While solar panels are incredibly helpful in giving you access to renewable energy, the reality is that they are also a luxury. While the cost of solar panels has come down over the years, it’s not hard to see why this technology is unattainable for most people.
By running your home on solar power, you can potentially save a lot of money. But doing so is expensive, as you’ll need to invest between $10,000 to $30,000 (upfront or through monthly financing) to get solar panels. For some families, this just isn’t possible. But you know what helps? A solar power purchase agreement, also known as a PPA.
For those who don’t know, a PPA is an agreement between a property owner and a solar installer, although these two organizations often collaborate with a utility service. How it works is that a solar system is installed on your property, but the solar company retains ownership of the system and agrees to sell you the energy produced from it. The best part? This energy is sold at a much cheaper rate than what you’d pay your utility. PPAs are a very attractive option overall — especially if you’re finding it difficult to finance renewable energy.
“In the market right now, PPAs make more sense financially, depending on the PPA,” said Garrett Mendelsohn, CEO of Solar Bootcamp, which operates a training program for salespeople in the solar industry.
We know what it looks like: Getting a PPA sounds like a pretty good deal. However, there are some significant drawbacks. For one thing, PPAs aren’t available in every state. The states that currently allow them are a moving average, but at the time of this writing they’re allowed in 31 states. So you should consider investing in a PPA if you live in an area that offers one.
What Is a Solar Power Purchase Agreement
When you buy a solar power system, you pay a solar installation company for the materials (photovoltaic cells, racks, inverters and other parts) and installation on your roof that’s needed to collect energy from the sun. You’ll own the system that’s now part of your home.
Under a PPA, the installer will retain ownership of the solar system, and then charge you a fixed rate for the electricity it produces. The PPA provider will bill you each month for the energy you use, just like your electric utility does. There may be times when you have to pay both the PPA provider and your energy utility, but your total energy costs should be much lower — the average PPA cost per kWh is about one-third that of traditional energy.
One thing to note in PPA contracts: Many include so-called “escalators,” which increase the rate you pay for electricity at certain intervals within the contract.
How Solar PPAs Work
“PPAs provide a long-term contract between a property owner and an energy developer who installs, owns, and maintains a solar array on the property owner’s land,” said Kelly Stevens, assistant professor at the University of Central Florida’s School of Public Administration. “The energy developer sells the electricity generated by the solar array back to the property owner, thus setting a long-term, fixed rate for the electricity and financing the upfront costs to install the solar array.
In turn, the energy developer qualifies for the Investment Tax Credit (ITC), which reduces their overall capital cost to install the photovoltaic system.” Can you save with a solar PPA? “Absolutely,” said Ben Delman, communications director for Solar United Neighbors.
“PPAs are designed to save you money, ideally as soon as the PPA is signed and the system comes online.” Since energy rates through PPAs are about a third of traditional energy rates, you can realize immediate savings with a PPA. To make sure you’re getting a good deal, be aware of any escalators in the PPA contract.
Solar Bootcamp’s Mendelsohn points out that in recent months, higher interest rates have also driven up dealer fees, which can be added to the installation bill or included in the overall price tag. Because PPAs don’t include dealer fees, this is another way to save instead of paying (or financing) for a solar installation upfront.
Some PPAs also have the option to buy the solar system after a certain period of time, making it more like a lease-to-own situation. This is another way to avoid dealer fees, and some arrangements may even come with additional insurance or warranty coverage.