What is a PPA?
What is a PPA?
Just a few years ago, it was commonly thought that the only way for a homeowner to go solar was to purchase the system with cash or to use expensive forms of financing to get a loan for a system.
Even with tax subsidies to help pay for it, this meant that most homeowners would think of solar in passing, or something they would never be able to afford.
That’s where a Power Purchase Agreement (PPA) came in and began gaining traction in the solar industry. A Solar PPA is a long term agreement between you and a solar provider and/or installer to “lease” your roof in return for a lower energy bill. The installer will typically provide the panels, installation, and maintenance at zero cost to the homeowner, and in return the provider becomes your new utility provider.
While you do not save as much with a PPA as you would purchasing a system outright, it does mean that homeowners who never would have gone solar are able to lock in savings for 20+ years over what they would pay a utility company.
If you’re interested in using a PPA to go solar, here are a few pros and cons:
- Zero upfront cost. It may seem like a scam, but dozens of large companies nationwide provide zero cost solar systems under a PPA.
- Immediate savings. Solar companies typically look for homeowners who have an average monthly energy bill of $100+. This allows them to lower your monthly cost enough to provide value to you and them. As an example, typical savings for a California homeowner with a 2,000 square foot house is $100 – $200 per month.
- Fixed costs. While utility rates go up every year, a PPA has lower increases and you might be able to negotiate zero increases over the life of the agreement.
- You don’t own the system. This is a sticking point for many because they already own their home, and don’t want to “lease” their roof for a long period of time.
- Lower savings. In return for a free system, the solar provider needs to make a profit, so you’ll still be paying a monthly fee, even if it’s lower than before.
- No tax breaks. The solar provider is entitled to the tax breaks afforded a solar installation since they cover the burden of cost, installation and maintenance.
A PPA isn’t the perfect solution for every homeowner, but it has opened the doors for affordable solar to tens of thousands of customers nationwide.
Author: Catherine Lane | SolarReviews Blog Author
Catherine is a researcher and content specialist at SolarReviews. She has strong interests in issues related to climate and sustainability which led her to pursue a degree in environmental science at Ramapo College of New Jersey.