Power Purchase Agreement (PPA)
A power purchase agreement is a type of solar financing where someone else owns the solar system on your property, and you pay for the power it produces. Historically this was only done on large commercial systems over 100 kW in size, but more recently they have become popular for residential solar panel systems too. Since it’s a monthly charge for electricity, the economics are very simple to evaluate; if it’s cheaper than the rate on your electric bill then you can save money. This, and the fact that there is typically no upfront cost, has made power purchase agreements very popular.
However, with a solar PPA you will typically pay more than buying the solar panel system outright. You should really think about this because most people do not want to pay more than they have to.
A Solar Power Purchase Agreement is a financial arrangement in which a third-party developer owns, operates, and maintains the photovoltaic (PV) system, and a host customer agrees to site the system on its roof or elsewhere on its property and purchases the system’s electric output from the solar services provider for a predetermined period. This financial arrangement allows the host customer to receive stable, and sometimes lower cost electricity, while the solar services provider or another party acquires valuable financial benefits such as tax credits and income generated from the sale of electricity to the host customer.
With this business model, the homeowner or host customer buys the services produced by the PV system rather than the PV system itself. This framework is referred to as the “solar services” model, and the developers who offer PPAs are known as solar services providers. PPA arrangements enable the host customer to avoid many of the traditional barriers to adoption for organizations looking to install solar systems: up-front capital costs; system performance risk; and complex design and permitting processes. In addition, PPA arrangements can be cash flow positive for the host customer from the day the system is commissioned.
Disadvantages of Solar PPA
- You don't own the system
- Need to understand and negotiate a complex contract
- May have two electric power bills
- May restrict changes or sales of the home or property
- No solar tax credits, rebates or renewable energy credits.