Power purchase agreements (PPAs)

There are many $0-down financing options available for going solar, including both ownership (i.e. solar loan) or third-party-owned (i.e. leases) solutions. Many homeowners looking for an easy, low-cost, maintenance-free way to install a solar panel system move forward with a power purchase agreement (PPA). In this article, we’ll talk about what solar PPAs are and discuss the advantages and disadvantages of this financing solution.

What is a solar power purchase agreement (PPA)?

Financing a solar panel system with a power purchase agreement, otherwise known as a PPA, is similar to leasing or “renting” a solar panel system. Simply put, a solar company or PPA financier covers all the costs to buy solar equipment and install it on your roof. Though the solar panel system is located on your property, they own it and therefore take care of any necessary maintenance.

The solar panels generate electricity and power your home, allowing you to save on your monthly utility bills. In exchange, you agree to pay the owner of the system (i.e. the PPA financier or solar company) a set rate for each kilowatt-hour (kWh) the solar panel system generates. In other words, you agree to purchase the power of the solar panels, hence the name PPA. This rate is typically lower than what your utility company charges for the electricity you’d otherwise use from the grid. 

Unlike with solar leases, PPA charges vary from month to month since your bill is based on the production of the solar panel system. Because solar panels typically produce more electricity during the summer than during the winter, most people experience higher PPA payments during the summer months, but more savings on utility bills as well.

Importantly, the majority of residential solar PPAs are $0-down. Some companies offer pre-paid PPA options if you’re interested in paying the entirety of the PPA upfront, but this is less common. 

What are the advantages of solar power purchase agreements?

As with all financing solutions, going solar with a PPA has many advantages.

$0-down

Most solar PPAs offer a $0-down way to go solar: you won’t start paying until the solar panel system starts generating electricity for your home. Because of this, PPAs are a popular option for homeowners who don’t want to invest money upfront. However, don’t choose a PPA assuming it’s the only way to go solar with no money down – financiers offer loans and lease agreements with the same attractive benefit.

No maintenance

With a solar PPA, you won’t own the equipment on your roof. This means that, should your solar panel system require maintenance or servicing, it is the responsibility of the PPA financier to take care of and pay for any required maintenance and labor. On the other hand, if you own your system, you typically need to handle any necessary maintenance. Keep in mind that because rooftop solar panel systems are stationary, they generally require very little maintenance. Plus, if you own your system, you’ll have multiple warranties to protect you!

Electricity bill savings

Though not to the same extent as with solar ownership options, you can still save money with a solar PPA. Most PPAs offer roughly 10-20 percent off your electricity bill costs. For the average home that spends $118 on electricity bills each month, this means $141 to $283 in savings during year one – that’ll add up over 20+ years of a PPA agreement!

Is a solar PPA right for you?

When it comes down to it, whether or not a PPA is the right financing option for you depends on personal preferences and financial goals. If you want to save as much money as possible when you go solar, ownership is the way to go – you typically save more money over time if you finance with a solar loan than a PPA because you’re eligible for federal and state solar incentives, and you generate more cash flow once you pay off the loan. However, if you can’t take advantage of tax incentives and don’t want (or can’t) take out a loan, solar PPAs can be an easy way to get panels up on your roof.

Find the right financing solution on Bright Sol Energy

You wouldn’t buy a car without looking at a few offers first – solar is no different. On the Bright Sol Energy, you can compare up to seven custom quotes from local installers. If you’re interested in loans, leases, PPAs–or want to compare all three–simply note it in your account so that installers can provide some financing options to consider. If you’d like to start with a quick estimate of what you can save with solar, try our Solar Calculator.