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Solar Power Purchase Agreement Explained

Written by Lisa Iscrupe/

Edited by Hannah Hillson

Last updated 07/17/2023

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Key Points

  • A solar power purchase agreement (PPA) is a financial contract with a third-party solar developer who finances, installs, and manages a solar energy system on your residence at low or no cost.
  • Pay only for your energy generated at an agreed price per kWh.
  • Less substantial return on investment than purchasing or financing solar panels.

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Pros and cons of a solar PPA

Pros Cons
Less financial risk Not qualified for tax incentives and rebates
Little to no upfront money needed Committed to a long-term contract
No need to take out a loan Ineligible for SREC income
Lower monthly energy bills Fees may increase over time
Less time commitment for planning and design Homeowners may still need to pay for site upgrades
Increase home value Homeowners may have a higher property tax
Gain energy independence Homeowners may need to pay early termination fees

Solar PPA FAQs

  • Most homes with solar panels remain connected to the power grid because it allows them to use additional energy when solar panels aren’t generating enough power. Solar batteries can help store solar energy for off-peak times.

  • No. This PPA benefit would go to the solar developer. 

  • The best option for setting up a solar system at your home is one that meets your individual needs. Ownership is the way to go if you prefer to collect tax incentives, want to pay the upfront cost of solar or take out a loan, and don’t mind a down payment. Leasing or a PPA might be best if you prefer to start solar with little upfront costs.

  • When you lease your solar panels, you pay a monthly fee to lease the system or purchase power produced from the leased panels at a set price per kWh. With a PPA, you pay per kWh for energy consumed. The other main difference is that a solar developer retains the RECs in a PPA. However, if you choose the PPA route, you may be able to negotiate to keep the RECs (and the profit from them) in your control.

  • Green and renewable solar energy benefits the environment and your wallet. Find out what other incentives might be available for solar panel costs in your state guide below. 

Solar energy by state

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