Basically, the solar PPA (Power Purchase Agreement) allows you to lock in your energy rate for the term of the financial agreement. This rate is typically lower than what the utility company would charge you, which could result in a significant savings over the term of the PPA.
How a Solar PPA Works
There are three main parties involved in a solar PPA: the customer, the solar installation company and the investor, or solar system owner. Here’s how it works in Orange County and Los Angeles:
- Customer agrees to install the solar panels on their roof
- Solar installation company designs and installs the solar array
- Investor provides financing for the solar project
- Customer pays investor each month based on the set energy rate and amount that the solar panels produce
Note, the customer only pays for the solar energy used to power their property; there are no payments if the system fails and the customer would instead pay the utility company at a presumably higher rate.
Why Consumers Choose a Solar PPA
Most people choose to finance their solar project with a solar PPA because of the following four benefits:
- Little-to-no upfront costs
- A predictable energy rate to avoid utility price hikes
- “Free” solar array design and installation
- Low risk due to free maintenance and servicing
We’d like to point out that solar electric systems do not usually need maintenance since they are a sturdy technology with no moving parts. The benefit of free maintenance and servicing is more about peace of mind than actually saving on the cost to maintain your solar panels.
It’s also worth mentioning that one major downside of a solar PPA is that you won’t be eligible for any state/local rebates or the 30% Federal tax incentive. Since the investor is the technical owner of the solar panels, they are the ones who take advantage of these discounts.
How a Solar Lease Differs from a Solar PPA
Often, people confuse a solar lease with a solar PPA since they are very similar and share many of the same benefits.
A solar lease allows you to rent the solar panels themselves (and therefore, the energy they produce as well), usually with a fixed or predictable monthly payment. Read more about the specifics of getting a solar lease in LA or Orange County in our prior blog post if you care to learn more.
On the other hand, a solar PPA allows you to pay for the energy produced by the solar panels, which is hopefully pegged to the present and future utility cost. If the cost for your solar energy is lower than the electricity the utility would have provided, you will be saving money. But if the cost of conventional electricity stabilizes or decreases, you may end up paying more in the future.
Depending on your financial situation and energy usage, a PPA may be the best way to finance your solar project. This educational article should shed some light on how a PPA works and how it could benefit a solar panel owner.