Summary

Solar Power Purchase Agreements (PPA) is lease-type arrangement where the solar contractor (or PPA entity) takes on the entire solar purchase arrangement. The customer pays a fix amount, many times with acceleration clauses to the PPA entity for electricity for the 20-25 years. The organization does not own the solar, a lease variation.  The PPA entity receives the monthly income from the customer, all the tax benefits and resells the organization excess solar production to other customers. In essence, the customer is a solar farm for the the benefit of the PPA entity. Using one client as example, the total paid to the PPA entity is over $2,000,000 over a no break contract for 25 years.. The purchase of the solar would have been under $500,000.

Non Finance Issues

Remember, the PPA entity is paying for the solar and installing it on your property and retains ownership of the solar and the contracts are typically very long term such as 20-25 years. And you are purchasing electricity from the PPA entity, not the utility company.

Non Finance Issues – Residential

For residential solar this means that there could be challenges in selling the home. The potential buyers may not want to assume that agreement which greatly reduces the number of buyers. The contract with the PPA entity could be bought out, however, this is usually at the fair-market-value of the solar, which is typically quite substantial.

Non Finance Issues -Nonprofit organizations, churches and HOAs

The long 20-25 year contract may not be as catastrophic for nonprofit organizations, churches and HOAs as with residential as the underlying properties are typically non sold. However, over time, the strict terms of the agreements can be become more problematic and the organization’s operations become more efficient causing those terms to be a very sticky point in the financial statements and cash flow.  As with residential, the only way out is an expensive buy-out.

Additionally, solar technology will continue to improve and you’re stuck with the existing system for the full term of the agreement.

Lease-A straight lease is a bit different from a PPA. The solar company buys the solar and installs it on your property and gets the solar tax credit benefits. You pay a lease amount to them. Think of this as a form of financing. However, you treat it like your own and pay the electric company for the electricity as normal and you get the benefit of net metering.  You still have the issue of the lease when you sell the property but it’s not the same big issue with a PPA.  A lease can work well in certain circumstances.  For example, a residence has an extremely high electric bill and the house and property are such where a typical roof mount won’t work and ground mount and cabling plus the solar panels is simply too expensive.  The lease brings the total outlay, lease plus electricity, to a acceptable range well below the previous high electric bill.

To Summarize

Lease or PPA arrangements are very seldom in the owners favor and with the long contract term places a very restrictive contract on the property.  However, there are circumstance where a lease may be a good option. A side-by-side analysis will provide the information to make the necessary decision.