Solar PPAs: what to know
Get solar panels with no upfront cost
A solar power purchase agreement (PPA) is a popular way for homeowners to transition to clean energy without paying for an entire solar panel system upfront. However, not all PPAs are the same, and it's important to understand the benefits and drawbacks before making a decision. Our guide can help you determine if a solar PPA is right for you and help you transition to a more stress-free solar-powered life.
Key insights
- Solar PPAs finance the installation of a solar energy system without a large upfront cost.
- You can pay a fixed rate for the energy your system produces, which often results in lower electricity bills.
- With a PPA, the solar provider is responsible for maintaining and operating the system.
- Before choosing financing, consider factors like your energy consumption, roof orientation, cost of electricity and local incentives and rebates.
What is a solar PPA?
A solar PPA is a financial agreement between a solar energy provider and a homeowner in which the provider installs, operates and maintains a solar energy system on the customer's property. The homeowner then purchases the energy generated by the system at a predetermined rate (typically lower than the rate of electricity from the grid).
With a PPA, the solar energy provider benefits from selling the energy produced. The customer doesn’t have to make a large upfront investment in the hardware for a solar energy system, and they can potentially benefit from energy bill savings right away.
PPA solar pros and cons
One of the biggest advantages of solar PPAs is that they provide a way to go solar without paying upfront for a solar panel system. Instead, homeowners pay a monthly fee to the solar company for installing the system and handling maintenance and repair work. For those who want a more hands-off approach to their home solar energy system, this might be ideal.
On the other hand, PPAs come with a higher long-term cost when compared with options like leasing. The monthly fee for a PPA typically includes a markup for the solar company's services, which adds up over time and can cut into any savings the system provides. PPAs also typically include long-term contracts, which means you have to commit to paying for the panels over several years.
Pros
- No upfront costs for purchasing and installing solar panels
- No maintenance responsibilities
- Fixed rates can provide cost stability
- Potential to save on energy costs over time
- Reduce carbon footprint and contribute to a cleaner energy future
Cons
- Limited ability to take advantage of incentives or subsidies
- Requires long-term commitment to a single provider
- Potential rate increases over time
- May be renovation restrictions
- Might have to hand off the PPA if you sell your house
Some homeowners also report feeling “stuck” in their PPA. One reviewer from California on our site said, “I have a PPA and I am STUCK with whatever [the company] wants to tell me.”
To protect their investment, companies financing PPAs may request a lien — this way, if a homeowner dies or sells the property, the company has legal recourse to pursue compensation for the panels and the cost of installation. It’s also important to note that those who take out a PPA typically can’t receive federal solar tax credits.
Solar PPA vs. lease
Solar leases and PPAs are two common no-upfront-cost options for those switching to green energy. Solar leases allow homeowners to lease solar panels over time with regular payments, while the company maintains ownership and takes care of maintenance.
If you prefer lower (and more predictable) monthly payments, a PPA might be for you. If you’d rather save more in the long run, a solar lease might be better.
With a PPA, on the other hand, the homeowner agrees to purchase the solar energy generated by the panels at a fixed rate for a certain number of years, with the panels installed and maintained by a third-party provider.
A solar PPA might be best for those who want a lower monthly cost, while a lease could be ideal for those who want to maximize savings over the long term. Ultimately, the best option depends on your goals, budget and electricity usage. For more, check out our guide to solar leases versus PPAs.
Both PPAs and leases are often described as “renting your rooftop” to a power company and paying the rent yourself. This is fairly accurate — the installments you pay on a PPA cover the cost of the system, installation, maintenance and a margin of profit on both the system and the financing. Some may find a cash-out refinance to be a cost-effective way of paying for a solar energy system.
What should I look for in a solar PPA?
To determine if a solar PPA is right for you, consider your energy consumption, the orientation and shading of your roof, the incentives and rebates available in your area, and the cost of electricity from your utility.
You should also compare the terms of the PPA with those for other options and assess the reliability and reputation of the company offering the contract.
When considering a PPA, ask these questions:
- Will the monthly costs of the PPA actually lead to savings against my energy bill?
- What do the specific terms of the PPA say about ownership of the panels?
- What happens if I can’t make a payment?
If you move forward, it's crucial to carefully review your contract to ensure it meets your needs and provides a good value for your investment in solar energy.
FAQ
Is a PPA for solar a good idea?
Whether a solar PPA is a good idea for your solar installation depends on your home’s energy usage, your budget and your long-term goals. Consider factors like the cost of electricity, the terms of the agreement and your ability to pay for and maintain a system, and weigh the specific terms of each PPA option you consider.
How much can you save with a solar PPA?
The savings you get from a PPA against an energy bill vary depending on the cost of electricity, the size of the solar energy system and the terms of the agreement. Generally, homeowners can save money on their energy bills by using clean, renewable energy from the sun in all cases, including with a solar PPA, but PPA monthly fees may include markups that cut into these savings.
What happens at the end of a solar PPA?
At the end of a solar PPA, the homeowner has the option to purchase the system, have it removed or renew the agreement for another term. The specific terms of the agreement should clearly describe what happens at the end of the contract period and who pays for the labor involved in any removal.
Bottom line
If you’re interested in installing solar panels on your roof or beside your home but can’t afford the upfront cost of the system and installation, a solar PPA may be a good solution. Just make sure to speak with multiple solar providers to get quotes for various solar financing options, and compare these against your budget and needs so you get the best deal available.
Article sources
- California Solar & Storage Association, " Going Solar FAQ ." Accessed Jan. 31, 2023.
- U.S. Department of Energy, " Power Purchase Agreement ." Accessed Jan. 31, 2023.
- U.S. Environmental Protection Agency, " Financial PPA ." Accessed Jan. 31, 2023.
- U.S. Environmental Protection Agency, " Financing ." Accessed Jan. 31, 2023.
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