Solar power purchase agreements: Sun without spending

Want solar panels without the $20,000 price tag? A solar power purchase agreement lets you go solar without paying anything upfront. Let’s walk through everything you need to know about solar PPAs – from how they work to whether they make sense for your situation.

PPAs: Someone else's panels, your savings

A solar power purchase agreement is a simple deal: a company puts solar panels on your roof at no cost to you, and you agree to buy the power those panels generate for a set price. Most Solar PPAs last 10-25 years, with 20 years being most common. This arrangement is similar to how you already buy electricity, except now it's coming from panels on your own roof instead of distant power plants.

Throughout the agreement, the solar company owns the system – not you. This means they're responsible if anything goes wrong or needs fixing, while you just get two bills each month – a smaller one from your electric company and a new one for solar power. The utility bill remains because you'll still need grid electricity at night or on cloudy days when solar production is lower. Yet the combination of these two bills is less than your previous power bills.

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PPA rates usually start 10-30% lower than what you currently pay your utility, so you save money right away. Most PPAs include a price increase clause that raises your rate a little each year, usually 1-3%. This is still good when compared to electric companies, which have historically raised rates 3-5% per year. The difference between these rates creates a "savings gap" that typically grows over time. For example, if you start with a $0.12/kWh PPA rate versus a $0.15/kWh utility rate, the initial 20% savings could grow to 30% or more by year 15 of your agreement.

Bright sides of PPAs: Why PPAs make sense

More families now choose PPAs to get solar without buying expensive panels. Here's why PPAs are winning over so many homeowners.

Unlike buying solar panels, which can cost $15,000-$25,000 for an average home, a PPA requires little or no money down. This removes the biggest roadblock to getting solar. Traditional solar purchases demand significant capital that many homeowners simply don't have available. With a PPA, you can start benefiting from clean solar energy without depleting your savings or taking out a loan.

Most homeowners see their total energy costs – electric bill plus PPA payment – drop by 10-30% from the very first month. Unlike purchasing a system outright, where you might wait 5-8 years to recoup your investment, PPA savings begin immediately after installation. Your new combined bills – reduced utility bill plus PPA payment – will typically be lower than your previous electric bills alone.

Your PPA rate is locked in by contract, giving you certainty while others face unpredictable energy prices. You'll know exactly what you'll pay per kilowatt-hour for years to come. This predictability makes budgeting easier and protects you from the volatility of energy markets. While your neighbors worry about sudden utility rate spikes during extreme weather events or fuel shortages, your PPA provides stable, transparent pricing throughout the term of your agreement.

As electric rates continue their climb of 3-5% each year, your PPA rate typically rises at a lower rate, usually 1-3% per year, increasing your savings over time. This growing differential creates a "savings gap" that widens year after year. The compounding effect of this difference means many homeowners save more in the later years of their PPA than they did at the beginning, creating a hedge against inflation in energy costs.

The solar company is responsible for all system maintenance, monitoring, and repairs. Most agreements include performance guarantees – if the system doesn't produce as promised, the company must fix it or compensate you. This eliminates the worry of unexpected repair costs or dealing with warranty claims yourself. The provider typically monitors system performance remotely, identifying and addressing issues often before you even notice them. 

Since the company owns the equipment, they take on the risks if the system doesn't perform well or equipment fails. If something goes wrong, it's their problem, not yours. This transfers all technology risk away from you as the homeowner. You don't need to worry about panels degrading faster than expected, equipment becoming obsolete, or damage from severe weather events. The PPA provider has a strong financial incentive to maintain the system properly and fix issues promptly since they only get paid for the electricity it produces.

Dark sides of PPAs: Why PPAs are not so ideal

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Solar PPAs aren't perfect for everyone, and it's important to understand the complete picture. Here are some potential downsides you should carefully consider before signing on the dotted line.

