Solar Power Purchase Agreement 2022 Guide | SaveOnEnergy®

Solar Power Purchase Agreement (Solar PPA) Explained

home with solar panels on the roof

What is a solar purchase power agreement?

A solar power purchase agreement (PPA) is a contract with a solar developer who manages and installs a solar energy system on your residence. The agreement enables you to use the generated electricity without having to set up the solar system all on your own. A solar power purchase agreement, also referred to as an SPPA or a PPA, is an alternative path to getting solar energy for your home

When getting the best solar panels on your property, you’re typically responsible for selecting the solar panel company, the solar equipment, finding a builder, and organizing any associated documentation to get the federal tax incentives. A solar PPA can be an easier way to use solar energy for would-be solar users who find this process too overwhelming. 

PPAs let you pass the heavy lifting to a developer while still enjoying less expensive green electricity rates and using a renewable solar resource to offset pollution. 

The solar partner that you hire will handle the details, such as:

Imagine you have a car you can drive anywhere you want, but you never have to fill it with gas, wash it, or take it for oil changes. That’s essentially what a financial PPA can do for you, except the car is your home solar energy. 

Solar PPA vs. Solar lease

Owning will typically give you the best financial incentives, such as the solar investment federal solar tax credit (also called the Solar ITC).

Residents who choose not to finance or purchase their solar energy system can benefit from solar energy by either leasing or having a PPA. With a solar lease, you have regular monthly payments. With a solar PPA, you only pay for your energy usage

A solar PPA is not for solar panels on an RV, camper, or other non-permanent dwellings. A PPA is also different from community solar, where a solar facility provides solar power to several residences at once. 

Discover more about how solar works in this arrangement and the pros and cons of solar PPAs so you can make an informed decision.

Solar PPA visualized

Benefits of a solar Power Purchase Agreement (PPA)

A solar PPA has several benefits, but it’s not for everyone. For example, if you want a tax deduction or net metering benefits from your solar energy system, then a PPA is not the path you should take. However, a solar PPA might be the perfect solution to use green energy and become energy-independent without paying the upfront costs for your solar system

A solar PPA lets you use efficient solar panels all year, even in winter. This arrangement also curtails many financial risks that would otherwise fall on the homeowner. You gain the value of a solar energy system without eating up your free time or monetary resources. Other benefits include:

  • Lower energy costs. The developer sells the solar electricity to the homeowner at a reduced cost. This price may stay the same throughout the PPA term or have an escalator clause. An escalator increases the price incrementally over time to account for rising utility costs. 
  • No building decisions. You do not have to worry about building the solar energy system, such as whether to add a solar battery (like the Tesla Powerwall), which solar inverter to use, or decide between monocrystalline or polycrystalline panels
  • Little-to-no maintenance. Solar panels last a long time, and most come with a 25–30 year solar panel warranty. However, with a solar PPA, you are not responsible for the warranty or maintaining the solar energy system on your property. The developer handles those details, and you benefit by using green energy

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PPA considerations

The return on your investment may be less substantial with a solar PPA than if you were to purchase or finance the solar panel system. With a solar PPA, the developer owns the byproducts of the system, so any solar financial benefits will go to them, not you.

For example, the developer can:

  • Claim the federal investment tax credit (ITC). 
  • Sell solar renewable energy credits (RECs) to the local utility. (However, not all of the top solar states participate in the SREC market.)

Other PPA costs

  • Upgrades to your property: While you don’t have to pay to build the solar system, a PPA may still require you to make certain upgrades to your property. Costs from site upgrades, such as trimming trees that block sunlight, can fall on the homeowner. 
  • Property taxes: Having a solar energy system on your property is a commodity, so it can raise the value of your home, which in turn can increase your property taxes. 
  • Financing: PPAs don’t require financing since the developer takes care of the bulk of the costs, and no down payments are needed. 

PPA contracts and early termination fees

A PPA is a legally binding financial commitment that can last 10–25 years. As with any agreement, carefully review your contract with your solar development partner, or get a second opinion if necessary.

Be clear on terms and conditions, especially costs, length of the contract, and early termination fees (ETFs). Most power purchase agreements will have an option to end the contract early, but it can be pricey, so review early termination costs.

If you move before the PPA is up, you may be able to transfer the agreement to the new homeowner or move the system to your new residence. Also, consider what happens with your solar system once your PPA term expires. Typically, you can renew your contract, renew the PPA, or purchase the system from the developer. Again, check your PPA agreement for specific terms since these options could incur more costs. 

Pros and cons of a solar PPA

Pros Cons
Less financial risk Not qualified for tax incentives
Little to no upfront money needed Obligated into a long-term contract
No need to take out a loan Cannot earn income from SRECs
Reduce monthly energy bill Fees may increase over time
Less time commitment for planning and design May still need to pay for site upgrades
Increase home value May have a higher property tax
Gain energy independence May be responsible for early termination fees

Solar PPA FAQs

Why does the house still need to be connected to the power grid? Expand / Collapse Toggle

A home solar energy system still needs to be connected to the power grid to get power in times of low solar energy production. Batteries can help retain solar energy for off-peak times.

Can you net meter with a PPA? Expand / Collapse Toggle

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

Is it better to own, lease or have a PPA? Expand / Collapse Toggle

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 and don’t mind a down payment. Leasing or a PPA might be best if you prefer to get started with solar with little upfront costs.

What’s the difference between a financial PPA and leasing my solar system? Expand / Collapse Toggle

When you lease your solar panels, you pay a monthly fee to lease the system. With a PPA, you are paying per kilowatt-hour for the energy you use. The other main difference is that in a PPA, the developer retains the RECs; however, in a lease agreement, you may be able to negotiate to keep the RECs (and the profit from them) in your control.

Is solar energy right for me? Expand / Collapse Toggle

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