Sun Savings: A Powerful New Idea Energizes Homes & Solar Industry
Everybody wants a rooftop solar system. But nobody wants to pay for one. What would you do if you didn’t have to?
That’s the idea behind a new strategy being put to the test by the solar power industry, and it could be the breakthrough we’ve all been waiting for.
The trailblazing concept is called a purchase power agreement (PPA), and it’s designed to address the key problem solar energy systems have historically had: an unaffordable initial cost that puts them out of reach of most homeowners. Depending on where in the country you live, for example, a typical four-bedroom home needing a four-kilowatt system could cost anywhere between $25,000 and $35,000 to outfit. Even when the rising costs of conventional electricity are factored in, that’s a budget-busting investment whose payback time is far too long for all but the wealthiest purchasers.
PPAs, also known as solar power service agreements, take a different approach. Here, the solar energy company pays for the installation of all the necessary equipment. In exchange for what’s essentially a free solar system, homeowners sign a long-term contract in which they agree to pay a set rate for the electricity their system generates. Much like their arrangement with their local electric company, there’s still a meter and monthly bill, but the amount due now goes to the solar provider and comes without an environmental price tag.
There are other benefits as well. PPA customers lock into a set rate for the power their system generates, which usually mirrors local electricity rates at the time of installation. Once the contract is signed, they’re insulated from future price increases in the open market. Over the course of a typical 15 to 20-year contract, those savings are significant. (Imagine paying 1988 rates for the power you use today!)
A PPA system also comes with no servicing worries. Because the solar company owns it, they handle all maintenance, replacing often costly broken or worn out parts for free. At the end of the lease, homeowners can renew or in some cases even purchase their system at a reduced price that reflects its depreciated value. For their part, solar PPA providers can claim any state and/or federal tax benefits that the installation would normally provide to the homeowner, and they get a guaranteed monthly income.
There are lots of variations on the basic PPA idea. Some companies will charge a relatively small upfront free of several thousand dollars for the installation. Others sell the power their systems generate at variable rates. In every case, however, the consumer wins because their electricity costs are stabilized at below-market rates and their carbon footprint is greatly reduced, an advantage whose importance can’t be understated.
PPAs aren’t the only new type of solar system financing to emerge recently in the marketplace. Solar companies have also begun leasing systems. Under this arrangement, customers make a one-time payment at installation and then a set monthly rental fee unconnected to the amount of power their system is generating. Unlike PPAs in which the solar company owns the power being generated, the energy that leased systems produce is the property of the homeowner. Under this arrangement, if their system generates power their home doesn’t use, the homeowner can sell it to their local utility by sending it out onto the electrical grid, an arrangement called reverse or net metering.
With average national electric rates expected to rise about 2.5% annually in the coming years and the cost of solar panels predicted to drop dramatically in the next 12-24 months, PPAs and solar leases are expected to combine with increasing amounts of low-rate financing being offered by financial institutions to create a solar boom. Here are some resources to help your family take advantage of it:
To learn about state and federal tax credits and other renewable energy incentives, visit DSIRE, the Database of State Incentives for Renewables and Efficiency.
For a state-by-state guide to renewable energy programs, services, and resources visit The U.S. Department of Energy's Office of Energy Efficiency and Renewable Energy.
For a handy solar estimator and more information about finding a solar installer, explore Find Solar.