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What is a Power Purchase Agreement Solar Deal? Is It Worth It?

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If you’ve been looking into a power purchase agreement solar deal, you no doubt have many questions. First and foremost, you have to figure out the details of solar power purchase agreements and how they are used. You also need to learn how your solar power purchase agreement will be put into practice. If you’re considering signing a solar power purchase agreement, you may already be familiar with some of the many benefits. However, you will also need to overcome some challenges if you decide to go this route. There’s a lot for you to consider if you are deciding whether to sign a solar power purchase agreement, but this article will provide a good starting point for your decision-making process.

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What is a Solar Power Purchase Agreement?

According to the Environmental Protection Agency (EPA), a solar power purchase agreement allows a homeowner to have a solar power system installed by a solar company that pays for the equipment. The homeowner then purchases the electricity generated by the solar power system. The solar company maintains ownership of the solar power system. They are responsible for its operation and maintenance. The homeowner is responsible for paying for the solar system’s electricity for the length of the agreement. This is called the “solar services” model of creating and purchasing solar power. It is becoming popular throughout the United States and other countries with a high solar power usage.

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How Does a Solar Power Purchase Agreement Work?

A solar power agreement starts with the homeowner and solar services company working out the length of the contract, the price of the electricity, and other details. Once all this is agreed upon, the solar service company will have the solar system installed. They may have their own installers, but many solar services companies contract out this part of the process. When the solar power system has been installed, it begins to produce electricity for the home. Excess electricity can often be sold back to the power company for a credit on future bills.

If the solar power produced is less than the home needs, the homeowner buys the excess power from their normal power company. Solar power systems do slowly lose efficiency as they age, though regular maintenance will limit this. This process continues for 6 – 25 years, depending on the length of the contract.

The Benefits of a Solar Power Purchase Agreement

Solar power purchase agreements have become more popular in recent years, and for good reason. They offer the homeowner many benefits that they would not see if they purchased their own solar power system. Some of these benefits include:

  • There is no upfront capital cost for a power purchase agreement solar contract.
  • The homeowner knows what their current and future power bills will be.
  • The solar services company shoulders all the risks related to system performance and operation.
  • The homeowner can save money by selling excess solar power to the power company.
  • The homeowner can make a highly visible commitment to green energy.
  • There may be a reduction in the home’s carbon footprint.
  • The property’s valuation will likely increase.
  • The local economy is supported through the necessary installation and maintenance work.

The Challenges That Come With a Solar Power Purchase Agreement (and How to Solve Them)

While there are many benefits that a customer can realize through a solar power purchase agreement, they will also have to overcome unique challenges they might not have to face if they went with a standard electrical plan. Solar power purchase agreements can be quite complex. Also, the solar system will require regular maintenance that may disrupt the homeowner’s activities. However, you can overcome these challenges and more if you take the right steps.

More Complicated Initial Agreement Than Purchasing PV System

One of the biggest hurdles to climb when getting a solar power purchase agreement is the complex nature of the contract. Many homeowners opt to purchase a photovoltaic (PV) system themselves partially because they do not want to contract the system out to a third party. Also, the initial solar power purchase agreement transaction usually carries higher fees than a PV purchase.

This challenge can be overcome through preparation. You should do more in-depth research into the details of solar power purchase agreements so that you understand what you’re signing. You should also ask the solar services company and all questions you might have.

Potentially Paying Two Separate Electricity Bills

Another challenge that scares off many homeowners is having to pay two electric bills. This only happens when the solar power produced by the PV system does not cover the home’s needs. Even when it does happen, the low cost of solar power means that the homeowner will still save money, However, they will have to deal with the hassle of paying two bills.

Many traditional power companies are well-versed in working with customers who have solar power. You may be able to set up an automated payment agreement with them. This way, you will not have to worry about remembering to manually pay a second power bill.

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Potential Property Tax Increases

As previously mentioned, one of the potential benefits of getting a solar power purchase agreement is an increase in property value. This benefit, however, has a downside. An increase in property value may also result in an increase in property tax. Just how much this increase may cost you depends on many factors, such as your home’s assessed value and the property tax code in your jurisdiction.

You may be able to get a tax credit for having a PV system. This could partially or even completely offset any property tax increases. Check with the relevant government agencies to learn more about tax credits.

Considerations When Getting a Solar Power Purchase Agreement

There are several things that you should consider before signing a solar power purchase agreement. The most important considerations for most homeowners are the installation of the system, the length of the contract, and the price increases built into the contract. Depending on your jurisdiction, you may also have to deal with a complicated and ever-evolving system of laws regarding solar systems.

The Installation of the System

One of the things that homeowners should consider before signing a solar power purchase agreement is the installation of the system. This process can take three to six months, during which time the installers will be coming and going and potentially doing noisy work. This could disturb the homeowner themselves and their neighbors.

The Length of the Contract

Another aspect of signing a solar power purchase agreement that gives many homeowners pause is the length of the contract. The shortest contract that you can get is usually six years because this is how long it takes for the PV system’s owners to get the full tax benefits associated with producing solar power. A solar power purchase agreement can also be much longer, with contract lengths of up to 25 years being common.

The Price Increases Built Into the Contract

Solar power purchase agreements have rate increases built into the contract to keep up with inflation and rising operating costs as the system ages. You should carefully inspect the contract to see if these rate increases seem reasonable. If they seem too high, do not hesitate to raise the issue with the solar services company.

The Bottom Line: Is a Solar Power Purchase Agreement Worth It?

The bottom line is that a solar power purchase agreement is worth it for many homeowners. It will save most homeowners money over the long run. It can increase the value of your property. Many homeowners also get a great deal of satisfaction from the feeling of helping the environment.

A man is signing a contract that's placed on a brown wooden table.

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If you want to learn more about amazing solar energy deals, ONIT Home is here for you. ONIT Home offers services in the following areas: smart security, solar, insurance, concierge, water treatment, and roofing. If you want to learn more about our solar services, visit us online. We can provide you with a free quote for solar services and information regarding the transition to renewable energy.

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