Understanding Solar Power Purchase Agreements (SPPA’s)

So what, exactly, is a Solar Power Purchase Agreement (SPPA) and how is it different from a “typical” solar installation?

According to the Environmental Protection Agency, “A Solar Power Purchase Agreement (SPPA) is a financial arrangement in which a third-party developer owns, operates, and maintains the photovoltaic (PV) system, and a host customer agrees to site the system on its roof or elsewhere on its property and purchases the system’s electric output from the solar services provider for a predetermined period.”

In other words, rather than financing and owning the PV system yourself, you pay a pre-determined rate for the electricity produced by the solar panels (that usually escalates slightly over time) to a solar services provider.  The provider will take care of installation and maintenance, while providing clean, green, solar-powered electricity to your home or business for years to come—all at a cost less than or equal to your current electricity bill.

Sounds pretty great, right?  So now you’re probably wondering why you would even bother dealing with financing and owning your own PV system in the first place.  The answer lies more or less within the distinction of owning a home versus renting an apartment.

Just like renting an apartment, through “renting” your solar power, you’re not responsible for any upfront capital costs and you don’t have to worry about system maintenance.  You can just sit back, relax, and let somebody else do all the work.  Only this time it’s not your slightly scary landlord, it’s your solar services provider!

On the other hand, in the long run through a SPPA you will likely end up with a smaller return on your investment than if you owned the system outright.  Just like selling a house after a few years of ownership (okay… maybe not in today’s market!), after the initial upfront costs of buying your system, you accumulate the benefits—in this case, more money saved on electricity bills than you would with a SPPA, as well as an increase in property value thanks to the desirability of a home solar power system.

Deciding whether to rent or own your home solar power system will come down to three main factors:

1.     Your current financial position;

2.     Your willingness or ability to maintain your solar system; and,

3.     The state you live in.

1.     Your current financial position or more specifically your ability to take out a home equity loan will probably be the main factor in deciding which option is best for you. If you cannot afford to or do not want to finance the purchase of a system, but still want to go solar, then entering into a SPPA with a local power provider will give you most of the benefits of using home solar power, including sheltering you from rising electricity rates. However, you do need to have a high enough credit score to qualify for a SPPA.

2.     While the required maintenance on most home solar panels is often minimal, some people like the convenience of a fully maintained system or are unable to maintain the system (for whatever reason).  What’s more, if a panel should stop working or if the inverter ever needs to be replaced, the SPPA will cover the cost and will take care of the replacement.  That said almost all solar panels have at least a 25 year warranty and have proven to last even longer.

3.     In some states the rebates and incentives you receive are just too good to be true and therefore you should definitely talk to both SPPA providers and traditional solar installers in order to make the best decision. In addition, SPPAs are not offered in every state, although many companies are expanding into new regions as we speak.

If you are wondering which method of paying for a solar power system is right for you, please fill out our “free evaluation” page and we will put you in touch with several installers who can help you determine which approach is best for you.  Soon you can be on your way towards saving money while getting clean and renewable solar energy.

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