Power Purchase Agreement

A power purchase agreement is simply an agreement to purchase power at an agreed-upon price ($/kWh). A reputable solar company offering you a PPA should very clearly inform you what the price per kWh is for your agreement. Be mindful that many companies offer fairly low “starter”-rates, for example, $0.155/kWh, with no money down if you qualify, BUT the contract includes an annual rate escalator, usually between 1-2.9% per year, for the entire 20 year PPA. While this may not sound like a lot, it can equate to thousands more than a flat-rate PPA over the course of the agreement. Note that monthly PPA payments are the product of your agreed-upon $/kWh rate and the kWh production of your system during that relevant month or period.

Leasing Solar Panels with a Power Purchase Agreement (PPA)

A recent development in the solar financing industry was the creation of a Power Purchase Agreement, wherein a financier finances the installation, and the homeowner pays them in return over 20 years through a new kWh/$ payment structure. Therefore, you would only be paying for the energy that is actually produced monthly by your system, and your monthly payment to the financier will fluctuate month-to-month.

In this PPA scenario, the homeowner is eliminating a tier structure and replacing it with a new, single rate. PPAs almost always have an escalator rate increase as part of the Agreement. This means that a rate could increase at the start of the new year for the duration of the rental. For instance, if you started out in Year One with a PPA rate of $0.15/kWh and an escalator of 2%, by year 5, your rate is $0.1612.