Solar panels are the key component required to revolutionize homes with renewable energy. But what stops people from installing these systems is the upfront price they come with. Yes, these panels have become affordable over the years, but they still require an investment of nearly $8,500 to $30,500. This is a huge chunk of money for many. One way to overcome this financial hiccup is to go for a Power Purchase Agreement. This blog will cover everything about it, from what it is to ppa solar pros and cons. So, stay tuned!

PPA Solar Pros and Cons

ProsCons
Immediate savings without upfront payments.Limited long-term savings compared to ownership.
Less responsibility as provider handles maintenance and taxes.Limited access to incentives.
Supports renewable energy.Contractual restrictions on property modifications.
Predictable pricing offers stability.Difficulty selling the house.
Excess electricity can be sold back for returns.Limited management and tax benefits.
Potential increase in property value.Panels could raise property taxes.
Provider handles repairs, reducing risk.Often comes with a price escalator.

Before getting into the detailed pros and cons, you need to grasp what a solar PPA is. It is an agreement where a third party buys and installs a solar panel system on your property in your stead. They then charge you a lower fee for the electricity the system produces. Compared to the usual amount you pay for electricity from your utility company,  this fee is always less.

So, this way a homeowner or a business can have a solar panel installed without paying any upfront price.

Pros of Solar PPA

PPA - Power Purchase Agreement price per kwh

After understanding PPA solar’s meaning, it is now time to get a detailed outlook on its benefits:

1. No Upfront Costs

This agreement is among the most affordable ways to go solar. After you and the provider decide on the terms as well as the price of the contract and sign it, they’ll come and install the solar system on your premises. You’ll have a system that’ll help you save on your energy bill and all that while not paying the typical high upfront costs. It’s a win-win for you.

2. Less Responsibility

Since you have signed a PPA contract with the provider, you are free from all major responsibilities. Be it tax implications or maintenance, they are accountable for it not you. So, one major burden is off your shoulders.

3. Cleaner Energy

Countless energy utilities use non-renewable sources like coal or natural gas for the production of their electricity. By signing up for a solar system with a PPA, you’ll get clean as well as green energy. This will extensively cut down your contribution to climate change.

4. Predictable Energy Pricing

Another benefit of PPA solar is that it offers you predictable energy pricing. Your contract clearly outlines the amount you exactly need to pay each year. On the other hand, your utility companies can increase your electricity charges at their convenience, and that too without prior warning.

5. Net Metering Benefits

If your solar panels will produce more energy than your home requires, the extra energy can be sent back to the utility grid. The great news here is that PPA lets you enjoy the net metering benefits offered by your utility. This can help you eliminate your utility bill completely.

6. Minimal Risk

If your solar system faces any issues, the provider is the one who’s responsible for its repairs and replacements. You don’t need to worry much as the provider deals with the maintenance and makes sure that the system is running ok.

7. Potential Increase in Property Value

If your home has a solar panel installed, its property does get a boost. PPAs can also be transferred with the property. By investing in solar with the help of this agreement, homeowners can enhance their property value without spending much. 

Also Read: Unsecured Solar Loan: Empowering Homeowners to Go Green

Solar PPA Problems

solar ppa problems

There are two sides to a coin. So, how can this financial agreement be free from disadvantages? Let’s look at the second aspect of PPA solar pros and cons-

1. Limited Long-Term Savings

Apart from the initial benefit of not having to pay upfront costs, this contract isn’t so rosy. The long-term savings you have with a PPA may be lower compared to outright owning solar panels or using a loan for the same. In fact, over the contract’s duration,  you can even end up paying more for the electricity generated by your panels than you would have if you had outright owned the system.

2. Limited Access to Incentives

It is sad but when you choose PPA, you may not qualify for federal tax incentives, solar panel grants, or even solar renewable energy credits (SRECs). This will mean that you’ll miss out on a lot of financial benefits that are accessible to other solar panel owners.

