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Definition
A Power Purchase Agreement (PPA) is a 20–25 year financial contract in which a solar company installs panels on your roof at no upfront cost and sells you the electricity generated at a fixed per-kWh rate — typically 10–30% below your current utility rate. The solar company retains ownership of the system and therefore claims the 30% federal ITC and any other incentives. You pay for power produced, not for the equipment. Key risks: annual escalation clauses (2–3% rate increases per year) may erode savings over time; transfer to a new buyer when selling your home requires lender approval; and early termination fees can be substantial. Compare total 25-year cost of a PPA against a solar loan before deciding.
Also Known As
solar PPA
energy services agreement (ESA)
solar lease (similar but different)
third-party ownership
Used in Context
- The solar company offered a PPA at $0.09/kWh versus the homeowner's current $0.14/kWh utility rate — saving $65/month initially, but a 2.5% annual escalator meant the rate would exceed the utility rate in year 14.
- When the family tried to sell their home, the buyer's mortgage lender required the PPA to be transferred or paid off at closing — a complication that nearly derailed the sale.
- Financial planners typically recommend a solar loan over a PPA for homeowners who owe at least $8,000 in federal taxes, since owning the system captures the 30% ITC that PPAs forfeit.
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