Originally published on Home Solar PV.
Seen an advertisement recently promoting “free solar installation” or “free solar panels” for your home? Figured it was probably some kind of shady deal with lots of catches involved? Perhaps, and you’re smart to investigate further. But don’t necessarily write those claims off, either: the offer of “free solar installation” may well point to a legitimate transaction that gets solar panels on your roof, and solar-generated electricity to your appliances and gadgets. If you want to explore such an offer further, ask the salesperson, “Are you selling a power purchase agreement (or PPA)?”
What is a Power Purchase Agreement?
In contrast to purchasing solar panels outright, a PPA is a long-term (generally 20-25 year) contract to buy the electricity generated from a solar array. You don’t have to buy any equipment; you just have to agree to purchase the electricity produced by solar panels placed on your roof or other location. The panels themselves are “free” because you don’t own them: the company with which you have the agreement owns the solar array. All of the tasks that go with such ownership fall on them: maintenance, repair, cleaning off snow, etc.
The term “solar leasing” is often used with these arrangements, and that may help you wrap your head around the concept. As with other leasing or renting arrangements – a car, a DVD, a power tool – you don’t necessarily want to own the item in question – you just want the use, or benefits, provided by it. Power purchase agreements give you access to clean electricity without the responsibilities that come with solar panel ownership.
So, what’s the catch? There really isn’t one: you continue to use electricity as you would, but, when conditions are right, that power will be coming from the solar panels rather than your electric company. You’ll stay connected to the electrical grid, so you’ll always have power regardless of whether the sun’s shining or not.
The main benefit of a PPA should be obvious: no large upfront payments to get solar power. Given that installed solar power systems can run from $20-30,000, that’s a significant upside for most of us. You’ll also save money over the long-term vs. traditional electricity: the rates you pay for the electricity generated from the solar system will usually be lower than power company rates, and they won’t rise as much over the course of the contract. Generally, you can count on paying 10-15% less for the power that comes from the solar panels. A final benefit: you won’t have to worry about the extra responsibilities that come with solar panel ownership. The company that owns those panels only makes money if they’re working properly, so it’s to their benefit to make sure that array is stays well-maintained and free of debris, snow, and other things that might interrupt the flow of power.
Of course, there are downsides, too. Giving up the responsibility of owning your own solar array means giving up the financial benefits that go with it, also. When the system on your home or property, for instance, sends power back to the electrical grid, the company that owns it will receive that payment. It will also be able to claim any tax incentives, utility rebates, and other financial incentives.
So, Which is Better: a PPA, or Purchasing a Solar Array?
There’s no settled answer to that question: it definitely depends on the amount of power you can expect to generate from your solar array, the financial incentives available, and the financing options. Your location makes a huge difference: not only do some areas have better solar resources, but some states (like California and New Jersey) have invested more in financial incentives for their citizens and businesses.
You’ll definitely want to run the numbers for all of your options. Make sure you explore all of your options, including the following:
Tax credits and deductions: If you buy a solar power system for your house in the United States before the end of 2016, you can take advantage of a 30% federal tax credit. Depending on your location, other tax incentives may be available: a review of information at the Database of State Incentives for Renewables & Efficiency (DSIRE) will give you information on state government and local utility financial incentives.
Financing programs: While you could certainly use home equity or other conventional financing to pay for a solar system, numerous states and banks offer loan program tailored specifically for renewable energy. Many of these programs require no down payment, effectively creating another option for “free solar installation”… but you own the panels.
In a number of locations, Property-Assessed Clean Energy (PACE) programs are available. With these programs, loans are made from state or local governments from bond funds; borrowers’ payments are incorporated into their property tax bills. These programs can also fund energy efficiency upgrades you need to make to your home or business to take the greatest advantage of your solar system.
Net metering: Can you sell the excess electricity you generate back to your local power company at retail rates? Known as “net metering,” this option is available in many US states, and some utilities offer it voluntarily where it’s not required. According to the Solar Energy Industries Association, 20-40% of a solar array’s output may end up going back to the grid, providing a significant cut to your electricity bill.
Want to get a better sense of what’s available in your state? The National Conference of State Legislatures breaks net metering program down for you.
Home value: Despite what some neighborhood homeowner associations seem to think, solar panels can add value to your home: a 2011 study that focused on California homes found that a seller could count on recouping the cost of his/her solar array. A power-purchase agreement, on the other hand, could end up costing you money when you go to sell because the panels aren’t part of the sale; the buyers may have to qualify for a contract with the PPA company, or you may have to pay a penalty to break your own contract.
Feeling a bit overwhelmed by all of the options here? No problem – the solar calculator at Cost of Solar can run the numbers for you, and show you what options will serve your needs best.
Photo credit: Udo Kroener via Shutterstock
Reprinted with permission.