The solar Power Purchase Agreement: a simple way to go solar | Sobuka Blog | Clean Energy and Green Tech News & Events | Solar Installations | Wind Energy RECs | Energy Audits | Green Remodeling | Green Financing

Several months ago, we wrote a blog highlighting the solar lease as a way for people to get a solar installation without incurring any upfront costs. Today we are introducing you to the solar Power Purchase Agreement, or sPPA: another viable alternative for getting solar panels without any upfront costs.

What’s a sPPA?

Ok, you do want them solar panels on your home or office building but you don’t like the upfront cost. You also don’t want to lease them like we mentioned above. That’s where the sPPA option comes in.

With this alternative, you let the solar company put panels at your site, but you do not pay for the installation. You simply pay for the electricity that these panels generate.

The Benefits

Because you don’t technically own the panels, you save a boat-load of cash by not paying for the installation or maintenance. The cost of the electricity from these panels is usually the same amount or lower than what you were already paying PEPCO or BG&E, or whatever utility company you have. Your contract with the solar company will state what the agreed rate per kilowatt-hour is. This rate will usually go up by 1% to 5% per year, but it is designed to remain below the typical annual rate increases from your utility company. Your contract with the solar company usually lasts about 6 years, and at the end of the contract, you can agree to another contract, buy the solar panels, or get them removed.

Here’s an example. Imagine you signed a sPPA contract 6 years ago, in 2004, for solar panels that generate 20% of your home’s electricity (you still pay the regular utility company for the remaining 80%). Let’s assume your household uses an average of 1000 kW-hours of electricity per month, and if we use the 2004 average US national rate of 8.95 cents/kW-hour, your total electric bill would be $89.50 per month. In January 2005, the average national electricity rate went up to 9.45 cents/kW-hour, but your sPPA rate goes up by 1% according to your contract, to 9.04 cents/kW-hour. If we do the math, you now pay $75.60 for 80% of your electricity (800 kW-hours) to your utility, and $18.08 for the remaining 20% (200 kW-hours) to the solar company. That’s a total of $93.68 for January 2005.

Now we’re in 2010, reaching the end of your 6-year contract, and how much have you saved so far? If you never got solar panels, then you spent a total of $8,854.80. However with the sPPA model, you spent a total of $8,633.31. Your total savings over the the last 6 years are $221.49. Wait, did you just say that’s not a big deal? Let’s give you a couple more reasons:

• the utility’s electricity rate (red line) jumps up in an unpredictable fashion, while the sPPA rate (green line) is predictable because your contract tells you exactly what you’ll be paying over the 6 years of solar power. Knowing your electricity cost in advance is a huge benefit for planning and budgeting.
• over the 6-year period, you prevented your utility company from generating 14,400 kW-hours of unclean electricity, because you had your own clean version to use. That’s the equivalent of 11.7 metric tons of CO2 emissions, or in plain English: you stopped 2 cars from emitting pollutants for a year.
• Let’s not forget the “I got solar panels on my roof” statement you can use freely at every cocktail party; that’s some major cool points right there…

Just remember this: the whole thing cost you nothing to setup. You simply chose a different path to get your electricity and become a good citizen of the environment.

The “Bad”

There’s nothing bad about going green, hence the quotation marks. However here are the changes that you might have to deal with by going solar with a PPA model:

• you will not cash-in any of the government tax credits or state rebates for using solar, because you don’t own the panels
• you will not be able to receive cash for any solar Renewable Energy Certificates (sRECs), again because you don’t own the panels
• if you are short-term leasing your place, the lease may prevent you form getting a PPA because you need  at least 6 years for the contract. In addition, your landlord may not want you to make changes to the property, so your solar panels may not be installed in the ideal location, if any at all
• you may save money by buying the solar panels outright, especially if you consider the government-backed incentives
• your property taxes may go higher if your property gets reassessed after the solar panel install
• taxes and other surcharges by your utility company may take up the amount of money saved, so you may not save anything financially

Ok, now that you have a picture of the good and the “bad,” please remember that you are doing this not just to save money, but to help the environment. What’s next? Why not explore the different solar installation types? And as always, let us know if you need FREE quotes for a solar installation from our list of wonderful contractors.

Tags: power purchase agreement, PPA, solar

This entry was posted on Tuesday, December 21st, 2010 at 4:17 pm and is filed under Featured Content, Green Financing, Solar Energy. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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