Is a solar PPA right for you?
With solar PPA’s on the rise, a common question we often get asked is, is a solar PPA worth it?
In order for you to answer this question for yourself, you first need to know exactly what a PPA is and what may be the negatives of a solar PPA. Despite what is said on Reddit threads, there aren’t many drawbacks to a solar PPA. However, in this article, I will lay out each factor that may be construed as non-beneficial for some homeowners.
Due to the growing popularity of this option to acquire solar, you most likely have heard of this way to acquire solar just in casual conversation or maybe you had a consultation with a solar professional and you are still confused. That is what this article will accomplish. We hope to alleviate any myths and confusion about this solar option.
Let’s briefly address what a solar PPA is. You can even read our extensive article detailing exactly how a solar PPA works and the pros and cons here: What Exactly Is A Solar PPA? The Pros, The Cons, And An Honest Opinion
What is a PPA?
PPA stands for Power Purchase Agreement. It is just a fancy way of saying that you agree to purchase electricity provided to you by a specific entity aka an electric company. Almost everyone who pays electric bills is by default on a PPA plan. They just don’t really know it. But that is the basic arrangement between a homeowner and their utility provider. You agree to purchase power at the rate they charge.
What is a Solar PPA?
A Solar PPA is an agreement you enter into with the solar provider to purchase power that the solar system is producing for your home. You do not own the equipment. The solar company does. So they are responsible for the maintenance of the equipment, including the guarantee of the power. In short, a solar PPA just provides a homeowner with a lower cost of electrifying their home. It is a way to go solar without having to part with any money.
Why a Solar PPA May Not Be Right For You:
- No longer want a monthly payment
- Value long term savings over immediate savings
- Value ownership
- Want to claim tax credit
- 5 year wait to buy out system
Let’s address each one in detail below:
No longer want a monthly payment
If you are trying to eliminate monthly payments and home expenses, then a solar PPA would not be the way to go.
The only option if you are trying to save money on your electric expenses would be to buy the solar system outright. This will require you to have a substantial amount of cash set aside but it will guarantee a reduction of a major homeowner expense. There are options where you can start out with a PPA agreement and purchase the system at a later date if you didn’t have the initial capital at the time to purchase it outright, but that is something you would want to discuss with your local solar professional.
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Should You Purchase Solar With Cash?
You Value Long Term Savings Over Immediate Savings
A solar PPA will generally give the most instant savings on your monthly electric costs. While financing if you were to find a very low interest rate may give you a bit more overall savings, with cash being the winner for the most overall savings.
Why a PPA may give the least overall (long term) savings is because most PPA’s come with an annual escalator. This means that the payment will increase a certain percentage on a yearly basis for the entire term. A typical PPA term is 25 years. The industry standard percentage increase is 2.9%. These are there because of the warranties and guarantees that you are provided with a PPA. Every aspect of the system is warrantied, guaranteed and maintained so the 2.9% increase makes sure that is all covered for you so you do not ever have to worry about your solar system.
Due to the annual increase, the overall money that is spent the entirety of the term is going to be more than what you would have spent if you paid cash or maybe even financed. Think of your mortgage for your home. Obviously you will spend much more on your home than the home is worth over 30 years due to paying interest for 30 years, but a mortgage provides you the opportunity to get your home now. Same principle with a PPA or even a financed solar system.
You Value Ownership
Perhaps with all things you consider investing in, you are the type of person who, no matter the product, likes to own. If so, then cash would be the option for you. I do have to remind the reader that with every solar option, finance, lease, PPA, you still have the option to own it but for the sake of this article, if you just love the idea of owning everything, then just buy the solar system with cash. You will likely get the best deal, fastest return and get the most tax credit thereafter.
You Want To Claim The Tax Credit
Only with a purchased solar system and a financed solar system, can you claim the full tax credit yourself. The reason homeowners prefer this is typically for their own personal reasons. With a PPA, you are unable to claim the full tax credit, rather a portion of the tax credit is applied to the monthly payment automatically, providing the homeowner with a low monthly payment. As a disclaimer, your eligibility to receive a tax credit may vary depending on individual circumstances. Please consult with a tax professional or financial advisor for personalized advice.
Must Wait 5 Years To Buy Out System
While some solar providers may not even offer the option of a buyout, the reputable ones usually do. However, most providers of PPA’s earliest option to purchase the system outright is starting at the 5th year after installation. This 5 year rule is not determined by the solar installer you are working with but the provider of the PPA. So if 5 years may seem too long for you, then a finance option may be a better bet.
Conclusion
To be completely honest, there really aren’t many reasons where a PPA would not make sense for most homeowners. It is a simple, no upfront cost, no debt way to transition to clean and less expensive energy with options to always purchase at a later date. The warranties are very similar to finance and cash but with the added money back guarantee which many homeowners find attractive. I am not saying it is the BEST way to go solar, but it’s certainly a viable option for those who want to save money without spending money.
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Cleanstart Solar Powers New Jersey, New York and Connecticut
Cleanstart provides homeowners with lower electric bills, fixed energy rates, long term savings, increased home desirability, reduced carbon footprint, monitoring, maintenance, financing options, and educational resources, making the transition to solar power seamless and rewarding. We currently service Northern New Jersey, Central New Jersey, Southern New Jersey, Connecticut, and New York.