✗ Early exit fees

A typical 20-year contract is a big commitment. If you need to end the agreement early, you'll likely face substantial fees. These may include the remaining payments for the full term or the cost to remove and reinstall the system elsewhere. These early termination penalties can run into thousands of dollars, creating a significant financial burden if your circumstances change. Before signing a PPA, carefully consider your long-term plans for the property. If you might relocate within the next several years or anticipate other major life changes, a 20-year commitment could become problematic.

✗ Home sale complications

Selling a home with a PPA can be tricky. Your options usually include transferring the agreement to the new owner and they must qualify, paying off the remainder of the contract, or buying the system outright to include with the home sale. Not all potential buyers will want to assume your PPA, and those who do must meet the provider's credit requirements. If the buyer doesn't qualify or doesn't want the PPA, you might need to pay a substantial buyout fee to terminate the agreement.

✗ Missing out on tax incentives

As the system owner, the solar company – not you – receives valuable tax credits and incentives, including the federal tax credit, currently 30% of the system cost. These incentives significantly reduce the cost of solar installation, but with a PPA, these benefits go to the provider rather than you. While the company typically passes some of these savings on through lower PPA rates, they also keep a portion as profit. 

✗ Lower long-term savings than ownership

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While a PPA offers immediate savings with no money down, the total 20-year savings is typically less than what you'd get by buying a system outright, especially when you factor in tax incentives. Financial analysis often shows that purchasing a system, either with cash or a loan, provides 15-30% more lifetime savings compared to a PPA. With ownership, once the system is paid off in 5-15 years depending on financing, all the electricity it produces is essentially free for the remainder of its 25-30 year lifespan. PPA customers continue paying for every kilowatt-hour for the entire agreement term.

When a solar PPA is the best match

Now that you know the good and bad points about Solar PPAs, you can make a better choice for your home. Certain situations make PPAs the perfect fit, while others don't. Solar PPAs tend to work best for:

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Beyond PPAs: Other ways to go solar

PPAs are just one of several ways to go solar, and they might not be the best fit for your specific situation. Before signing a PPA contract, take time to explore these alternative approaches that might better match your financial goals and homeownership plans.

Buying with cash

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If you have the money available, buying outright typically provides the highest long-term return and shortest payback period, especially when taking advantage of the 30% federal tax credit. Most cash purchases pay for themselves in 5-8 years and then provide completely free electricity for the remaining 20+ year life of the system, potentially saving $30,000-$50,000 over time. The average home system costs $15,000-$25,000 after tax credits and adds approximately 4% to your home's resale value.

Solar loans 

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Many banks offer special solar loans with good rates, often as low as 3-5% for well-qualified borrowers. This option combines the benefits of ownership such as tax credits and increased home value with monthly payments that may be similar to a PPA but result in you owning a valuable asset at the end of the term. Many solar loans have $0 down options, terms from 5-20 years, and no prepayment penalties, allowing you to pay them off early if you receive an unexpected windfall.

Solar leases

Solar leases work similarly to PPAs but with fixed monthly payments regardless of how much electricity the system produces, typically starting around $80-120 per month with annual increases. Leases can be simpler to understand and easier to budget for, but they may not align your interests with maximum system performance since you pay the same amount whether the system produces more or less electricity. Most leases include maintenance and monitoring, with lease terms typically running 20-25 years and buyout options available at predetermined points in the contract.

Community solar

In some areas, you can subscribe to a share of a larger solar installation located elsewhere, receiving credits on your electric bill without installing anything on your property. This option is perfect for renters, those with unsuitable roofs, or homeowners in heavily shaded areas, allowing participation in solar with no upfront costs and the flexibility to cancel with shorter notice periods than a PPA. Subscribers typically save 5-15% on their electricity costs, and many programs support local jobs and economic development while making clean energy more accessible to low and moderate-income households.

Remember that while PPAs offer an easy way to start enjoying solar benefits, they're just one of several paths to powering your home. The best choice depends on your specific combination of finances, property, and energy goals.

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Julia Zaraeva

Author

Years of experience in translation and a love of nature help Julia find the right words to encourage going solar. She joined the team in 2023 and is happy to make her contribution to a greener future.

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