A solar power purchase agreement (PPA) is a long-term contract in which a solar company installs, owns and maintains solar panels on your property, while you pay for the electricity those panels produce.
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You do not buy the solar panels. Instead, you buy solar electricity, usually at a set price per kilowatt-hour (kWh). The solar company owns the system and generally handles monitoring, maintenance and repairs.
Solar PPA at a Glance
| Feature | How a solar PPA usually works |
|---|---|
| System owner | Solar company or third-party financing provider |
| Your payment | Price per kWh of solar electricity generated |
| Upfront cost | Often little or none |
| Contract length | Commonly 10 to 25 years |
| Maintenance | Usually handled by the system owner |
| Solar tax incentives | Generally go to the system owner, not the homeowner |
| Utility bill | Usually continues alongside the PPA payment |
| End of contract | May include renewal, purchase or removal options |
How Does a Solar PPA Work?
A typical residential solar PPA works like this:
- A solar provider designs and installs a photovoltaic (PV) system on your roof or property.
- The provider owns the solar equipment for the contract term.
- The panels generate electricity for your home.
- You pay the provider for the electricity produced, based on the contract's kWh rate.
- You buy additional electricity from your utility when the system does not produce enough power.
- Excess electricity may go to the grid, with credits handled under your utility's rules.
Your PPA payment can change from month to month because it is tied to the system's electricity production. A sunny month may produce more electricity and result in a higher PPA charge. A cloudy month may produce less electricity and result in a lower charge. Your utility bill can move in the opposite direction.
A solar PPA usually does not eliminate your utility bill. You may still pay delivery charges, fixed service fees and charges for electricity drawn from the grid. The details depend on your utility and local net-metering or solar-export rules.
What Does a Solar PPA Cost?
The main cost is the PPA electricity rate, which is the price per kWh generated by the solar system. For example, a contract might include:
- A rate of 15 cents per kWh
- An annual price increase, known as an escalator
- Extra charges in certain situations, such as early termination or contract transfer
Some PPAs use a fixed electricity rate. Others increase the rate each year by a stated percentage. The U.S. Environmental Protection Agency notes that solar PPAs may include annual escalators. The Federal Trade Commission advises consumers to check when the rate increases and how much it can rise.
To estimate your total cost, compare:
PPA payments + remaining utility charges + other contract fees
with:
Your expected utility costs without solar
Do not compare only the PPA rate with your current utility rate. Utility prices can change, and an annual escalator can make a PPA more expensive over time.
Who Owns the Solar Panels Under a PPA?
The solar provider owns the panels, inverter and related equipment. The provider generally remains responsible for system operation, maintenance and performance.
Because you do not own the system:
- You generally cannot claim tax incentives reserved for system owners.
- You usually do not own the system's renewable energy certificates (RECs) unless the contract assigns them to you.
- You do not automatically receive the full financial benefit of selling or retaining the system's environmental attributes.
- You may need the provider's approval before making roof changes that could affect the panels.
The PPA should state who receives tax credits, rebates, other incentives and RECs. The Federal Trade Commission says these benefits generally go to the system owner under a lease or PPA. The EPA also advises consumers to review REC ownership before making renewable-energy claims.
Solar PPA Versus Solar Lease
A solar lease charges a fixed monthly payment for use of the solar equipment.
A solar PPA charges for the electricity the equipment generates, usually at a price per kWh.
| Issue | Solar lease | Solar PPA |
|---|---|---|
| What you pay for | Use of the equipment | Electricity generated |
| Typical payment | Fixed monthly payment | Varies with solar production |
| System ownership | Solar company | Solar company |
| Maintenance | Usually provider-managed | Usually provider-managed |
| Production risk | You may pay even when production is low | Payment generally falls when production falls |
| Main contract figure | Monthly payment | Price per kWh and escalator |
A lease may make monthly costs easier to predict. A PPA ties your payment more closely to the amount of electricity the panels produce. Neither option gives you system ownership during the contract term.
Solar PPA Versus Buying Solar Panels
Buying a solar system with cash or a solar loan gives you ownership. A PPA leaves ownership with the solar provider.
| Factor | Buy with cash or loan | Solar PPA |
|---|---|---|
| Upfront cost | Cash purchase requires substantial capital; loans may reduce upfront cost | Often little or no upfront cost |
| Equipment owner | Homeowner | Solar provider |
| Maintenance | Homeowner, unless covered separately | Usually provider |
| Tax incentives | Homeowner may qualify, subject to current law and eligibility | Usually claimed by system owner |
| Monthly payment | Loan payment, if financed | Payment based on solar electricity generated |
| Long-term upside | Greater potential after the system is paid off | Provider retains ownership benefits |
| Home sale | No third-party contract to transfer | Contract may need to be transferred, bought out or settled |
Buying may provide more long-term ownership value, but you need access to capital or financing and remain responsible for the equipment. A PPA can reduce the upfront cost of going solar, but it creates a long-term contractual obligation.
What Are the Benefits of a Solar PPA?
A solar PPA may be worth considering if you:
- Want solar panels without paying the full installation cost upfront
- Prefer the provider to handle maintenance and repairs
- Want payments based on the electricity the system produces
- Expect to remain in the property for much of the contract term
- Live in an area where third-party solar ownership is permitted
- Have compared the contract rate with current and projected utility rates
The provider generally handles system design, permitting, installation, monitoring and maintenance. Since the provider owns the system, you may have less responsibility for equipment performance and repairs.
What Are the Disadvantages and Risks?
The main risks are the long contract term, limited ownership benefits and potential complications when you sell the property.
Before signing, review these terms:
Contract length Residential solar PPAs can last up to 20 years, and some agreements may run longer.
Price escalator Check whether the kWh rate increases each year. Calculate the highest rate allowed under the contract.
Production guarantee Find out whether the provider guarantees a minimum amount of electricity and what happens if production falls short.
Roof repairs and replacement Confirm who pays to remove and reinstall the panels if you need roof work.
Home sale rules Check whether a buyer must qualify to assume the PPA, whether you can transfer it and whether an early buyout is available.
End-of-contract terms The agreement should explain whether you can renew the PPA, buy the system or have it removed, along with the cost of each option.
Utility treatment of excess power Net-metering and solar-export compensation vary by utility and location.
RECs and environmental claims Identify who owns the RECs and whether you can claim that your home uses renewable electricity.
The FTC recommends reviewing early termination charges, production guarantees, repair responsibilities, payment increases, incentives, RECs and home-transfer requirements before signing.
Is a Solar PPA a Good Idea?
A solar PPA may make sense when it has a competitive starting rate, a modest or zero escalator, clear maintenance responsibilities and straightforward home-sale terms.
Compare buying the system with cash or financing before signing a PPA if you can afford the upfront cost or qualify for favorable financing. Ownership may provide more long-term financial value and may allow you to claim eligible incentives. It also leaves you responsible for the equipment and its performance.
The right decision depends on the full contract, not the advertised monthly savings. Compare the PPA's projected payments with a cash purchase, solar loan and expected utility costs over the same period.