With so many options to consider when going solar, property owners now have flexibility to select a financing or leasing program to best meet their needs. The growth the market has experienced over the last 5 years as been due to the option to purchase power a solar system generates rather than to purchase the tangible system itself. A residential Power Purchase Agreement (PPA) are leasing arrangements whereby a company installs and maintains the panels. The company owns the system and ensures pre-specified, contractually-guaranteed power production levels which the customer is obligated to pay for without the cost or hassle of purchasing and maintaining the system.
Residential PPAs Benefits
PPAs reduce the risks associated with going solar. The agreements are basically leases running for a timeframe of 20 years or longer. Over this timeframe, the homeowners agree to pay a fixed low price for the power that’s generated by the panels—or nothing, if the panels fail to perform as agreed. This yields several benefits for homeowners, including:
- Guaranteed power production levels
- Steady energy costs
- Long-term solar system monitoring
- Professional Panel maintenance
- Clean, renewable energy from the sun
Residential PPAs Drawbacks
Although PPAs continue to provide a great option for people who could not otherwise afford to go solar, there are some drawbacks:
- Financial benefit is lower than if you own your solar panels
- Your choices can be limited by your financing options/credit rating
- You don’t own the solar system, so you can’t take it with you if you move
- If you sell your home, the new owners might not be willing to take on the payments. Regardless of how a potential home buyer feels about solar, you might not want that as a question mark—or negotiating point—hanging over a potential sale
If you lease your solar panels, a solar company installs solar equipment that it owns on your property for a given amount of time—usually about 20 years. If you can buy your panels outright, your savings will be far greater when compared to what you would otherwise be spending on energy from the grid.
Residential PPA Structure
As with many financing arrangements, solar leases and PPAs are subject to escalating payments. A zero-percent escalator means your payments will stay the same over the life of the agreement. Two- and three-percent escalator payments will rise by corresponding amounts annually. A homeowner who is considering PPAs must carefully consider how their future payment will compare to other power source prices. For instance, if you start out paying $0.13/kWh, and that rate is set to increase by 2% annually, then you could end up at a disadvantage since you would ultimately be paying more than what you would spend with the local utility company. Energy prices vary widely from state to state; the current national average is about $0.13/kWh. In California, it’s more like $0.18/kWh.
If a solar lease or PPA is based on an accurate production estimate and features reasonable pricing and escalation, it can be a great deal for homeowners—sometimes even better than financing.