The Many Pitfalls of Power Purchase Agreements

September 10, 2020

Many solar contractors offer Power Purchase Agreements (PPAs), promising fixed electricity costs, zero maintenance fees, and no money out-of-pocket. Buyer, beware! Before entering into a PPA, be sure to understand the fine print.

  • In a PPA you don’t own the system and are locked into a contract for twenty years. While there might be ‘no money out-of-pocket,’ generally PPAs cost two to three times as much as owning the system yourself. 
  • Many contractors offering these agreements will immediately sell your system to a large bank or Wall Street investing group that will take advantage of the tax credit and accelerated depreciation. You’d be better off taking advantage of these incentives yourself.
  • Most of these contracts exclude “extra costs” in the terms. Rather, they say they will charge you for change orders to address any ‘extras’, such as upgrades to your main service panel required for the installation, work required by the utility to bring your existing infrastructure into compliance, connecting existing circuits to the battery system, and more.
  • Selling a home with an existing PPA may be problematic. Transferring the PPA to a new buyer may sound nice, but, if the new buyer opts out, you will need to purchase the system outright in order to close the deal or look for another buyer. We’ve talked to many homeowners who wished they never did a PPA because they can’t find a buyer willing to take it over. 
  • The biggest problems come with the end of term options. If you renew your agreement you’ll continue to pay for something you will never own, but have paid for three times over with monthly payments. Alternatively, you can purchase the system at Fair Market Value. This is usually undefined in the initial agreement and is likely the sum total of the payments they expect to get from the remainder of the 20-year term. You can also have the system removed at no cost. 

Power Purchase Agreements should be the very last resort to finance a PV installation. If a cash purchase isn’t an option, consider instead the Sonoma County Energy Independence Program, (SCEIP), which offers financing at 5.99% over twenty years, paid twice yearly with your property taxes. SCEIP financing ensures the PV system will be an asset that increases property value and stays on for the next buyer.