You’ve probably seen “Free Solar!” advertisements - they’re one of the most infamous parts of the entire solar industry. But how does “free” solar really work?
The answer: Power Purchase Agreements, or PPAs.
This type of solar financing aims to reduce your electricity bill without a large upfront investment. In this article, we’ll pick apart the details of Power Purchase Agreements, the common misconceptions surrounding them, and more.
What makes a PPA different from other solar financing options?
There is one main difference between a Power Purchase Agreement and purchasing a solar system with cash/a loan:
With a PPA, you don’t purchase the system at all - it’s more like a lease.
This may sound confusing, especially since the word “purchase” is literally in the name, but entering into a PPA means purchasing the power that the system produces rather than the system itself.
Imagine you wanted to plant a large garden on your property to provide fresh, organic produce for your home - but you couldn’t afford the landscaping or upkeep required to plant one. Instead, you allow a farmer to use your land to plant crops.
This farmer will be responsible for the upkeep of the garden, and will sell you produce at a much discounted rate.
This is basically how a PPA works (with solar power, obviously, not vegetables). The solar company places the system on the customer’s home and is responsible for maintenance and upkeep, while the customer purchases the power produced at a much lower rate than the utility.
So yes, the system itself technically doesn’t cost the customer a dime - however, the customer won’t be able to use the power it produces without paying the agreed-upon cost per kWh.
Benefits and Things to Watch Out For
Now that we’ve explained what a PPA is, let’s delve into the details. Not all PPA offerings are created equal, and there are pros and cons to every situation:
Warning Signs to Watch Out For:
- Possible Annual Escalators
One of the notable drawbacks of PPAs is the potential for annual escalators in electricity prices. While initial rates may seem competitive, many PPAs include charge escalators that increase costs every year. This can make it challenging to plan long-term budgets and anticipate future expenses. -
Customer doesn't own the system
Perhaps the most significant drawback of PPAs is that the customer does not own the renewable energy system. This means they have limited control over system maintenance, upgrades, and decisions related to the system's operation.
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Unavailable for Federal Investment Tax Credit (ITC)
PPA deals mean that customers will not be able to claim the 30% Federal Investment Tax Credit (ITC) for solar, as only the owner of the system can claim this credit. Since the customer in a PPA arrangement does not own the system, they are typically not entitled to claim these tax credits.
- Contractual complexities
PPAs are legally binding agreements that can be complex and difficult to navigate. The terms and conditions can vary widely between different providers and contracts, so it's important to make sure you understand the offer before committing.
PPA Benefits:
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No upfront cost
One of the most appealing aspects of PPAs is that they eliminate the need for customers to make hefty upfront investments in solar installations. Instead, the solar company covers the initial costs, making renewable energy more financially feasible.
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Feasible for customers who can't claim the Federal Tax Credit
PPAs offer a way to take advantage of solar power without needing to rely on tax incentives. Individuals without a taxable income, or those with a low tax liability may not be eligible for or cannot fully utilize the Federal Investment Tax Credit (ITC).
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Looking out for the planet
With a PPA option, consumers that normally wouldn’t be able to afford a home solar system can actively contribute to mitigating the effects of climate change. Solar power generation produces clean energy, significantly reducing greenhouse gas emissions and reliance on fossil fuels.
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Ideal for areas with poor Net Metering rates
In regions where net metering policies may not be favorable for solar system owners, PPAs offer a viable alternative. California’s NEM 3.0 policy, for example, actually makes it more beneficial for some customers to enter into a PPA than purchase their solar, since they can significantly reduce energy costs without spending a large amount upfront.
- Lower rates & protection from rate hikes (without escalators)
The main appeal of PPAs is their competitive rates for solar electricity that are lower than traditional utility rates. This translates into immediate savings on energy bills. However, keeping those rates locked in is even more important; entering into a PPA without any escalators (like Project Solar’s) will allow you to lock in a lower utility rate for the entirety of the contract’s term. -
Hassle-Free Maintenance and Warranty:
Solar Maintenance is pretty minimal, but every once in a while there can be issues with the system’s production or damages due to severe weather. Companies that offer PPAs typically handle the maintenance and warranty concerns associated with the solar panels and equipment for the entire agreement term. This means you can enjoy reliable benefits of solar energy without the responsibility of upkeep.
How do I know if a Project Solar PPA is right for me?
Project Solar has always offered transparent pricing with no sales commissions, and these values extend to our PPA offerings.
Our PPA options cost $0 upfront, and have absolutely no escalators. Your energy costs will be locked in against inflation for the entire duration of the agreement. We offer options with or without batteries, and we’ll tailor your design to your roof and usage to maximize the system’s production and savings.
To learn more about how Project Solar’s Power Purchase Agreement option can save you money, get started here or contact our Customer Experience Team.
