© Learn more about purchasing solar power offered by CNET . Getty ImagesThe cost of solar panels has dropped significantly in recent years. But it is still expensive and out of reach for many.
Solar power in your home will save you a lot of money in the long run, but you will need to invest between $10,000 and $30,000 (upfront or monthly funding) to achieve this. One way to overcome this high financial burden is to enter into a Solar Power Purchase Agreement (PPA).
“Instead of a person paying for a solar system out of their own pocket or with some sort of loan, a third party with a PPA owns that system and sells that electricity to the site host for a fixed price,” says director Ben Delman. Relationships in Solar United Neighbors explained. “Ideally, it would be less than what they pay their electricity supplier. This way, they can avoid paying upfront fees and benefit from immediate savings.”
Sounds like a good deal, right? It's certainly possible, but PPAs have some downsides and significant downsides: They're not available in all states. According to Solar United Neighbors, PPAs are currently legal in 28 states and restricted to seven states, including Washington DC and sunny Florida.
But if you live in a state that offers a PPA, this can be a great way to get started with solar and save on your energy bills.
What is a Solar Power Purchase Agreement or PPA?
When you buy solar power, you pay for the company's equipment (PV cells, racks, inverters, and other components) and the load on your roof to collect solar power. Now you will have a system that is part of your home.
Under the PPA, the installer takes ownership of the solar system and then charges for the electricity it generates. The PPA provider charges you a monthly fee for the energy you use, just like an electric utility company. There may be times when you have to pay both the PPA supplier and the electricity supplier, but your overall energy costs should be much lower - the average PPA cost per kilowatt is about a third of normal power. One thing to consider in a PPA contract is that many of them include so-called "escalators" in the contract, which increase the amount you pay for electricity at certain intervals.
How does solar PPA work?
"The PPA is a long-term agreement between an energy owner and an energy developer who installs, owns and maintains solar panels on the owner's land," said Kelly Stevens, an assistant professor at the Central Florida School of Business.
“The energy developer has the right to invest in energy by selling electricity produced by solar panels to the owner, setting a long-term fixed price for electricity and financing the initial cost of installing the solar panel. The tax credit (ITC) for installing photovoltaic systems reduces their overall investment costs.”
Pros and cons of solar PPA
Getting a solar purchase agreement has benefits for the average homeowner who wants to go green but may not be able to pay the upfront cost bills or have the bandwidth to do so. To change yourself.
The main benefit of this system is cheap, clean power without the hassle and expense of a traditional setup. Since the developer is responsible for the correct installation, after the contract is concluded, the owner must approve the installation of the system and start paying the electricity bill upon completion. He's ready to go. You will usually notice a significant reduction in your monthly electricity bills because you will be receiving electricity from these solar panels and paying a fixed price that you and the developer have agreed upon.
To find out which states are exempt from property taxes, click here: Visit CNET.Beyond this initial setup process, long-term maintenance and upkeep is the responsibility of the developer. If your panels need to be replaced or repaired, the builder is responsible. This removes a significant amount of financial risk from you. Again, all you pay is your monthly electricity bill.
There are transitions when deciding to conclude a contract for the sale of solar energy. First, you don't own the solar system, so you have little control over it. While you don't have to go through the process of selecting panels or repairing them in the event of an accident, your system won't be a complete power source for your home because you're still relying on the builder as a supplier. Because they don't own the system, they don't get tax credits for switching to clean energy. The developer receives tax breaks and can sell the surplus electricity generated by the system for a profit he cannot make.
You need to track property taxes in the solar system. This increases the value of your property, which can lead to higher property taxes that you have to pay every year. However, some states exempt you from these additional environmental improvement fees.
The last thing to consider is the length of your developer contract. Solar Power Purchase Agreements are not short-term contracts. They are included for a period of 10 to 25 years or more. If you need to terminate before this time, you may have to pay an early termination fee, so make sure you read the fine print first.
If solar PPAs are attractive and available where you live, here is a list of pros and cons:
Comfort
No Upfront Costs: PPA is one of the most affordable solar conversion options. After agreeing on the price and terms of the supplier and signing the contract, you can install the system in your home and start saving money on your energy bills.
Less Liability: Because you've contracted with a PPA provider, they're responsible for system maintenance and tax implications, not you.
It's cleaner energy: Many power companies across the country generate electricity from sources such as natural gas or coal. Access to clean energy through PPA reduces your personal contribution to climate change.
Problem
PPAs may not make sense to you: Even if you live in a state that allows PPAs, the amount of sunlight you get won't save you much money on your energy bill. Buy a system for your property or add value more aggressively will provide better long-term ROI.
You don't own the solar system, you pay the supplier strictly for the energy you use according to the PPA. So you won't get the added benefits of owning a solar system, like getting tax credits or being able to sell renewable energy credits to your utility company.
Make it harder to sell your home: Owning a solar system has been shown to increase the value of a home, which the PPA may not say. Transferring a PPA to a new owner is possible, but can be tricky.
Long-Term Contracts: If you don't read the fine print, you can earn an early termination fee if you terminate the contract early.
Can You Save Money With Solar PPAs?
“Of course,” Delman said. "PPAs are meant to save money, ideally after signing a PPA and running the system."
As mentioned above, PPA electricity tariff is approximately one third of traditional electricity tariff, so you can expect immediate savings from PPA. Of course, keep all of the caveats of the PPA in mind to make sure you get the best deal.
Is a solar energy purchase agreement right for you?
For many people, a solar energy purchase agreement is a bargain. PPAs are a great way for homeowners who don't have the financial means to buy a solar system to take advantage of savings on their monthly energy bills. This eliminates the high upfront cost and tedious nature of installing solar panels, and provides a quick and affordable way to go green.
However, with tax credits, energy credits, and other benefits, buying a solar system is a great option for those looking to maximize their solar power. If you can finance the operation of a solar system, the investment will eventually pay off in 6 to 12 years as the value of your home increases.
Basically, if you can directly invest in solar energy, it's worth it. But if the only way to switch to solar is to use a PPA, you'll still get the biggest benefit of solar: immediate savings on your energy bill.
To see which solar installers offer PPAs, see CNET's Top Solar Companies: Browsing on CNET.
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