If you’ve spent any time researching solar, you’ve almost certainly seen the term Solar Power Purchase Agreement, sometimes phrased as Solar PPA or SPPA. Whatever name is used to describe it, SPPAs are usually paired with phrases like “$0 down solar” or “free solar panels.”
On the surface, these arrangements sound like no-brainers: you get to go solar without paying upfront and instantly lower your electric bill. But as with a lot of things that sound too good to be true, they usually come with a lot of strings attached.
Basically, solar power purchase agreements can work in a few very specific situations, but for most homeowners, they end up being far less attractive once you understand how they actually work. To help you decide if they’re worth your time, or just a big rip-off, we’re going to break down what a solar power purchase agreement is, why companies love selling them, and whether or not it’s a type of solar financing option that actually makes sense for you.
Spoiler Alert: Solar purchase agreements are not all they’re cracked up to be.
A Solar Power Purchase Agreement, or Solar PPA, is a solar financing option where a third-party solar installer or utility company installs a solar panel system on your home for free. Sounds like a great deal, doesn't it? Well the catch is the fact that the company keeps ownership of the solar equipment.
Instead of buying the equipment required to build a solar energy system yourself, you agree to purchase the electricity it generates at a fixed rate over a set period (typically 10 to 25 years). Essentially, the solar company owns the equipment, and you provide the property where it will be installed, as well as pay for the energy it produces.
In other words, you’re not buying or working towards owning a solar power system, you’re buying the power it generates at a favorable rate, and using your own property as the installation site.
Think of it like renting a solar panel system instead of buying one, but you’re supplying the property.
Sure, you don’t have to deal with operation and maintenance costs, but you also don’t get a lot of the benefits associated with solar ownership, like increased home value, solar incentives and tax credits, free electricity, and true off grid power independence.
With a Solar PPA program, the solar or utility company takes care of installing the solar power system, as well as the operation and maintenance of the equipment. In return, you pay them a monthly fee based on the amount of solar power you use from what the solar power system generates.
In more practical terms, the new solar roof panels generate DC power just like any other system. That power is then converted to the AC power used inside your home, which reduces the amount of electricity you need to pull from the grid.
The price you pay per kilowatt-hour (kWh) is typically lower than your local residential electricity rate, meaning you could see immediate savings on your electric bill.
However, most power purchase agreements include an escalator clause, which means your electricity price increases over time, often by 2% to 5% per year. This can cut into your savings, especially if the standard grid utility costs don’t rise as fast as expected.
Essentially, you’re allowing a solar installer to use your property, typically your roof, to set up a solar power system. You then purchase the electricity that system generates at a rate that is, in theory, cheaper than what you would pay for electricity from the grid.
Yeah, it’s a bit weird, but it works for some people, even if we are not huge fans ourselves.
Like most things related to the solar energy industry, there are pros and cons to going with a solar power purchase agreement. Let’s take a look at the main arguments for solar PPAs, as well as some of the reasons why we think they’re not the best option:
Let’s start with the most compelling reasons why some homeowners turn to solar power purchase agreements:
Easily the main argument for a Solar PPA is the fact that you don’t have to pay anything at the start. This can be useful for homeowners who simply cannot afford the upfront investment costs of buying solar equipment.
If you have a significant amount of land and high electricity requirements, but very little in the way of liquid cash or available credit, it can be a way to benefit from cheaper electricity without having to worry about spending at the start.
Since the solar company handles everything related to upkeep and maintenance, it can be a completely hands-free way of reducing your electricity costs. If, for example, a solar panel cracks and is no longer generating power efficiently, it would be the responsibility of the installer to replace it.
With that said, not all homeowners are comfortable with allowing a private company to have access to their property. On top of that, if they can prove that you were responsible for any damages to the equipment, you could be held responsible for the replacement or repair costs.
Most solar panel installers don’t care much about the basic day-to-day maintenance of the system. So, they’re not going to come and clean the panels when they’re covered in dust, debris, and show, even though cleaning solar panels is really easy to do.
