The Complete Guide to Solar PPA

A solar power purchasing agreement (PPA) is a great way to get a solar panel system without having to buy one outright.

They’re popular at both the residential and commercial level, helping homeowners and businesses alike access solar power.

In this guide, we cover what a solar PPA is, how it works, the costs involved, the pros and cons, and what alternatives are available.

What is a solar PPA?

A solar PPA is a financing agreement in which either a homeowner or a business can get a solar panel system without paying any upfront costs.

A third party purchases the solar panel system instead, installing it on either your house or workplace, and charging you a reduced fee for the electricity generated.

This fee will always be lower than the typical utility cost for electricity you’d usually pay.

How does a solar PPA work?

A solar PPA works by allowing businesses, homes, and other institutions to purchase discounted solar electricity without any having to buy a solar panel system.

Solar PPA companies manage the installation side of things, working out how many panels are required and what type and brand of solar panels are used. They’ll then install the system on your home or business.

You access solar power at a discounted price and with no upfront cost whatsoever, while the company providing the PPA can sell excess solar electricity back to the grid.

The company can also use federal tax incentives and solar renewable energy credits (SRECs) to get substantial discounts on the solar panel system — plus of course, the business can also sell excess solar electricity to the grid.

The most important thing to remember is you don’t actually get free electricity — you can only do this if you own the solar panels outright.

And if you use more energy than the solar panels generate in a month, you’ll need to pay your utility company for any electricity you take from the grid.

Your payments will also differ each month depending on the amount of electricity the solar panels generate.

How much does a solar PPA cost?

A solar PPA technically costs nothing — the PPA company will pay for the system, the installation, and any maintenance and cleaning needed.

You’ll only pay a reduced fee for the electricity generated by the solar panels.

One thing to be aware of is that most PPAs include a cost escalator, which means the amount you pay for the clean solar power will increase with each year you’re on the contract.

That’s why some people prefer to choose shorter contracts of five years or so. This type of contract will generally be more expensive than a longer one, but you’ll still pay less for electricity than what you would from your utility provider.

Another advantage of a shorter contract is you can experience what it’s like to have a solar panel system, without being tied down to a contract for a decade or more.

Is a solar PPA right for you?

Before you decide on getting a solar PPA, there are few important factors to consider:

Incentives

Free solar panels are very appealing, but it’s definitely worth looking into available incentives. You might find that it’s actually better to purchase a solar panel system outright.

If you’re eligible for SRECs, federal tax credits, or the Clean Energy Credit initiative, you could end up saving thousands of dollars over the lifespan of your solar panel system.

If you don’t qualify for any credits, loans, or other incentives, then a PPA would be the best option for you.

The PPA contract

Don’t agree to any contract without first scrutinizing the finer details, because you may find that the restrictions go too far. Some contacts prohibit any alterations to your property, for example.

Others have incremental price increases that could mean you end up paying more overall in energy bills than if you had just purchased your own solar panel system — though this is unlikely.

What are the pros and cons of a solar PPA?

Pros

The most attractive part of a solar PPA is you don’t pay the high upfront costs you’d normally shell out for a new solar panel system.

That’s why it’s a popular choice for homeowners and businesses alike, because it gives you access to the benefits of solar power without breaking the bank.

Not having to worry about the upkeep of your solar panel system is a good advantage as well. Even though solar panels require little maintenance beyond keeping them clear of dust and debris, it’s still another thing you can forget about.

Another key bonus to solar PPA is predictable energy prices, which in the current climate of escalating costs is a huge comfort. Your contract will make it clear what you need to pay each year, so you’re never left in the dark.

Utility companies, on the other hand, can charge you whatever they want.

The prices you’ll pay for electricity will always be lower too, because of net metering benefits that allow the company that owns the solar panels to sell any excess electricity you generate to the grid.

Cons

While not paying the upfront costs of a solar panel system is a big bonus initially, you’ll lose out on savings in the long run.

You’ll still pay for the electricity your panels generate, which over the course of your PPA contract could well exceed what you’d save if you owned the solar panel system.

You also likely won’t be eligible for any solar panel grants, meaning you won’t be able to save money with any federal tax incentives or solar renewable energy credits. You also won’t be able to access the Clean Energy Credit scheme, which could save you 30% on the costs of a solar panel system.

Also, you’ll be tied to a contract, which can come with some difficult restrictions on what you can or can’t do to your home or business.

This could include clauses that stop you from planting trees, getting an extension to your home, or anything else that might restrict the solar panels’ ability to generate power.

PPAs can also make it more difficult to sell your home, because while you can pass on the PPA to a potential buyer, there’s a chance they might not want it.

What are the alternatives to a solar PPA?

Solar PPAs aren’t the only way you can benefit from solar power without paying the upfront costs.

Solar power loans are one of the most popular options for homeowners, especially as you can apply for loans with fixed interest rates.

Getting a loan to finance your solar panel system means you can use all of the electricity your solar panels generate.

That includes being able to sell any excess electricity generated back to the grid, something you can’t do with a PPA.

A solar lease is something to consider too — this is where you pay a fixed monthly fee to a solar installer, but you don’t actually own the solar panel system. You do get access to all the benefits of solar, however.

For instance, 100% of the electricity you generate is yours to use, which’ll drastically lower your monthly energy bills.

It’s also worth investigating the various solar panel grants available to see if you could end up saving a lot of money by purchasing a system outright.

Have solar PPAs been a success in the US?

Yes, the number of companies buying solar PPA has increased year after year, with 2021 showing the strongest numbers yet.

A record 31.1 GW of clean, solar-generated electricity was purchased by corporations across the word, and 65% of these PPAs were bought in the US — that’s 20.3 GW which is enough to power roughly 688,000 homes.

Solar power is getting cheaper all the time however — costs have fallen by more than 60% in the past decade — so PPAs will inevitably become less attractive.