What is a Solar PPA or Power Purchasing Agreement?
Most people all over the world has a typical notion about solar plants for home is, they require huge sum of initial financing or loan or mint money from their own savings to set up a solar power for their house. But this is not true.
Even tax subsidies schemes provided by the Governments do not do much in attracting domestic consumers to go for solar.
That’s where a Power Purchase Agreement (PPA) came in and began to be the game changer. It provided the much traction needed by the solar industry in terms of attracting domestic customers or home owners to go for solar solutions under this scheme.
So what is a Solar power purchasing Agreement?
Solar PPA is a long term agreement between you the customer or the home owner and a solar company and/or solar installer. Here the home owner “leases” his / her roof in return for a lower energy bill. The Solar installer will typically bear the cost of the solar PV panels, installation, and maintenance at zero cost to the homeowner, for the time period agreed in the contract. The Solar plant provider becomes your new energy utility provider. You pay lesser amount per unit consumption of electricity by you than your DISCOM, as agreed in the contract
While you do not save as much with a PPA scheme in the long run as you would in purchasing a solar system for your home outright, it does mean that homeowners who never would have gone solar due to the initial cost involved, are now able to lock in savings for 20+ years over what they would pay a utility company.
If you’re interested going for a PPA scheme to go solar, here are a few pros and cons:
- Zero upfront cost. It may seem like a scam, but dozens of large companies nationwide provide zero cost solar systems under a PPA.
- Immediate savings. Solar companies typically look for homeowners who have an average monthly energy bill of $100+. This allows them to lower your monthly cost enough to provide value to you and them. As an example, typical savings for a California homeowner with a 2,000 square foot house is $100 – $200 per month.
- Fixed costs. While utility rates go up every year, a PPA has lower increases and you might be able to negotiate zero increases over the life of the agreement.
- You don’t own the system. This is a sticking point for many because they already own their home, and don’t want to “lease” their roof for a long period of time.
- Lower savings. In return for a free system, the solar provider needs to make a profit, so you’ll still be paying a monthly fee, even if it’s lower than before.
- No tax breaks. The solar provider is entitled to the tax breaks afforded a solar installation since they cover the burden of cost, installation and maintenance.
A PPA isn’t the perfect solution for every homeowner, but it has opened the doors for affordable solar system to tens of thousands of customers in the country.