A solar PPA (Power Purchase Agreement) is a financial contract between a developer and a client. A developer will handle all aspects of the design, financing, permitting, and installation of a solar panel system on a customer’s property.
Solar Power Purchase Agreements (PPAs) are a popular financing option for individuals considering going solar in the United States, Africa, and most parts of the world since they allow you to install home solar on your roof (or anyplace else on your property) for no up-front cost.
Despite their $0 down payment requirement, there are several drawbacks. We’ll look at how solar PPAs work, their benefits and drawbacks, as well as market policy specifics, to see how much you can save on your electricity bill.
HOW DOES A SOLAR PPA WORK?
A homeowner (or host customer) can sign up for a solar PPA with their solar developer/installer and agree on the length of the contractual term. Solar PPA contracts typically last between five and twenty-five years.
After that, the solar developer will install panels on your property (usually on a roof). Any solar energy generated will cover the home’s electricity demand for the duration of the contract. However, this energy is not given to the host consumer for free.
The generated power is resold to the homeowner at a predetermined rate by the developer. This tariff is lower than the retail rate charged by the local utility. If it were higher, solar PPAs might not be worth it unless the primary goal was to use clean, renewable energy.
Any excess solar energy generated by the panels is fed into the local grid. Fortunately, if a program is available in your area, you can take advantage of net metering. And net metering has some advantages, but only to a point.
You cannot obtain government subsidies because the solar developer technically owns your solar panel system. similar to the solar investment tax credit (ITC). You’re also not eligible for local rebates and incentives, such as solar renewable energy credits (SRECs), which are often connected with net metering.
Throughout the term of a solar PPA contract, the developer is also liable for any necessary solar panel maintenance, repairs, and replacement. Customers can, however, extend their lease, have the panels removed, or purchase the system after their contract term expires.
PROS OF SOLAR PPA
Here are some of the benefits of signing up for a solar PPA.
ZERO TO ZERO UP-FRONT COSTS
Developers manage the initial costs involved with solar panels, such as system sizing, acquisition, and installation. As a result, you may enjoy a solar panel system with a potential 0% down payment and begin saving with solar as soon as the system is operational.
LOWER ELECTRICITY RATES
The developer provides homeowners with a set electricity rate. This improves household budgeting by making monthly electricity expenditures more predictable. Your rate can be structured in two ways:
Fixed escalator price
Under this plan, a customer’s electricity costs climb at a predetermined rate (typically between 2% and 5%). This is frequently substantially lower than utility company charges.
Fixed plan price
This strategy keeps the rate constant throughout the duration of the solar PPA contract. Customers may rely on the same rate for years even if utility rates rise over time, which is common.
NO RESPONSIBILITY FOR REPAIR OR MAINTENANCE
Because developers technically own the solar panels under a solar PPA, they are totally liable for any repairs or maintenance that are required.
Assume that adverse weather (such as a hurricane) damages your panels or causes them to perform poorly. Your developer is in charge of repairing and maintaining your panels, as well as ensuring they work at peak performance.
MAKE BETTER USE OF INCENTIVES
Solar PPAs benefit developers since they are better positioned to take advantage of tax incentives that reduce the overall cost of the system.
Certain tax benefits, for example, are ineligible if you are a municipal host customer or a similar public organization with no taxable income. These clients, for example, are not eligible for the solar ITC, which is limited to residential solar.
PROPERTY VALUE INCREASE
Customers profit as well because solar panel systems boost the value of their homes.
Because solar PPAs are long-term contracts, they can be transferred across property owners. This increases the property’s appeal when it comes time to sell. However, this is only if the new owner wants solar panels on their home; otherwise, the panels must be removed.
CONS OF SOLAR PPA
Here are the disadvantages of signing up for a solar PPA.
SRECS ARE NOT AVAILABLE
SRECs are often excess solar energy purchased by a utility provider. If your solar panels generate more electricity than your home requires, you can sell the excess to your utility. It will usually offer you SRECs in exchange.
However, the developer receives SRECs from panels installed under a solar PPA, not the host customer.
FINANCIAL OPTIONS ARE LIMITED
Under a solar PPA, both the fixed escalator plan and the fixed price plan are feasible options for people going solar. Many people additionally appreciate the fact that you can frequently pay $0 upfront.
However, acquiring a solar panel system on your own offers its own set of advantages. Many solar panel providers, such as GVE Group, provide innovative financing solutions with interest rates as low as 0%, $0 down payment choices, and a competitive warranty, making it simple to go solar.
PROPERTY IMPROVEMENTS
As previously stated, your solar photovoltaic (PV) system is designed, installed, operated, and maintained by the developer. Other expenditures, however, are borne by host consumers.
This could include pruning tree branches that obstruct the sun from directly hitting your panels or doing something else that supports or reduces the cost of installation. You’ll also need to follow local ordinances, which may incur project management fees such as system inspections and HOA permissions.
HIGHER PROPERTY TAXES ARE POSSIBLE.
Although solar PV systems are a terrific method to boost the resale value of your home, they also raise your property taxes. Property tax exemptions are available in some states, such as Colorado, but not in many others. To be assured, you’ll need to examine the rebates and incentives available in your area.
AN IMPORTANT NOTE ON SOLAR PPAs AND MARKET POLICY
Signing up for a solar PPA is an excellent method to avoid the upfront expenditures of owning a solar panel system. However, PPAs can also help you avoid costs such as equipment, labour, installation, maintenance, and repair.
Using a solar panel system through a solar PPA is also frequently a less complicated process for clients to follow. Host customers are not required to know any federal incentives, tax credits, or local rebates they are eligible for.
However, solar PPA models frequently encounter legislative difficulties that would otherwise aid in the regulation of developers as electric utilities. Developers are akin to utilities because they host customers who effectively buy back the electricity generated by the panels installed in their homes.
Customers who aren’t completely comfortable signing a solar PPA may prefer to lease solar panels instead. Although the two choices are fairly similar, companies that lease solar panels do not sell the electricity generated by the panels.
In both circumstances, however, the solar panel system is owned by a third party.