Understanding Monthly Payments With A Solar PPA

For those who want to go solar but don't have the capital for a solar panel installation or the tax burden to claim the incentives, leasing a solar system/making a power purchase agreement is an option to consider for getting solar panels installed onto your home. Actually, it's the most popular option right now, in California over 70% of homeowners who go solar sign up with a PPA provider such as Solar City, Sungevity, Sunnova etc. and many don't pay anything out of pocket. That's right, no upfront costs to switch services, ZERO DOWN.

What is a PPA or Lease? A PPA(power purchase agreement) is a 20-25 year agreement with you and a third party energy provider. The PPA provider buys the solar system for you, pays a contractor like us to install the system, and they charge you monthly or upfront for the energy it will produce. They basically sell you the energy the solar system produces for your home. Sounds weird? But by doing this your energy costs will be less than buying all your electricity from the utility. Financing a power plant on to your roof is just cheaper to do than what it costs the utility to distribute dirty energy to you through the grid.

During the term of the agreement, the PPA provider is responsible for monitoring and maintaining the solar system performance and provides full coverage for any damage due to vandalism, earthquakes, hail the size of softballs, pretty much anything as long as it wasn't your fault. It's solar energy as a service. It's now how you buy the majority of your electricity. They make money, you save money and the utility loses a customer.

PPA's are very easy to sell to homeowners, most of them requiring no upfront cost at all. As long as you have a good enough credit score and own the home you're good to go solar with a PPA. Here's how a typical PPA sales pitch works.

"You're currently averaging $200 a month in electricity costs to the utility. If you keep paying this Mr. Homeowner, you will be paying an average increase on this bill of 6.7% or more a year, based on utility rate hikes and inflation history. You're wasting so much money on dirty energy Mr. Homeowner. By going solar with our PPA, we can start saving you $40 per month by offsetting these utility costs as these payments are locked in at a fixed rate. Will monitor and maintain the system for the next 20 years of this service and based on these calculations you should expect to see savings of this many thousands of dollars. This is only being offered now as we get to claim the Federal Tax Credit, since we're buying it, which makes this a viable investment on our part and this service may go away when the tax credit expires. Oh my it's 2014 already! There is not much time. This is your chance to quit buying your energy from the utility Mr. Homeowner, you can buy it from us for a much lesser rate which will save you thousands of dollars. Think of the possibilities you can create with those kinds of savings Mr. Homeowner. Remember, you don't have to pay anything upfront for the installation cost, this is as simple as changing your service provider. We're changing you from Yahoo to Google. Just sign right here. Thank you for doing business with us Mr. Homeowner."

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The Solar Panel Installation Cost

What the homeowner wasn't told in this PPA service sales pitch was the total cost of the solar system installation, he was just pitched the monthly payment as it looked way more affordable compared to his current utility bill. Or, maybe he was told the installation cost for a cash purchase but was priced for sales and marketing purposes. If the solar system was highly priced it would make monthly payments with a PPA much more attractive to do. However, if the PPA provider is buying and installing the solar panel system at that price, Mr. Homeowner is now the one making monthly payments back to the PPA provider based on an overpriced solar system. Even though the PPA payment is less than his current utility bill, he could have saved thousands of dollars more if he objected the total installation cost. Remember the PPA provider has to make their money back during the 20 year term.

The PPA monthly payments are usually calculated on energy production but are structured so they see their return on investment for the initial installation cost. If you're looking into doing a solar PPA, just make sure you see the total cost of the system. Find out what the average cost for solar panel installations are in your area. Do the math and if your proposed solar system installation cost is over $5.50 per watt chances are you should get another bid.