Do you have 12,500 dollars sitting in between your couch cushions? Probably not. According to Energysage, that’s about how much the typical solar panel system installation costs in 2016. However, recent research by Newswatch found that 62-percent of Americans have less than 1000 dollars saved for a rainy day. Suffice to say, solar companies understand why you might have a hard time shelling out nearly 13 thousand dollars for an install. That’s why high-ranked solar system installers, such as Sungrade and SolarCity, typically offer zero-money down financing options such as power purchasing agreements (PPA) to meet your needs. Keep reading to find out the answers to some of the most frequently asked questions: What exactly is a PPA? How does a PPA benefit me? How is it different from a solar lease? What are the drawbacks to your typical PPA?
WHAT’S A PPA?
A solar power purchasing agreement is a financial agreement where a solar power company designs, finances, and installs a solar energy system at zero or little upfront cost to the end consumer. In these arrangements, the installer typically agrees to handle all required maintenance and service on the provided system at no cost. Just be aware that these aren’t short term agreements. Your average PPA ranges from 20 to 25 years in duration. In return for services rendered in that time, the customer pays a flat rate for each kilowatt-hour (kWh) produced. This price is now lower than ever! According a study by Berkeley Labs, the average price paid per kWh has dropped 70-percent since 2009. In 2016, the typical consumer can expect to pay just five-cents per kilowatt hour. At the end of the agreed upon term, the customers can choose to remove, purchase, or extend their lease upon the installed system.
HOW DOES A CONSUMER BENEFIT FROM A PPA?
First and foremost, thank you for considering going solar. The environment, and future generations, will thank you. Aside from making the world a greener place, customers receive a few benefits by choosing to finance via a PPA. The most obvious, and the reason why PPAs are becoming the most popular way to finance solar installations, is the drastic savings given by avoiding upfront costs. Additionally, even with the per kilowatt-hour charges, the typical PPA will save the average consumer between 20 and 30-percent on monthly utility bills. This means, over twenty years, that customers in places like Portland can save well over 40-thousand dollars. However, the benefits of a PPA extend far beyond your wallet.
You can consider a PPA as renting a solar system without any of the hassles. In addition to taking care of your installation, the financing party provides a lot of additional services to their customers. First, the leasing company retains all responsibility for monitoring the system’s performance for the entirety of the lease. Additionally, the installer will be required to perform all needed maintenance until the end of the agreed upon term. Lastly, a PPA offers plenty of flexibility. In addition to the ability to customize the length of your rental, the customer retains the right to purchase their given system at any time.
HOW IS A PPA DIFFERENT FROM A SOLAR LEASE?
If you cannot afford your system up front, but do not want to enter a PPA, you have another option: leasing. A solar lease is very like a PPA in the following ways: Both options offer zero-down or low-upfront financing. Both typically offer an energy production guarantee; just be careful to read the fine print. Leasing and PPAs are both cheaper than paying upfront with cold hard cash. Fourth, maintenance and monitoring are typically supplied at no additional cost to the consumer. Lastly, the financing options share the same number of end-of-term options. However, leasing and PPAs are in no way interchangeable.
Leasing your solar panels is no different from leasing your typical SUV. You’re responsible for cleaning your solar panels. You need to prove you did your part to prevent any maintenance costs. No matter how much energy your system does, or does not produce, you’ll still have to pay. Basically, the difference between a PPA and a solar lease can be succinctly summarized as follows: when you lease, you pay for the system, when you enter a PPA, you pay for your power. As both options typically have a rate escalation clause built into them, between one to three percent per year, you’re never truly guaranteed a fixed cost. However, this steady rise in costs is much less costly under a solar leasing agreement. While the lease payments remain mostly constant, no matter how your system degrades over time, you could end up paying more for less energy! The PPA pricing on the other hand will shift to compensate you for any system failures or inefficiencies. Please keep in mind, even with these drawbacks that there are some situations where a solar lease remains your best option.
ARE THERE ANY DRAWBACKS TO A PPA?
While most solar companies want to help the environment, they’re not charities. Therefore, while you receive lower upfront costs, the installer will walk away with some benefits of their own. First, as the solar provider retains all ownership of your system, they are the ones eligible for any applicable tax breaks, discounts, and rebates. Second, if you ever choose to sell your home, the presence of a potentially outdated solar system could damage your property value. While you can choose to remove the system upon the closing of the sale, this drawback remains something to keep in mind. Lastly, when you enter an agreement for twenty years or more, you may end up paying higher prices for a system that’s inefficient and outdated.
Even with these drawbacks in mind, a PPA remains one of the easiest ways to gain access to all the environmental, and cost-based, benefits of solar energy.