Solar Power Purchase Agreement vs. Owning Solar Panels
Are you considering investing in solar energy for your home or business? Two popular options for owning and utilizing solar power are a Solar Power Purchase Agreement (PPA) or outright purchasing of solar panels.
Although both methods have upsides and downsides, certain factors must be considered before deciding which option is best for you.
In this blog post, we will discuss the differences between Solar PPAs and outright purchases so that you can decide what would work best for your situation. Read on to learn more!
Key Differences Between Solar (PPA) vs. Owning Solar Panels
Solar Power Purchase Agreement (PPA) and owning solar panels outright are two distinct options for accessing solar energy. Understanding their key differences is essential in making an informed decision.
Your contract with a solar provider installing and maintaining your property’s panels is in a PPA. You purchase the energy produced by the panels at a predetermined rate.
In contrast, owning solar panels means you invest in the equipment and installation yourself. While PPAs require no upfront costs, ownership allows you to benefit from government incentives and tax credits. Owning panels also gives you control over maintenance, system upgrades, and the ability to sell excess electricity back to the grid.
Solar Power Purchase Agreement (PPA)
A Solar Power Purchase Agreement (PPA) is a contractual agreement between a solar energy provider and a customer. Under a PPA, the provider installs, owns, and maintains the solar panel system on the customer’s property.
The customer, in turn, agrees to purchase the electricity generated by the system at a predetermined rate over a specified period.
How a Solar PPA Works
In a Solar PPA arrangement, the solar provider manages the entire process, from system design and installation to ongoing maintenance and monitoring. The provider bears the upfront costs and risks associated with installing and operating the solar panels.
The customer benefits from the system’s clean energy without making an initial investment or being responsible for system maintenance.
Advantages of a Solar PPA
Since you’ve contracted with a PPA provider, all of the responsibility for the system’s maintenance and tax implications are its responsibility, not yours.
No Upfront Costs
The customer avoids the upfront costs typically associated with purchasing and installing a solar panel system, making solar energy more accessible and affordable.
It's cleaner energy
Many energy utilities across the country generate their electricity through sources such as natural gas or coal. Getting clean energy through a PPA cuts down on your personal contribution to climate change.
Maintenance and Repairs
The provider is responsible for the solar panel system’s maintenance, repairs, and performance monitoring, relieving the customer of associated costs and responsibilities.
Predictable Energy Costs
The customer benefits from a fixed or predetermined rate for the purchased electricity, which provides stability and predictability in energy costs.
Limitations of a Solar PPA
Customers entering a Solar PPA are usually bound by long-term contracts ranging from 10 to 25 years. This commitment may limit flexibility and the ability to switch providers or change energy consumption patterns.
Lack of Ownership and Control Over the System
As the provider owns the solar panel system, the customer does not have ownership or control over the equipment. This limits the ability to customize or make modifications to the system.
PPAs May Not Make Sense for You
Under a PPA, you are strictly paying a provider for the energy you use. Therefore, you won’t get the ancillary benefits of owning a solar system, such as the ability to get tax rebates or sell renewable energy credits to your utility.
Potential Limitations on Customization and System Size
The terms of a PPA may restrict the customer’s ability to expand the system or customize it according to their specific energy needs or preferences.
A Solar PPA offers benefits such as no upfront costs, maintenance coverage, and predictable energy costs. However, customers should carefully consider the long-term commitment, lack of ownership and control, and potential limitations on customization before entering into a Solar PPA.
It is important to assess individual energy goals, financial considerations, and alternative options, such as purchasing outright or financing, to make an informed decision that best aligns with specific needs and circumstances.
Buying a Solar Panel System Outright
Buying a solar panel system outright involves directly purchasing and owning the system without any financing or leasing arrangements. The customer assumes full system ownership, including installation, maintenance, and repairs.
Advantages of buying outright
Ownership and control over the system
Customers have complete ownership and control over their solar panel system by purchasing outright. They can make decisions regarding system design, installation, and maintenance, giving them full autonomy over their energy production.
Potential for greater long-term cost savings
Buying a solar panel system outright offers the potential for significant long-term cost savings. As owners, customers can generate electricity, reducing or eliminating their reliance on the grid and lowering their utility bills. Over time, the savings from reduced electricity costs can offset the initial investment.
Freedom to customize and expand the system
Owning the system outright provides the freedom to customize and expand it according to specific energy needs. Customers can choose the type, size, and configuration of solar panels, ensuring the system is tailored to their requirements. They also can add more panels if their energy demands increase.
Benefits of purchasing solar panels outright in Arizona
In Arizona, outright purchasing a solar panel system offers additional benefits due to the state’s favorable solar conditions and local incentives.
- Arizona boasts ample sunshine throughout the year, maximizing the potential energy production of solar panels.
- Arizona provides various solar incentives, such as the Arizona Solar Energy Credit and the Property Tax Exemption for Solar Energy Devices. These incentives can significantly reduce the upfront costs of purchasing a solar panel system.
By purchasing a solar panel system outright, customers can take advantage of the state’s solar incentives, tax credits, and abundant sunlight. They gain ownership and control over their energy production, have the potential for long-term cost savings, and can customize and expand their system as needed.
