Solar Power Purchase Agreement

What is a Power Purchase Agreement?

A Power Purchase Agreement (PPA) is an alternative way to finance a home solar system.

In this agreement, a homeowner pays for the electricity that their home consumes from the energy produced on their rooftop solar. The system is installed by a solar contractor for little to no upfront cost. Essentially, the installer takes the place of the utility by providing solar energy to the homeowner who pays the installer for their energy usage at a lower rate than what the utility charges.

Note that the homeowner may still need to pay the utility for usage that the solar system wasn’t able to cover at night or whenever the home is using more energy than the system is able to produce.

What Are The Costs Associated With a PPA?

The main reason PPAs exist is to allow homeowners to source clean energy with little to no upfront costs and without having to own the system.

There are different types of PPAs to get familiar with.

A reputable solar company offering you a PPA should very clearly inform you of the price per kWh as well as any increases or “escalators” there may be over time. 

Be mindful that many companies offer fairly low “starter” rates, for example, $0.155/kWh, with no money down if you qualify. However, the contract may include an annual rate escalator, usually between 1-3% per year, for the entire duration of the PPA (which can range from five to 25 years). 

It’s important to thoroughly read your PPA contract to understand if there’s an escalator and how it will affect your payments over time.

What are the Pros to a PPA?

PPAs typically require little to no upfront cost and can provide immediate energy cost savings with a payment that’s lower their your utility bill. Even with an escalator, these predictable payments can provide long-term savings and protect you from rapid and volatile utility rate hikes.

With the homeowner-claimed solar tax credit ending at the end of 2025, PPAs offer an alternative way to benefit from the business-claimed solar tax credit through the end of 2027.

There are also benefits to NOT owning the solar system on your roof. It is the PPA company’s responsibility to monitor and maintain the system, and if a component fails, they cover the cost of fixing it.

What are the Cons to a PPA?

The main drawback of a PPA (and all Third-Party Owned solar arrangements) come when you want to sell your home or exit the agreement. PPAs do not add home value like owned solar systems, and can add steps to the process of selling your home.

Additionally, if there’s an escalator in your PPA, your electricity payments will rise over time, whereas loan payments on an owned system stay flat.

How is a PPA different from a Solar Lease?

Solar Leases and PPAs are similar in many ways. Typically, a lease means monthly payments at a fixed rate, while PPAs charge based on $/kWh a homeowner uses from the system on their roof.

The availability of leases and PPAs varies from state to state. Some states only allow leases, and other states only allow PPAs. Some allow both, some allow neither.

Connect with a solar.com Energy Advisor to compare the lease, PPA, and ownership options in your state.

When looking into solar options, be sure to research each option and price it out based on the lifetime of the contract for a PPA, lease, financing, and purchasing.

The bottom line

Solar PPAs are one route to clean electricity and energy cost savings, without the responsibilities of monitoring and maintaining a solar system.

Our advice: If you can purchase and install a solar system by the end of 2025 and claim the 30% tax credit — do it! If not, leases and PPAs are a great way to lower your essential electricity costs.

Connect with an Energy Advisor to explore your options for going solar.