By Keira Ray

According to the U.S. Department of Energy, the popularity of residential solar power is expected to boom as prices drop over the next decade. Solar energy may still seem niche or trendy to some, but there’s little debate that the future will be run on renewable energy sources—chief among them, solar power.1 Solar power is consistent, reliable, and efficient in most areas. However, the current costs of solar equipment and installation—while at their lowest point ever—can still be a deterrent for many homeowners. A unique solution for budget-conscious homeowners is a home solar Power Purchase Agreement, or PPA.

What is a Power Purchase Agreement and how does it work?

A home solar PPA is an offer that’s provided by a third-party distributor known as a solar services provider.2 Under this arrangement, the distributor owns the solar-electric system—the homeowner is just hosting it, and in effect purchasing the energy it produces for household use.3 The PPA specifies that, in exchange for agreeing to purchase the solar power it generates, the distributor will provide, install and maintain the homeowner’s solar equipment—free of charge.

Solar customers with acceptable credit ratings can choose zero-down, down payment, or prepaid PPA plans. Down payment and prepaid agreements often include stable or reduced power rates, which means that homeowners will be free from price hikes during the duration of the contract.4

After the initial down payment (if any) is made toward the expected energy purchase, the homeowner receives monthly bills from the solar services provider for the home’s electrical consumption. The cost per kilowatt hour the homeowner pays is a fixed-price, and is usually less than the cost of grid-supplied electricity.5 It’s important to note that this bill is in addition to the home’s usual utility bill––but once the solar system is up and running, that monthly utility bill will be significantly decreased.

Solar Leases and PPAs are similar, but have a few differences

Households in Metuchen are saving an average of $780 per year on their electric bills.

Are you a homeowner?

Solar leases are not the same as Power Purchase Agreements.

There are several ways to obtain solar system financing, but solar leases and PPAs are the most popular options for homeowners. More than 60% of residential solar systems are installed under these “third party ownership” arrangements.6 While solar leases and PPAs each have their pros and cons, they serve completely different purposes. It’s essential for any homeowner to understand exactly what their financial plan covers.

Like any agreement, terms of a solar lease can vary depending on the lending institution’s requirements and the homeowner’s financial situation. In order to be considered eligible for a solar lease, however, a homeowner generally needs to have excellent credit.

A key distinction between solar leases and PPAs lies in the nature of monthly payments. Under a PPA, a homeowner pays the distributor directly for the solar electricity they use in a month, usually at a discounted rate. The homeowner may or may not also need to pay their utility company for any additional electricity that was drawn from the grid. While homeowners with a PPA know how much they’ll be paying per kilowatt of electricity through their distributor, a solar lease doesn’t require you to pay for the electricity the array generates. Homeowners with a leased system will need to pay the agreed-upon monthly amount to the financing company, in addition to a monthly electric bill. A leased system can still result in monthly savings for homeowners, as long as that month’s lease payment is outweighed by the savings on the monthly bill.7

Solar panels on modest residence

Why might a homeowner consider a PPA?

Many people who want to “go solar” can be intimidated by the ins-and-outs of the tax credits, solar permits, warranty terms, and other considerations of owning a residential solar-electric system. Some homeowners just want the knowledge that their homes are solar powered—without all the hassle of purchasing an array.

A typical home solar PPA spans between 10 and 25 years.8 However, modern solar panels can last twice as long. Under a PPA, the distributor assumes responsibility for system maintenance and repairs. The terms of a solar lease may cover such additional costs, but not in all situations.9 Solar PPAs are also transferable. This means that if a homeowner has to relocate, the agreement can easily be taken over by the new homeowners.

A key benefit of a home solar PPA is the fixed price of electricity. By locking in a low rate with a home solar PPA, a home’s electrical costs will remain stable over the years, compared to the wavering spikes charged by corporate utility companies. While these fixed price PPAs aren’t available in all situations, even escalating price PPAs will generally result in lower electricity prices than utility-sourced energy.10

Home solar PPAs provide essential renewable energy solutions without the added stress of high-priced equipment costs.

The number of solar panels that a home needs depends on the household’s expected energy usage. For homeowners who have families, home offices, or who otherwise spend a lot of money on grid-supplied electricity, a large array will likely be needed to power the residence. Most homeowners don’t have bottomless budgets to invest up front in equipment costs and installation fees. Solar leases and power purchase agreements ensure that they don’t have to. The truth about home solar is that solar PPAs and solar leases are a smart option for those who want to go solar but need flexible options for potential life changes down the road.

If you found this article to be helpful, please share! And be sure to enter your zip code at the bottom of the screen to see if going solar is right for you.


Bibliography

  1. Hausman, May 2015. (5)
  2. Green Power Partnership. “Solar Power Purchase Agreements.” EPA.gov. US Environmental Protection Agency, 29 Mar. 2016. Web. 15 Feb. 2017.
  3. Green Power Partnership. “Solar Power Purchase Agreements.”
  4. “Solar Power Purchase Agreements.” SEIA. Solar Energy Industries Association, n.d. Web. 15 Feb. 2017.
  5. “Solar Power Purchase Agreements.” SEIA. Solar Energy Industries Association, n.d. Web. 15 Feb. 2017.
  6. Hausman, Nate. A Homeowner’s Guide to Solar Financing: Leases, Loans and PPAs. Rep. N.p.: Clean Energy States Alliance, May 2015. PDF accessible here. Prepared through US Department of Energy SunShot Initiative.
  7. Hausman, May 2015. (5)
  8. “Solar Power Purchase Agreements.” SEIA. Solar Energy Industries Association, n.d. Web. 15 Feb. 2017.
  9. Hausman, May 2015. (5)
  10. “Solar Power Purchase Agreements.” SEIA. Solar Energy Industries Association, n.d. Web. 15 Feb. 2017.

Editor: Kelsey Tollefson

Executive Editor: John Lenker