Watt Masters, a commercial solar installer in Phoenix, AZ, can provide expert guidance and support throughout purchasing and installing a solar panel system.
Financing a Solar Panel System
Financing a solar panel system means acquiring and installing solar panels through various financing options such as loans or payment plans. It allows individuals or businesses to access solar energy without making a significant upfront payment.
Instead, they make regular monthly payments to cover the cost of the system over a designated period.
Watt Masters has experience with many forms of solar financing in Arizona for residential and commercial solar alike. If this is a route you are considering, we can help guide you through which solar financing companies we have seen good success with.
Advantages of Financing
Access to Solar Energy without a Large Upfront Payment
Financing allows embracing solar energy without needing a substantial upfront investment. This makes solar power more accessible and affordable, particularly for those who may not have the resources to purchase a system outright.
Opportunity for Cost Savings Over Time
While financing involves monthly payments, the long-term savings achieved through reduced electricity bills can offset these costs. By generating clean energy, system owners can significantly reduce or eliminate their reliance on the grid, lowering utility expenses. As utility rates continue to rise, the cost savings from solar power become increasingly significant.
Ownership and Control over the System
Opting for financing grants ownership and control over the solar panel system. The system owner can customize and expand it according to their energy needs and preferences. They can choose the type and size of solar panels, ensuring the system aligns perfectly with their requirements. They also retain full control over maintenance, repairs, and future upgrades.
Disadvantages of Leasing and Power Purchase Agreements (PPAs)
While leasing and power purchase agreements (PPAs) offer certain benefits, they come with notable drawbacks compared to financing or buying outright.
Leasing often involves a long-term commitment and limited financial benefits. With leasing, customers do not own the system and miss out on potential cost savings and incentives available to system owners.
PPAs, on the other hand, require customers to purchase the energy produced by the solar panels without gaining ownership or control over the system. Individuals or businesses can maximize the advantages of ownership, customization, and long-term cost savings by choosing financing or purchasing outright.
Financing through reputable solar installers like Watt Masters Solar Installers in Phoenix, AZ, allows customers to access solar energy while maintaining financial control and reaping the benefits of clean, renewable power for years.
Leasing a Solar Panel System
Leasing a solar panel system involves entering into an agreement with a solar provider or leasing company, where the customer pays a monthly fee to install the solar panels on their property.
The leasing company retains ownership of the system, and the customer benefits from the generated electricity.
Drawbacks of Leasing
While solar panel leasing may initially seem appealing, there are several significant drawbacks to consider:
Lack of Ownership and Control over the System
One of the main disadvantages of leasing is the absence of ownership and control. The leasing company retains ownership, meaning the customer cannot decide about system design, customization, or maintenance.
Limited Financial Benefits Compared to Purchasing Outright or Financing
Leasing often provides fewer financial benefits compared to purchasing outright or financing. Since the leasing company owns the system, the customer needs incentives, tax credits, and long-term cost savings that come with ownership or financing options.
Potential for Long-Term Costs and Restrictions
Leasing contracts typically involve long-term commitments, often spanning 15 to 20 years. These contracts may have strict terms, including penalties for early termination or limitations on system modifications. If the customer wants to sell the property, the transfer of the lease agreement can complicate the process.
At Watt Masters, a commercial solar provider in Phoenix, AZ, customers are encouraged to explore alternative options such as purchasing outright or financing. These options provide ownership, control, and the opportunity for greater financial benefits through incentives, tax credits, and long-term cost savings.
Watt Masters can guide customers through evaluating their specific energy needs, financing options, and ownership advantages, ensuring they make an informed decision that maximizes their benefits in the Arizona solar market.
A solar power purchase agreement (PPA) is an arrangement between a homeowner or business owner and a solar energy developer where the homeowner or business owner agrees to buy electricity generated by a solar energy system owned and operated by the developer.
Owning solar panels can be costly as it involves purchasing the equipment and paying for installation. It also requires ongoing maintenance to keep the system running optimally. With a PPA, you don’t have to buy or maintain any hardware—all of that is handled by the developer who owns and operates the system.
The main benefit of owning solar panels is that you can take advantage of tax credits, incentives, and other financial savings available for going solar. Over time, the cost savings from your system’s energy can outweigh those associated with a PPA.
One of the main disadvantages of a PPA is that you are locked into a contract for the duration of your agreement. Transferring the agreement and price per kilowatt-hour (kWh) can be challenging if you decide to move. Additionally, electricity prices may rise without built-in escalators while your pay rate remains unchanged.
When considering solar energy options, weighing the pros and cons of each choice is crucial. While solar leasing and PPAs may seem enticing due to their low upfront costs and maintenance coverage, they often need to catch up as long-term investments. Leasing and PPAs lack ownership and control over the system, limiting customization and potential savings. Additionally, the lengthy contracts and potential restrictions can hinder flexibility.
On the other hand, purchasing outright or financing a solar panel system offers ownership, control, customization, and greater financial benefits through incentives and long-term cost savings. Individuals and businesses can make wise investments that align with their energy goals, financial considerations, and long-term sustainability by purchasing outright or financing. No matter what comes next, make sure it’s your best decision!