What Is a Solar PPA?

How does a solar PPA work?

A solar PPA is a deal between you and a solar company. The company puts solar panels on your home. PPA agreements typically last 15 to 20 years.

• You pay for the power, not the panels. Each month, you pay for the electricity your system makes. The price is usually lower than your utility bill. Over time, this can help you save money. But your rate may go up. Some contracts include escalator clauses, meaning your per-kWh rate increases annually (typically 1% to 3%).
• You don’t own the system. The solar company owns the panels. They take care of all repairs and check that the system is working well. Since you don’t own the system, you don’t get tax breaks.

What happens after the term ends?

At the end of a solar PPA, you typically have three options:

1. Renew the PPA, often at a lower rate or adjusted market rate.
2. Purchase the system at a fair market value, usually lower than the initial cost since the equipment has depreciated.
3. Remove the system. The provider will uninstall the system, typically at no cost to you.

Author’s note

Early termination is sometimes possible, but it usually involves buyout fees or transfer requirements. If you plan to sell your home, you'll likely need to transfer the PPA to the new homeowner, which may require credit approval.

» MORE: Solar energy pros and cons

Solar PPA pros and cons

A solar PPA lets you go solar with no upfront cost and predictable energy rates. Anecdotally, Lili in Colorado spends about $20 per month on her PPA. Cliff in California said their electric bill was $800 during the summer. Since getting a solar PPA, their monthly electric bill is about $100.

But you give up ownership benefits and incentives in exchange for convenience. Some homeowners also report feeling “stuck” in their PPA. For instance, H. in California wrote in a solar company review: “I have a PPA and I am STUCK with whatever [the company] wants to tell me.”

States that allow solar PPAs

Not all states allow PPAs. As of publishing, 28 states and Washington, D.C., allow solar power purchase agreements, seven states ban them and 15 states have no policy information available. Due to the lack of uniformity in energy policy and regulations across the country, PPAs aren’t an option for some homeowners.

Solar PPA vs. lease

A solar PPA may offer lower initial payments, while a lease might provide greater long-term savings, depending on the contract terms.

Both PPAs and leases are sometimes described as “renting your rooftop” to a power company and paying the rent yourself. This is fairly accurate — the installments you pay on a PPA cover the cost of the system, installation, maintenance and a margin of profit on both the system and the financing.

With a solar lease agreement, you pay a fixed monthly fee to “rent” the solar system, regardless of how much electricity it produces. With a PPA, on the other hand, you agree to purchase the solar energy generated by the panels at a fixed rate for a certain number of years, with the panels installed and maintained by a third-party provider.

Which is better?

A PPA might be for you if you prefer lower (and more predictable) monthly payments. A solar lease might be better if you’d rather save more in the long run. Ultimately, the best option depends on your goals, budget and electricity usage.

» MORE: Are solar panels worth it?

Solar PPA vs. solar panel ownership

A typical solar panel system costs between $10,000 and $30,000. PPAs don’t have a payback  (unlike system ownership) period since you're not paying for the system. Your savings are directly from lower electricity rates.

In other words, PPAs work less like a loan and more like a utility bill contract. You’re not borrowing money to own the panels; you’re agreeing to buy the electricity they produce.

Average cost of solar panels by system size

What should I look for in a solar PPA?

When considering a PPA, ask these questions:

• Will the monthly costs of the PPA actually lead to savings against my energy bill?
• What do the specific terms of the PPA say about ownership of the panels?
• What happens if I can’t make a payment?

Is a PPA right for me?

To determine if a solar PPA is right for you, consider your energy consumption, the orientation and shading of your roof, the incentives and rebates available in your area, and the cost of electricity from your utility.

You should also compare the terms of the PPA with those for other options and assess the reliability and reputation of the company offering the contract.

If you move forward, it's crucial to carefully review your contract to ensure it meets your needs and provides good value for your investment in solar energy.

Compare solar companies with PPAs

Many of our top-rated solar companies offer PPAs.

FAQ

Bottom line: Is a PPA a good idea?

Whether a solar PPA is a good idea for your solar installation depends on your home’s energy usage, your budget and your long-term goals. One of the biggest advantages of solar PPAs is that they provide a way to go solar without paying upfront for a solar panel system. On the other hand, PPAs come with a higher long-term cost when compared with options like leasing.

If you’re interested in installing solar panels on your roof or beside your home but can’t afford the upfront cost of the system and installation, a solar PPA may be a good solution.