2 May, 2023 < 1 MIN READ

What is a Solar PPA?

A Solar Power Purchase Agreement is an arrangement that allows businesses, homeowners, and other organizations to access the benefits of solar energy without the upfront costs and maintenance responsibilities of owning and operating their own solar system. In this article, we will delve deeper into the specifics of Solar PPAs, how they work, and their benefits. 

What is a solar power purchase agreement (SPPA)?

First and foremost, let’s start by defining a solar power purchase agreement. SPPAs are a great way to ease into renewable energy. The developer takes care of the design, permits and financing – all you have to do is provide the property. Plus, it’s super cost-effective. 

With a Power Purchase Agreement, customers can access solar power at rates typically lower than those offered by their local utility. These agreements usually last between 10-25 years and involve the developer handling operations, maintenance of the system for that duration as well as any associated tax credits or incentives earned from it. When complete, there are several options available to conclude this agreement – such as extending SPPA terms or purchasing the system outright – allowing consumers great flexibility in meeting their clean energy needs. 

Advantages of SPPAs

1. No Upfront Costs

Arguably the most appealing part of a SPPA is you don’t have to break the bank with the upfront costs a new solar system would require. A SPPA offers homeowners and businesses the convenience of reaping the rewards that come with going green without incurring expensive installation fees – making it a great choice for those looking to go solar without sacrificing finances. 


2. Power Stability 

With a SPPA, you’ll know exactly how much your power bill will cost. This can provide peace of mind and control in a world where electricity costs are unpredictable. By locking in the per wattage cost, you’ll know exactly how much to budget for no matter what’s happening with energy markets. 


3. No Maintenance Responsibilities 

Even though solar panels require a very little amount of maintenance, they do require routine cleaning for debris and dust collecting on your system. With a SPPA, this is one less thing you have to worry about. 


4. No Operating Risks 

The developer is responsible for system performance and operating risks. Repair and replacement for any broken parts won’t fall into your realm of responsibility. 


Disadvantages of SPPAs

1. Not Eligible For Tax Incentives 

Choosing to forgo ownership of solar equipment for your home may not seem like a big deal initially. However, without ownership you lack control over progress of installation and the ability to take advantage of useful tax incentives


2. Difficulty Selling Home

While it’s possible to pass the SPPA to a potential buyer, it’s very possible they may not want it. Although solar power is attractive to some, it’s not for everyone. This can make the process harder when it comes time to sell your home, and should certainly be taken into consideration prior to committing. 


3. Potential for Taxable Value to Increase

Installing solar for your home can be an incredibly beneficial venture, helping to boost the value of your property. However, depending on what state you’re in, this could lead to increased taxes upon reassessment. Taxes on increased property values can vary state by state. Some policies offer exemptions or capping for renewable energy installations, so be sure to research potential changes before investing. 


4. Long-term Contracts 

Signing a contract, and a long-term one particularly, can come with certain bindings that may leave you unable to expand your property.  Common restrictions include blocking the installation of an extension, planting trees in the yard, or any other supplementation that could hinder your panel’s power production potential. 


What happens at the end of an SPPA term?

In general, at the completion of your SPPA contract, there will be these three options: 

  • The system will be taken away free of charge 
  • You can renew your contract and potentially negotiate terms and prices 
  • You can buy the system directly from the developer 

When signing your solar contract, take the time to specify end-of-term buyout provisions. This will ensure that you receive a fair market price come termination of agreement – whether by buying out or the alternative options outlined in your contract. Be sure that these terms are not only noted but also reflect an accurate valuation of your system for long term security and satisfaction. 


What is the difference between a solar lease and SPPA? 

With a solar lease, you’re guaranteed stable payments each month. With a PPA, your monthly payments are dependent on the power generated by your system. 


What is the average price of SPPA?

According to sources, solar PPA prices reached an average of $45.66/MWh in Q2 2022. 


Do all states allow SPPAs?

Currently, SPPAs are not available in every state. There are currently fifteen states that have enacted legislation to authorize or regulate SPPAs.