There are probably over 100 different questions we get asked about a solar PPA during a solar consultation, but the question of what happens if I don’t pay my solar PPA is not one of those common ones. At least one we don’t typically get IN PERSON. However, I have been asked it a few times in my career, which means it does deserve an article of it’s own. Who’s to say other people aren’t at least thinking the same thing?
Let’s first address the question, what is a solar PPA. I will make it brief as I wrote an entire article here on What Exactly is a PPA.
What is a Solar PPA?
In short, a solar PPA is an agreement between the homeowner and the solar provider to purchase the electricity that the solar system makes at a predetermined kwh rate. Very similar to your arrangement with your current utility provider.
How Does a Solar PPA Work?
If the homeowner meets certain credit conditions, they get the equipment and installation provided to them at no up front costs. The monthly payment is determined by how much electricity the solar panels produce in one year, multiplied by the cost of the Kwh (kilowatt hour), divided by 12 (12 months in a year).
Example:
- Home uses 10,000 kwh of electricity per year.
- Solar rep designs a solar system for the homeowner to match what the home uses in one year. If the home has enough roof space to accommodate enough solar panels, the homeowner can achieve a 100% offset. That would mean enough solar panels to produce what the home uses (10,000 kwh) of electricity per year. That would bring the homeowners utility bill to basically $0.
- In this example, we will say the predetermined cost of electricity that is on the solar PPA agreement is 15 cents per Kwh ($0.15/kwh).
- Multiply 10,000 kwh by the cost of each kwh ($0.15) = $1,500. Divide that by 12. = $125. That is the monthly payment for the solar PPA, $125/month.
- The homeowner would now have a $0 monthly utility bill and a $125 monthly solar bill.
I wanted to illustrate in the most brief summary of how a monthly solar ppa payment is determined. But in a nut shell, it really has to do with how efficient your home is and what warranties and coverage is provided. The cheaper the rate, the more likely you will suffer less than ideal service and support.
What if I Can’t Afford My Solar Payment?
Hopefully this is something that you would know before signing any agreements with your solar provider. Any reputable solar company will disclose exactly what your payments will be, and even what your left over electric bill from your electric company will be before you sign anything.
If you feel that the payment on the proposal that is being shown to you is too high, simply let your solar rep know and he should either decrease the amount of solar panels he is proposing to you to install, or offer a different program all together.
This rarely is the case though because usually if you can afford your electric bill, you can afford a solar payment, because the solar payment just replaces your current electric bill with a lower one. So most homeowners that pay for electricity can pay monthly for their solar.
That is one of the big benefits of monthly payment solar programs. It doesn’t cost any NEW money to go solar. It is money you are already spending.
How Do I Get My Solar Payment Even Lower?
Once you sign your PPA agreement, you cannot lower your solar payment. What you can do though is use less electricity throughout the year and bank the access solar energy and get paid out at the end of the year from your utility provider. This is called a True-Up. Not every utility might have this in their NEM clause so check with your local solar professional first about your local utility providers Net Metering policies.
If you haven’t signed anything yet and you want to drastically reduce the monthly payment that is being proposed but still be as close to a full electric offset as possible, then you will just have to use less electricity throughout the year.
It is simple in theory but most homeowners do not want to drastically cut down and conserve the amount of power they use. They prefer comfort and that is why most homeowners transition to solar in the first place. To use what they want to use without having to suffer major penalties from their utility company.
Ok, So What Happens If You Don’t Make A PPA Payment?
If you don’t make a payment or skip a payment for whatever reason, not much will happen.
It’s quite similar to what would happen if you miss a payment with your utility provider, you would just have a bigger balance for the next month. There would be a past due amount in the amount of 2 solar payments. Nothing ground breaking here. Pretty standard stuff.
What If You Miss Multiple PPA Payments?
Most solar providers of the lease or PPA are pretty lenient with their customers.
A few missed payments just will result in a larger Past Amount Due and will keep accumulating just like any monthly bill you have that you miss payments on. Your credit will not be dinged or affected with a few missed solar ppa payments.
