Understanding Solar Power Purchase Agreements (PPA)

(Monthly & Prepaid Options)

A Power Purchase Agreement (PPA) is one of the most popular and accessible ways for California homeowners to go solar. It allows you to immediately enjoy the benefits of clean energy and lower electric bills without the burden of system ownership or the high upfront cost of installation.

Today, most homeowners choose between two main PPA options:

• Monthly PPA: pay for the solar power you use each month
• Prepaid PPA: pay once up front for years of discounted solar power, with no monthly solar payment

What is a Solar PPA?

A Solar Power Purchase Agreement is a financial contract between you (the host customer) and a solar provider (the developer). Under this agreement, the developer arranges for the design, permitting, financing, and installation of a solar energy system on your property at little to no upfront cost.

The key distinction is that the developer company retains ownership of the system for the duration of the long-term contract. Instead of buying the equipment, you agree to purchase the electricity the panels produce at a discounted rate compared to your utility.

Monthly PPA

With a monthly PPA:

• You pay per kilowatt-hour (kWh) of solar energy produced each month.
• Your rate per kWh is guaranteed and usually set lower than your current utility rate, resulting in instant monthly savings.
• You still receive a smaller bill from your utility for any additional power you use from the grid.

Prepaid PPA

With a prepaid PPA:

• You pay upfront for the expected solar energy the system will produce over the term (e.g., 20-25 years).
• In exchange, you typically receive a larger overall discount on power costs (often in the range of 20-25% versus doing nothing).
• After the upfront payment, there is no monthly solar payment to the PPA provider, only your smaller utility bill for any extra electricity you need.
• You still enjoy all the benefits of a PPA (no ownership, no maintenance) while locking in long-term savings up front.

Who Benefits from a PPA?

The PPA structure, both monthly and prepaid, is designed for customers who prioritize instant savings and convenience over long-term system ownership.

Monthly PPA Is Ideal For:

• Homeowners Seeking Zero Upfront Cost
  Best if you want to eliminate the initial investment barrier to going solar and simply “swap” part of your utility bill for a lower solar payment.
• The Maintenance-Averse
  If you prefer a completely hands-off experience, the PPA is ideal. The developer owns the system and handles all monitoring, maintenance, repairs, and insurance for the life of the agreement.
• Those Focused on Budget Predictability
  Monthly PPAs offer a stable, predetermined rate for your electricity with a known annual adjustment, providing greater certainty than variable utility rates.

Prepaid PPA Is Ideal For:

• Homeowners With Available Cash or Equity
  If you have funds set aside (or access to low-cost financing) and want maximum savings without owning the system, a prepaid PPA can be very attractive.
• Those Who Don’t Want a New Monthly Payment
  You prefer to make one upfront payment and then avoid monthly solar charges, aside from your smaller utility bill.
• People Who Want Long-Term Protection From Rate Increases
  By prepaying, you’re effectively locking in years of discounted power today, shielding yourself from future utility rate hikes.

(Environmental benefits are essentially the same across all options for the same size system what changes is how you pay for it and who owns it.)

Pros and Cons of a Solar PPA

While PPAs offer incredible access to solar, it is essential to understand the trade-offs before signing a long-term contract.

PPA Benefits (Monthly & Prepaid)

• $0 Down Payment (Monthly PPA)
  No massive upfront capital investment is required to install the system.
• Prepaid Savings (Prepaid PPA)
  By paying up front, you may unlock deeper lifetime savings and remove the solar portion of your monthly bills.
• Immediate Savings
  The PPA rate (or effective prepaid rate) is typically set lower than your current utility rate, so you start saving from day one.
• Zero Maintenance Responsibility
  The system owner is responsible for all performance guarantees, monitoring, cleaning, and repairs, eliminating risk and hassle for the homeowner.
• Rate Predictability & Protection
  Monthly PPA: You lock in a defined rate structure (often with a low, preset annual escalator) that helps protect you from future utility spikes.
  Prepaid PPA: You effectively lock in years of discounted energy up front and avoid monthly solar rate increases.
• Performance-Based Payments (Monthly)
  You only pay for the actual electricity the panels produce, not theoretical estimates.

PPA Drawbacks

• No Ownership
  You do not own the physical system on your roof, so you don’t directly receive tax credits or depreciation benefits.
• Long-Term Commitment
  PPAs are long-term contracts (typically 25 years).
  If you sell your home, the contract usually must be transferred to the new buyer (who must qualify) or bought out.
• Fixed Escalator (Monthly PPA)
  Most monthly agreements include a fixed annual increase in the electricity rate (2-4%). You must ensure this escalation remains lower than expected utility rate increases over the contract term.
• High Upfront Payment (Prepaid PPA)
  While it can deliver excellent long-term savings, a prepaid PPA requires a larger upfront payment, which may not fit every homeowner’s budget.
• Potential for Two Bills
  Whether prepaid or monthly, you will still receive: A bill or statement from the PPA provider (unless fully prepaid), and a smaller bill from your utility for any additional electricity needed.

Q&A:

1. What is a solar Power Purchase Agreement (PPA)?
   A solar PPA is a contract where a solar company installs and owns the system on your home, and you buy the electricity it produces at a discounted rate instead of buying the equipment yourself.

2. What is the difference between a monthly solar PPA and a prepaid PPA?
   With a monthly PPA, you pay for the solar power each month based on how many kWh the system produces; with a prepaid PPA, you pay once up front for years of solar power at a deeper overall discount and have no monthly solar payment.

3. Who is a monthly solar PPA best for?
   A monthly PPA is best for homeowners who want $0 down solar, lower bills right away, and a simple “pay-as-you-go” structure without owning the system.

4. Who is a prepaid solar PPA best for?
   A prepaid PPA is ideal for homeowners who have cash available and want maximum long-term savings and no ongoing solar payment, while still avoiding ownership and maintenance responsibilities.

5. Do I get the federal solar tax credit with a PPA?
   In a PPA, the solar provider owns the system and claims the tax credit; the homeowner typically receives the benefit indirectly through lower PPA pricing rather than a tax credit on their own return.

6. Does a solar PPA include maintenance and repairs?
   Yes. With both monthly and prepaid PPAs, the provider is usually responsible for monitoring, maintenance, repairs, and performance guarantees for the entire contract term.

7. Will I still get an electric bill if I have a PPA?
   Yes. You’ll receive a bill from the PPA provider for solar power (or a record of usage if prepaid) and a smaller utility bill for any extra electricity you draw from the grid.

8. What happens if I sell my home during a PPA?
   When you sell your home, the PPA is typically transferred to the new owner (subject to their approval/qualification) or bought out according to the terms in your contract.

9. How much can I save with a prepaid solar PPA?
   Many prepaid PPA offers are designed to save homeowners around 20-25% or more compared to doing nothing and staying on standard utility rates, depending on usage and local rates.

10. Is a solar PPA good for California homeowners under today’s utility rates?
    Yes. With rising electricity prices and NEM 3.0 in California, both monthly and prepaid PPAs can deliver immediate bill savings, price protection, and clean energy without the cost or responsibility of system ownership.