3. Contractual Restrictions

PPAs as their name suggests are nothing but long term agreements or contracts. So, they can put certain restrictions on property modifications. These restrictions may not allow you to plant trees or make any alteration to your property that can notably affect your solar panel’s efficiency.

4. Difficulty Selling Your Home

The PPA can be transferred to a new homeowner but the problem is finding a buyer who will accept the house with all these conditions. This can complicate the sale of your property and even reduce its marketability.

5. Lack of Ownership and Control

Under a PPA, you don’t own a system, a third party does. This means you have limited control over its management as well as the future. Not being the panel’s owner is also the reason why you miss out on all the amazing tax incentives for solar panel ownership.

6. Potential Increase in Taxable Value

It is quite scary that even if you don’t own the solar panel system, its presence through a PPA can increase your house’s taxable value. This means that despite not owning the system outright, you might need to pay comparatively higher property taxes.

7. Often Comes With a Price Escalator

Initially, the solar PPA price per kWh of some companies is quite low, like $0.155/kWh and if you qualify for it, there is no upfront payment required. But as a famous proverb says that there’s no such thing as a free lunch, this deal also has some problems. Often, its contract comes with an annual rate escalator.

Generally, the escalation is less than 3% per year for the entire duration of the PPA, which ranges from 5 to 25 years. Don’t assume that it’s a small percentage, it can make you pay thousands more than a flat-rate PPA throughout the agreement.

Also Read: 15 Red Flags to Identify Solar Panel Companies to Avoid 

How does a PPA Work?

Solar PPA works

The points we have discussed below will help you understand it’s working in a simplified manner:

1. A solar PPA lets homes, businesses, or other such institutions buy discounted solar electricity without actually having to outright purchase a solar panel system.

2. The solar PPA companies handle the installation of these systems. They decide how many panels and of what type or brand are needed for that particular property. After this, they install the system on your home or business.

3. You get to not pay any upfront cost and still access solar power at a discounted price. The PPA company on the other hand gets to sell the extra solar electricity back to the grid.

4. Using federal tax incentives and solar renewable energy credits (SRECs), these companies also get remarkable discounts on solar systems. Additionally, the business can also sell the extra solar electricity back to the grid.

5. If you use more energy than what is being produced by your panels monthly, you’ll be obliged to pay your utility company for that extra electricity you are taking from the grid.

6. Depending on the amount of electricity the solar panels generate each month, you’ll payments will also differ.

7. The most important point to remember about the PPA arrangement is that you don’t actually get free electricity from it. You can only get it free when you outright own your panels. 

Cross-reference: The Ultimate Guide to PPAs

What is the Difference Between Solar PPA Vs Lease?

A solar lease is another common way to finance solar panels. Let’s compare it to a solar PPA using the table below-

CriteriaSolar PPASolar Lease
OwnershipHomeowner does not own the solar system; purchases power generated.Homeowner typically leases solar panels and owns power produced.
Financial StructurePays for electricity generated at a predetermined rate per kWh.Pays fixed monthly amounts to use solar panels and benefit from energy production.
Long-Term CommitmentUsually involves long-term contracts, potentially limiting flexibility.Also involves long-term commitments, and may offer more ownership-like benefits.
Maintenance ResponsibilityProvider is responsible for maintenance and repairs.Responsibilities may vary, often shared between homeowner and leasing company.
Financial BenefitsOffers potential savings on electricity bills without upfront costs but lacks ownership.Provides access to solar energy with fixed monthly payments, potential long-term savings, and ownership of the system.

This blog gave you a glimpse of why PPA is a great choice for homeowners who aren’t comfortable purchasing a solar system upfront. If you are planning to buy a system outright, it also has its own share of benefits like tax incentives and energy credits. So, if you have the money to invest directly in a solar system, go for it. But if you don’t and PPA is your only option, you are still going to save money on your energy bills right away with it.

Also See: Solar Lease Vs Solar Loan: What Should You Opt For?

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Olivia is committed to green energy and works to help ensure our planet's long-term habitability. She takes part in environmental conservation by recycling and avoiding single-use plastic.

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