The Truth about Power Purchase Agreements (PPAs)
If you’re considering going solar, you’ve likely come across the term Power Purchase Agreement (PPA). PPAs are often marketed as an easy, low-cost way to access solar energy, but are they really the best financial option for homeowners?
In this post, we’ll break down what a PPA is, how it compares to purchasing a system with a loan, and why PPAs may not be the best deal in the long run.
What is a Power Purchase Agreement (PPA)?
A Power Purchase Agreement is a financing arrangement where a third-party company installs solar panels on your home at no upfront cost. Instead of owning the system, you agree to buy the electricity it generates at a predetermined rate, typically lower than your current utility bill. PPAs usually last 20 to 25 years and may include an annual price escalator that increases the cost per kWh over time. At the end of the term, you may have the option to extend the contract, buy the system, or have it removed.
How Does a PPA Compare to Owning Your System?
While a PPA may seem like a convenient option, the long-term costs make it far more expensive than purchasing a system outright or financing it with a loan.
Cost Over Time
The numbers tell the story:
- In one analysis, a California homeowner with a PPA would pay $102,525.24 over 25 years for a system they never own.
- Purchasing a comparable system outright costs just $30,945 before the 30% federal tax credit ($21,661.50 after credits).
- Even with financing, a 12-year loan with reasonable terms results in total payments of $37,114.74 to $43,351.31 — less than half the cost of a PPA, and you own the system at the end.
Tax Incentives & Home Value
One major drawback of a PPA is that you don’t own the system, which means:
- You don’t qualify for the 30% federal tax credit — the third-party provider gets it instead.
- The system doesn’t add value to your home like an owned system does.
- Selling your home can be more complicated since the new buyer must agree to take over the PPA contract.
Maintenance & Ownership Benefits
One of the selling points of a PPA is that the provider handles maintenance. However:
- Most modern solar panels come with 25-year warranties, and inverters often have 10- to 25-year warranties.
- The actual cost of maintaining a solar system is relatively low, and you don’t need to pay thousands extra for upkeep over 25 years.
- With ownership, you have full control over your system, including choosing your installer and service provider if repairs are needed.
Why Are PPAs So Expensive?
The reality is that PPAs are extremely profitable for the company selling them. High commissions (often around $1,000 per kW installed) incentivize salespeople to push PPAs, even though they are far more expensive for homeowners.
So, What’s the Best Choice?
For most homeowners, a solar loan or cash purchase is the best option. Even if you finance your system, your total payments will be significantly lower than a PPA, and you’ll own your system outright at the end. Plus, you benefit from tax incentives, increased home value, and long-term energy savings.
The Bottom Line
While a PPA might seem like an easy, no-cost way to go solar, it often comes at a much higher price over time. If you can qualify for a loan or pay cash, you’ll save tens of thousands of dollars and truly own your energy future. Before signing a long-term contract, take the time to run the numbers and consider your financing options — your wallet will thank you later.
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