What Is a Solar PPA?

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What Is a Solar PPA?

A solar power purchase agreement (PPA) is essentially a financial arrangement between a developer and a customer. A developer will arrange the overall design, financing, permitting, and installation of a solar panel system on a customer’s property.

They’re a popular financing option for those considering going solar in the U.S. because they allow you to install home solar on your roof (or anywhere else on your property) for no upfront cost. 

However, there are some downsides despite their zero-dollar down payment requirement. Here we’ll look at how a solar PPA works, their pros and cons, as well as market policy details to determine how much you can save on your electricity bill. 

How Does a Solar PPA Work?

A homeowner (also known as a host customer) can sign up for a PPA with their solar developer/installer and agree to their contractual term lengths. Solar PPA contracts usually range between five and 25 years. 

The solar developer will then install panels on your property (most commonly on a roof). Any generated solar energy will cover the home’s electricity usage for the contract’s term. However, this energy isn’t just outright handed over to the host customer free of cost. 

The developer sells the generated power back to the homeowner at a fixed rate, which is lower than the local utility’s retail rate. If it were higher, solar PPAs wouldn’t necessarily be worth it, unless the sole purpose was to use clean, renewable energy

Any extra solar energy produced by the panels is sent to the local grid. Fortunately, you can take advantage of net metering if there’s a program available in your area and receive its benefits — but only to an extent.

Since your solar developer technically owns your solar panel system, you won’t be able to receive federal incentives such as the solar investment tax credit (ITC) or local rebates and incentives such as solar renewable energy credits (SRECs) that are most commonly associated with net metering. 

The developer is also responsible for any needed solar panel maintenance, repairs, and replacement throughout the entire duration of a solar PPA contract. But once a contract term reaches its end, customers can either extend their contract, have the panels removed, or buy the system if desired.  

[Related: Are Solar Panels Worth It? What You Need to Know to Decide]

Solar PPA Pros

Here are the pros you can look forward to when signing up for a solar PPA.

Low to No Upfront Costs

Developers handle the upfront costs associated with solar panels in terms of sizing, acquiring, and installing a system. So, you can enjoy a solar panel system with a potential 0% down payment and start saving with solar as soon as the system is operational.  

Reduced Electricity Rates

Homeowners benefit from a fixed electricity rate from the developer. This helps household budgeting since monthly electricity costs become more predictable. But there are two ways your rate is structured:

  • Fixed escalator plan: Under this plan, a customer will pay rises in electricity costs at a predetermined rate that typically falls between 2% and 5%. This is often much lower than rates from a utility company. 
  • Fixed price plan: This plan maintains a constant rate throughout the entire solar PPA contract term. So as utility prices increase over time, which they usually do, customers can rely on the same rate for years on end. 

[Related: Average Cost of Solar Panels and Installation]

No Repair or Maintenance Responsibility

Since developers technically own the solar panels listed under a solar PPA, they are fully responsible for any needed repairs or maintenance

Let’s say your panels see damage in inclement weather conditions such as a hurricane, or they’re operating at a low performance for some reason. Your developer is responsible for fixing and maintaining your panels, as well as ensuring they remain operating at their full performance capacity. 

Better Leverage Over Incentives 

Developers benefit from solar PPAs because they’re better positioned to take advantage of tax credits to reduce the overall cost of the system. 

For example, if you’re a municipal host customer or some other public entity that lacks taxable income, you wouldn’t be able to utilize certain tax credits. These customers aren’t eligible for the solar ITC, for example, since it’s exclusive to residential solar

Increase in Property Value

Customers also benefit because solar panels systems increase home value

Since the nature of solar PPAs is long-term, the agreements can transfer between different property owners, which helps boost the property’s attractiveness when it comes time to sell. But this is only if the new owner wants solar panels on their residence, otherwise the panels need to be removed. 

[Related: Deinstalling and Reinstalling Solar Panels]

Solar PPA Cons

Here are the cons involved with signing up for a solar PPA.

Missing Out on SRECs

SRECs generally represent excess solar energy bought by a utility company. If your solar panels produce more energy than your home needs to sufficiently run, then you can sell the excess energy to your utility. They’ll typically offer you SRECs in return. 

However, host customers don’t receive any SRECs from panels under a solar PPA — the developer does. 

Lack of Financing Options

Both the fixed escalator plan and the fixed price plan are viable options under a solar PPA for those looking to go solar. Many people are also attracted to the fact that you can often pay zero dollars outright. 

But purchasing a solar panel system on your own has its own benefits. Many solar panel providers such as Freedom Solar offer unique financing plans with interest rates as low as 0%, $0 down payment options, and a competitive warranty that makes going solar easier than you’d expect.

Upgrades to Your Property

As mentioned above, the developer is responsible for designing, installing, operating, and maintaining your solar photovoltaic (PV) system, but host customers are responsible for other costs. 

This could mean trimming tree branches that might block the sun from directly hitting your panels, or something else that supports the installation or lowers the cost to install it. There are also local ordinances you’ll have to comply with that might entail project management costs such as system inspections and HOA approvals.

Potentially Higher Property Taxes

While solar PV systems are a great way to increase your home resale value, there’s also the possibility that they’ll increase your property taxes. Some states such as Colorado offer property tax exemptions, but many others don’t offer this type of incentive. You’ll have to research the specific rebates and incentives local to your area to know for certain. 

[Related: What to Know Before Installing Solar Panels]

A Note on Solar PPAs and Market Policy

Signing up for a solar PPA is a great way to avoid upfront costs related to the actual purchase of a solar panel system. But PPAs also help you avoid costs involving equipment, labor, installation, maintenance, and repair. 

Using a solar panel system under a solar PPA is also often a simpler process for customers to follow. Host customers don’t have to bother knowing which federal incentives, tax credits, or local rebates they qualify for. 

But solar PPA models often face legislative challenges that would otherwise help regulate developers as electric utilities. Since host customers are essentially buying back the electricity from the panels installed on their own home, developers are similar to utility companies.  

Sometimes customers aren’t fully comfortable with signing a solar PPA, so they lean toward leasing solar panels instead. The two options are very similar, but companies that lease solar panels do not sell the electric power generated from panels. 

However in both cases, the solar panels system is owned by a third-party entity. 

Contact Freedom Solar to Start Using Solar Power

Freedom Solar is here to help if you’re looking to purchase your own SunPower solar panel system. We’ll work with you to create a financing plan that matches your budget with interest rates as low as 0%, and a $0 down payment

To speak with one of our solar specialists, call +1 (800) 504-2337 or complete our contact form for a free initial consultation.

 
Featured image via Pixabay

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