A solar power purchase arrangement (PPA) is basically a financial agreement between a customer and a developer. The developer will coordinate the design, financing, permitting, and installation of solar panels on a customer’s land.
The most popular financing option for anyone considering going green in the U.S. is solar PPAs. They allow you to put home solar onto your roof or anywhere else on your property for no upfront cost.
Despite the $0 down payment requirement, there are still some drawbacks. We’ll be looking at the pros and cons of solar PPAs, as well as market policy details, to help you see how much electricity can be saved.
WHAT DOES A SOLAR PAPER WORK?
A homeowner or host customer can sign up with their solar installer/developer for a solar power purchase agreement (PPA) and agree to the term. Solar PPA contracts typically last between 5 and 25 years.
The solar developer will then place panels on your home (usually on a rooftop). The contract will cover any generated solar energy. This energy is not just given to the host customer at no cost.
The developer sells the power generated to the homeowner at a fixed price. The rate charged is less than the retail rate of the local utility. Solar PPAs would not be worth the cost if it was higher, unless the sole purpose of solar PPAs was to generate clean, -renewable energy.
Any additional solar power that the panels generate goes to the local grid. If a program is offered in your area, Net Metering can be used. Net metering has its benefits, but only to a limited extent.
The federal incentives are not available to you because the solar developer technically owns your system. Like the solar tax credit (ITC). In addition, you are not eligible for local rebates or incentives such as the solar renewable energy credit (SRECs), which are often associated with net-metering.
The developer is responsible for all necessary solar panel maintenance and repairs, as well as replacement during a solar PVPA contract. Customers can prolong their contract or have the panels removed. Or, they can buy the system.
SOLAR PPA PROS
These are some of the benefits you can expect when signing up to a solar PPA.
LOW TO NO UPFRONT COSTS
Developers take care of the upfront costs involved in solar panels, such as sizing, purchasing and installing a system. You can get a solar panel system for as low as 0% and begin saving with solar as soon the system is up and running.
REDUCED ELECTRICITY RATE
The developer offers a fixed electricity rate to homeowners. Because electricity costs are more predictable, this helps households budget. There are two options for structuring your rate:
- Fixed escalator plan. This plan allows customers to pay increases in electricity costs at a fixed rate (usually between 2% and 5%) This rate is usually lower than those charged by utilities.
- Fixed price plan. This plan keeps the same rate for the whole term of your solar PPA contract. Customers can depend on the same rate for many years, even if utility prices rise over time.
SOLAR PPA CONS
These are the cons of signing up for a solar PPA.
SRECS MISSING OUT
SRECs are excess solar power that a utility company has purchased. You can sell excess energy from your solar panels to your utility if they produce more than you need. You will typically receive SRECs as a return.
The developer receives SRECs, but host customers do not get any SRECs.
LACK OF FINANCING SOLUTIONS
Both the fixed escalator and fixed price plans are options for those who want to go solar. People also love the fact that $0 can be paid outright.
However, purchasing a solar system by yourself has many benefits. Many solar panel companies, such as Freedom Solar, offer financing options with interest rates as low at 0% and $0 down payments. They also offer a competitive warranty which makes going green simple.