It’s not surprising that solar panel installations are costly. In 2020, the average cost stood at approximately $2.96 per watt for solar installations. This implies that a 5kW installation, which is a size typical for many homes, would amount to around $14,800.
Luckily, there are various solar financing options that will help homeowners adopt solar panels into their households.
First are solar loans which involve obtaining financing from a financial institution to cover the installation cost. You then repay the loan with interest over time.
Then there’s the so-called solar lease which allows you to make monthly payments for the solar installation. Both options play a role in making solar more accessible and affordable for homeowners.
Power Purchase Agreement Explained
Now, you might wonder: what exactly is a power purchase agreement?
Long story short, it’s an arrangement where a solar company takes on the full expense of installing a solar system on your property, and in return, you are billed for the energy generated.
This setup is designed to eliminate the need for homeowners to pay upfront costs while still reaping the advantages of reduced utility bills.
PPAs for residential properties generally span 20 to 25 years. That said, homeowners have the option to purchase the system at any point during the lease term. When the agreement concludes, you can choose to buy the system, have the company uninstall it, or extend the agreement.
Obviously, there are some pros and cons to it. Let’s look at all of them.
Pros
- Minimal upfront costs
- Greater savings in areas with higher energy costs.
- The leasing company handles system monitoring, maintenance, and repairs.
- Typically results in energy savings of around 10-30%.
Cons
- The solar company reaps the benefits of solar tax credits and incentives.
- Can complicate moving houses due to the lengthy contract.
- PPA contracts often include a price escalator that can raise the solar price yearly.
Should You Go for a Power Purchase Agreement?
In recent years, solar financing options have become more accessible. SolarCity, a major provider of solar lease and PPA agreements, has experienced a decrease in market share due to the availability of reasonable loan rates that allow homeowners to purchase their own solar systems.
Opting for self-financing of your solar installation provides several advantages such as energy savings, tax credits, and financial incentives.
While PPAs may still be a viable choice, especially for those with poor credit or in areas with high energy costs, not everyone wants to take on a $20,000 loan. Instead, some prefer the option of putting little to no money down and immediately enjoying the benefits of solar energy for their homes.
In our opinion, while PPAs have some limitations, they are not the least favorable way to go solar.
