A Power Purchase Agreement (PPA) is a legal contract in which a homeowner agrees to purchase electricity from a power provider. In this agreement the power provider installs solar panels on the site owner’s property and sells the homeowner the energy that the panels produce at a predetermined rate. The rate is fixed over the length of the agreement and is typically less than the homeowner is currently paying their local utility.
A typical PPA agreement lasts anywhere between 15 – 25 years. Since the electricity rate is locked in over the term of the agreement, the homeowner does not have to worry about inflating energy rates. At the end of the contract, homeowners may have the choice of renewing the contract, purchasing the system, or having the equipment removed.
Pros: A PPA has a low upfront cost, allowing for a quick return on investment. The contract also locks in the cost of electricity, protecting you from inflating energy rates and swings in the market. Also, you only pay for the energy that the system produces, not the systems potential.
The power provider assumes all risks and responsibilities associated with owning the system. They perform all maintenance free of charge to the homeowner, assuring that the system is always operating at optimal levels.
Cons: The overall savings potential is less than if you were to pay in cash. Just like any financing plan there is a premium paid for paying back the costs overtime. Also, PPAs are only available in certain areas.
Read our blog posts on PPAs for more information.