What Happens If You Just Stop Paying Your Solar PPA?
Well this is a bit of a different story here. But the consequence for completely disregarding your agreement would be quite similar to most agreements you’re in that relate to monthly payments.
A solar PPA agreement mostly mimics that of a utility bill arrangement with your pre-determined utility provider in regards to how it can affect your credit rating.
First of all, I will say here that if you are worried that you may not be able to fulfill your obligation and make your solar ppa payments on time and in full, than you should not be exploring ANY monthly payment solar options.
Here, I will outline what exactly is stated on a solar ppa agreement in the event someone decides to no longer make payments. Then I will outline the reality of what would actually happen.
The following is copy and pasted from a standard solar PPA agreement:
REMEDIES IN CASE OF DEFAULT
If this PPA is in default, We may take any one or more of the following actions. Where required by law, We will give
you notice before taking any of these actions. We may:
- (i) terminate this PPA and your rights to possess and use of the System;
- (ii) suspend Our performance under this PPA
- (iii) take any reasonable action to correct your default or to prevent Our loss; (any costs We incur to do so will be added
to the amount you owe Us and will be immediately due); - (iv) proceed, by appropriate court action, to enforce performance of this PPA and to recover damages for your breach;
- (v) turn off or take back the System by legal process or self-help, but We may not disturb the peace or violate the law;
or - (vi) subject to Our agreement to arbitrate disputes under Section 18
- (b) Subject to Section 17 (EARLY TERMINATION LIABILITY) with respect to your Early Termination Liability, you agree to repay Us for any reasonable amounts We pay to correct or cover your default. By choosing any one or more of the remedies in paragraph (a) above, We do not give up Our right to use another remedy. By deciding not to use any remedy should this PPA be in default, We do not give up Our right to use that remedy in case of a subsequent default.
Everything you just read here is pretty basic payment default language on any contract that you are under.
In reality, what would happen if you stop making payments is the company would continue to bill you, increasing your past due amount.
A solar PPA agreement is very similar to utility bills. Utility companies do not report accounts and payment history to the three major credit bureaus (Experian, TransUnion and Equifax), and as a result, these types of bills have not historically had an impact on your credit scores.
Your utility and other bills, such as those for energy, phone, and cable, typically only impact your credit score if you miss multiple payments. When this happens, the provider may either send your debt to a collection agency or charge off your account, assuming you won’t pay it. This would negatively impact your credit rating.
After this continues for some time, it is possible that the solar company will come and remove the solar system. Do not expect them to patch up your roof if this were to happen. This is typically the reality of what would happen in the event you default on your solar PPA.
Under What Conditions Are You Able To Exit Your Solar PPA Obligation?
The following conditions are taken directly from an actual PPA agreement:
1. PURCHASING THE SYSTEM
You have the option to purchase the System as follows:
- Upon the fifth (5th) anniversary of the PPA Term Start Date;
- If you sell your Home at any time during the PPA Term;
- At the end of the PPA Term
2. SELLING YOUR HOME
- If you move, you may transfer this PPA to the purchaser of your Home, as specified in the PPA.
- If you move, you may purchase the System from Us for an amount equal to the System’s Fair Market Value, plus any other amounts that are
- specified in the PPA.
3. PREPAYMENT OF MONTHLY PAYMENTS
- At any time, you may make a Prepayment of all outstanding and remaining payments to be paid by You during the
PPA Term. If you make a Prepayment, the provider will retain all its obligations under this PPA.
In Closing
I hope this sheds some light on perhaps a very important question that you may not feel completely comfortable asking your solar provider. It is a great question to ask and to have the answer to.
Again, it is very rare for someone to default on a solar payment because it is at the end of the day, another form of utility. People need to pay for electricity. Not to mention solar energy is inherently less expensive than traditional utility. Going solar is a great thing to do, but before you sign anything, make sure you fully understand the terms and conditions.
CURIOUS ABOUT SOLAR?
It’s a lot simpler than you think!