As soon as the system is installed on your property, your monthly payment usually becomes lower than what you were previously paying for your electricity bill.
Unlike buying your own solar power system, you don’t have to wait for a return on your investment, as you did not have to pay anything to get the system up and running.
As mentioned before, it’s also very important to read the fine print. If the particular SPPA you have signed involves climbing price increases for the electricity the solar panels generate, those savings could become less meaningful over time.
One of the main arguments for going solar in the first place is to safeguard yourself against rising electricity costs.
If the terms of your Solar PPA are favorable, it could help protect you against any drastic rise in utility costs. Again, just be skeptical of any agreement that includes built-in annual price increases for the solar power you are purchasing.
While a Solar PPA can sound like a low-risk way to reduce your electricity costs, they’re not all sunshine and rainbows. Here’s why:
The most obvious drawback of any Solar PPA is the simple fact that you do not own a single piece of the solar power system that is being used on your property. No solar ownership means no access to valuable tax credits or solar incentives.
Solar power systems are also proven to increase the value of a home, but since you don’t actually own any of the equipment, you don’t benefit from any of that appreciation. In fact, it could potentially hurt the sale of your property if you’re locked into an agreement that a potential buyer doesn’t want anything to do with.
As mentioned above, most of these arrangements involve automatic price increases for the solar power you purchase, usually on an annual basis.
So, what looks like a great deal and low monthly fee for electricity could turn out to be a lot less appealing in 10 years.
If the escalator clauses cause the price to go close to or even higher than the regular utility rate, it can defeat the whole purpose of leasing your property out to a solar installer in the first place.
If you own a solar power system outright, it can be a huge selling feature for your home, often increasing the value of your property by as much as what you initially invested in the equipment.
On the other hand, if you go with a Solar PPA, you’ll need to transfer the purchase agreement to the home buyer, or buy out the system from the installer, which could eat into any capital gains you would have earned from selling your home.
Want to upgrade and expand the system, or even just take it down completely? You’re at the mercy of the solar company. This is another one of the main reasons why we are skeptical of solar power purchase agreements. Basically, you lose all control.
Look, we understand why they can appear like compelling offers in the short-term, but who really wants to give up control of part of their property just for slightly cheaper electricity?
Plus, in many cases, if the grid goes down, you can’t pull power from the solar panels that are on your roof because the power belongs to the utility company!
Power independence and the ability to tap into backup power during emergencies and grid outages are some of the most compelling reasons to go solar. With many Solar PPAs, you don’t even get to enjoy that power security.
Here’s the deal: a solar power purchase agreement can make sense for certain homeowners, particularly those who want to go solar with no upfront cost and don’t mind retaining a monthly payment.
However, for most homeowners, owning a solar power system is a far superior long-term investment and decision.
Solar energy systems have become more affordable and beginner-friendly than ever before, and with federal solar incentives and tax credits, you can offset much of the upfront investment. Plus, when you own your solar panel system, you keep all the savings, increase your home’s value, and never have to worry about an escalator clause hiking up your rates.
Here at The Solar Lab, we’re all about helping you make the smartest solar decisions, and honestly, we’ve never been huge fans of power purchase agreements.
They can look appealing at first glance, but if you can afford to buy your own solar equipment, you’ll be much better off in the long run. Honestly, the math and just practical benefits of having your own source of off grid solar power far outweigh the few benefits of any sort of solar power purchase agreement or solar leasing program.
With so many budget-friendly, all-in-one solar power systems available today, why let a solar company make money off your roof when you can easily enjoy those savings for yourself? Even just investing in a portable power station and a few folding solar panels will end up being a better decision in the long run.
If you’re serious about solar power, take a hard look at your options. Whether you’re considering a power purchase agreement or buying outright, just make sure you know what you're signing up for. Because at the end of the day, it’s your home, your power, and your wallet that matters most.
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