Is a Solar Power Purchase Agreement Right for You?

If you’d like to switch to solar but are concerned that the cost of buying your own system could strain your budget, you’re not alone. Cost is a big consideration for homeowners who are interested in investing in the most practical renewable energy source.

But there is a way to pay less for your solar energy up-front: a solar power purchase agreement (PPA).

The Solar PPA: A Primer

In addition to requiring little—or in most cases no—cash upfront, a solar power purchase agreement offers solar switchers two other big benefits:

• A predictable long-term electricity price: Under a PPA (see sample agreements here), you don't own the panels and other gear sending solar power into your home. It's all owned by a solar provider, to whom you pay a set monthly cost per kilowatt hour (kWh) for the life of the contract, which usually runs 15 to 25 years. Your PPA rate will typically be below what your utility currently charges you (more on that below).
  
  
• No maintenance costs, because the provider takes care of the system as long as the PPA is in effect. With a system you own, on the other hand, maintenance and repairs an all components would fall on you, unless they're covered by your manufacturer's warranty. 

PPA Cons - Financial Incentives You Relinquish

A big tradeoff with PPAs is that you don't get the tax breaks and other financial incentives governments and utiliy companies offer solar system owners. Under a PPA, the provider gets these, including:

• The Solar Investment Tax Credit (ITC): Also known as the Residential Renewable Energy Tax Credit, it lets you deduct 30% (for the 2019 tax year) of the installation cost on your new residential solar setup when you file your taxes. Considering that a 6 kW system (the average size for an American home) costs around $18,000 for solar panels alone before any incentives are applied and not including the cost of the inverter, wiring and other eligible gear—the ITC can save you thousands.

• State and utility company incentives: States and utilities also regularly offer rebates and tax credits to solar owners that are unavailable to those who opt for a solar power purchase agreement.

• The ability to sell excess power: Owners of systems in states with net metering can sell surplus electricity from their panels onto the grid (your utility would provide these to you as credits on your electricity bill). With PPAs, this benefit goes to the system owner.

Selling Your Home May Be a Pain

Something else to keep in mind: your PPA may affect the sale of your home, should you decide to move during the agreement's lifespan. Under the terms of the sample PPA linked above, for example (see section 12), you may transfer the agreement to the buyer, under the condition that they meet the provider's credit requirements, or arrange to have the system moved to your new home.

If you choose to leave the system behind, you could limit the number of potential buyers for your home, as not everyone will be comfortable taking over your solar power purchase agreement. With the second option, you'll have to make certain your new home is suitable for a rooftop solar setup.   

So, if you intend to move in the near future, it is probably best to stay away from a lease/PPA. Either way, it's important to read your agreement closely and ensure you're familiar with its terms and conditions. 

Two Numbers to Watch With Solar Power Purchase Agreements

If you think a PPA might be for you, there are a couple of things you should note before you sign on the dotted line.

The first is the initial electricity rate per kWh you'll be paying your solar provider. Ensure this rate is substantially less than the per-kWh price you're paying your current utility. That way you maximize your savings right from the start.

Then you will want to complement that low initial rate with a minimal yearly rate escalator—ideally less than the regular price increases you'd expect on your current utility bill. Escalators are a common feature of PPAs. They are put in place to cushion the provider from variables such as inflation and increased repair and maintenance costs as your rooftop system ages. They can range from as little as 1% to as much as 5% a year and typically run over the full term of the PPA, according to the Environmental Protection Agency.

PPAs vs. Buying Your Solar System

The best way to compare a PPA with buying your system is to contact an installer, who will provide a custom quote on a rooftop solar system you would own outright.

If you plan to finance the system, remember to account for loan interest when calculating the total cost of ownership. And don't forget the generous tax breaks and other incentives solar owners get, which your installer can also help with.

Learn about other incentives for converting to solar power.