energy under a PPA is usually fixed for the duration of the contract. However, some PPAs include provisions that allow the solar company to increase the price of electricity over time.

May be unattractive to homebuyers

If you decide to sell your home before the PPA contract expires, you will either need to find a buyer who is willing to assume the remainder of the contract, or pay a penalty for ending your contract early (and they will remove the panels from your home). 

When might it make sense to go with a PPA? 

Deciding whether a solar PPA or solar purchase is better depends on various factors such as financial goals, tax liability, and risk tolerance. 

However, here are some situations where a solar PPA may be a better option:

Limited upfront capital

If you don't have the money to buy a solar panel system outright, a PPA could be a good option since it doesn't require any upfront payment. You pay for the energy generated by the system over time.

Short-term property ownership

If you plan to move within a few years, a PPA could be a better option since you don't have to worry about the costs of removing the solar panels or transferring ownership of the system.

Low electricity usage

If you have a small home and low electricity usage, a PPA may be better since you'll only pay for the energy generated by the panels. This could be cheaper than buying a solar panel system since you may not need to generate as much energy.

Can't benefit from tax incentives

If you don't have a significant tax liability, you may not be able to take advantage of the tax credits associated with purchasing a solar panel system. In this case, a PPA may be a better option since the solar company can take advantage of the credits and pass on the savings to you in the form of lower electricity costs.

It's important to note that every situation is unique, and the decision to choose a PPA or solar purchase should be based on your specific circumstances. It's always a good idea to consult with a solar installer or financial advisor to determine the best option for you.

Is a solar PPA the same as a solar lease? 

A solar lease is another way to pay for solar energy for your home or business without owning the solar system. However, there are some key differences between a solar lease and a PPA.

With a solar lease, you are renting the solar panels from the company, which means you do not own the panels. The leasing company will install the panels and take care of any maintenance or repairs. You will pay a fixed monthly lease payment to the leasing company for the use of the panels. The amount of your lease payment will be determined by the size of the solar system you lease and the length of your lease agreement.

In contrast, with a PPA, you are not renting the panels but rather purchasing the energy that they produce. The company that installs the panels will own and maintain them, and you will pay for the electricity generated by the panels at a set rate per kWh. The rate you pay will typically be lower than your local utility's rate, so you will save money on your energy bills. The PPA provider is responsible for monitoring and maintaining the system to ensure it is functioning properly.

Another key difference between a solar lease and a PPA is how the payments are structured. With a solar lease, you will typically pay a fixed monthly payment for the duration of your lease agreement, regardless of how much energy the panels produce. In contrast, with a PPA, you only pay for the energy the panels produce, which means your monthly payment will fluctuate depending on how much energy the panels generate.

The bottom line

As a general rule, we recommend purchasing solar over doing a lease or PPA. Solar ownership is an investment in an asset that belongs to you and can potentially increase the value of your home once paid off. 

However, both solar leases and PPAs can be effective ways to access solar energy when, for whatever reason, you can’t or don’t want to make a purchase. 

A PPA or solar lease can help you save money on your energy bills, but keep in mind that your potential savings will depend on the terms of your contract and the amount of energy your solar panels generate. If your panels do not generate as much energy as expected, your savings may be limited.

Regardless, carefully evaluate the pros and cons of each option before making a decision that best suits your needs and budget.

And, as always, consult customer reviews for your local solar companies to identify the best company for your specific needs.