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Solar power purchase agreements, explained

Don't want to buy solar panels outright? You have options.

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Learn more about solar power purchase agreements.

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If you are a homeowner and like to think sustainably, you've probably considered installing solar panels to power your home. The first thing you're likely to find is that this can be a much more complicated proposition than you might have imagined. Of course, you'll have to find the solar panels that make the most sense for you and are compatible with your home — but the challenges don't stop there. 

You'll need to hire a contractor with experience installing these panels, navigate any local ordinances or requirements regarding the use of solar panels and work through the complicated tax documents and forms required to get tax incentives for installing a clean energy system. 

Solar power purchase agreements (PPA) offer a viable alternative to all of this work, offering all of the benefits of having a solar energy system without the same challenges and red tape of buying your own. 

What is a solar power purchase agreement?

Here's a quick overview of how a solar power purchase agreement works: A developer pays for the installation of a solar energy system on your property, handling all the shopping around and jumping through all the hoops of local laws for you. The developer then sells the energy back to you at a fixed rate. This way, you get the benefits of a cheaper electric bill and smaller carbon footprint, but you pay for it over time instead of making a major up-front investment that will cost you a sizable price tag and lots of time.

Benefits

Getting a solar power purchase agreement has its advantages for the average homeowner who wants to go green but might not be able to foot the bill for the up-front expenses or simply doesn't have the bandwidth to make the shift on their own. The primary benefit of this arrangement is getting cheaper and cleaner energy without the hassle and cost of a traditional setup. Because the developer is in charge of the actual installation, all the homeowner has to do once reaching the agreement is allow the system to be installed and start paying for the electric bill once it is ready to go. You will typically notice a steep decrease in your monthly energy bill because you are getting your electricity from those solar panels and paying a fixed price that you and the developer agreed upon.

On top of that initial installation process, maintenance and long-term upkeep also fall under the purview of the developer. If your panels need replacing or fixing, the developer is tasked with making that happen. That takes a significant amount of financial risk off your hands. Again, all you will pay for is the monthly electricity bill.

Downsides

There are trade-offs when you decide to enter a solar power purchase agreement, though. For one, you don't own the solar panel system, so you do have less control over it. While you don't have to go through the process of picking the panels or fixing them if they suffer any setbacks, you also won't have as much say over the system that powers your home and won't be fully energy independent, as you're still relying on the developer as your provider. You also won't get the benefit of tax incentives for making the switch to clean energy since you don't own the system. The developer gets the tax benefits and can sell excess energy generated by the system for a profit, which you won't be able to benefit from.

You'll also have to keep an eye on your property taxes with a solar system. It will increase the value of your property, which can result in higher property taxes that you will have to pay annually. One last thing to take into account is the length of your agreement with the developer. Solar power purchase agreements aren't short-term deals. You'll be locked in for 10 to 25 years or longer. If you need to get out of the agreement before then, you may face early termination fees, so make sure to read the fine print first.

Is a solar power purchase agreement right for you?

For many people, a solar power purchase agreement is a solid deal. It saves on the steep upfront costs and time-consuming nature of installing solar panels while providing a quick and affordable path to going green. However, for those looking to maximize their solar energy by capitalizing on tax incentives, energy credits and other benefits, purchasing a solar system outright is a better option.