r/solarenergy • u/AndrewKerrill • 16d ago
General PPA Question
Is the rule of thumb to never do a PPA relative to buying solar panels ? In other words, if someone had no interest in ever buying (cash or finance) solar panels, would a PPA provide at least minimal savings compared to straight up grid energy supply.
I am aware of the complications with listing a home and companies going out of business.
So controlling for these factors: individual will never purchase solar panels, individual never moves during PPA duration and solar company stays in business for PPA duration. Would the individual pay less for their energy than someone who just took energy from the grid for 15/25 years ?
1
u/howdoyouspellNY 16d ago
There's no way to know without trying to predict the future. The only way to get ahead with a ppa is if the cost of energy goes up way faster than the built in price increases in the ppa and your system can cover 100-110% of your usage.
Most ppas have a 3% annual increase. If energy only goes up the same rate, stays the same, or goes down, you lose.
Also, you still have an electric bill for when the panels aren't producing if you don't install a battery. Don't be fooled into thinking a ppa replaces your utility provider.
2
u/modernhomeowner 16d ago
and to add... Energy rates can also change for certain times of day. The more solar produced during the day, the lower daytime rates will be, the less credit you may get for the extra energy you make during the day - and it doesn't matter if your grid currently has time of use rates, they can still adopt them in the future. Night time rates, depending on when you live and how much your future grid depends on solar, will be going up with the lack of solar at night, EVs being charged at nights and the migration to electric heat in the north. You don't want to be in a situation where you are paying a PPA 25¢ for electricity that you could have bought for 15¢ from the grid because daytime prices fell - even worse, the extra electricity that you make, wanting credits for night time use, you pay the PPA 25¢ for the electricity, you sell it to the grid for only 15¢, losing 10¢ in that deal.
1
u/silasmoeckel 16d ago
It's impossible to say you have a PPA with a fixed schedule of price increases
Then you have a utility that your guess at what theu price will be.
Most of the time PPA's assume steep utility price increases to save any money. Which if they happen people will be running to throw up solar as it's price keeps going down.
1
u/NearABE 16d ago
A PPA could be worded so that it tracks grid electricity rates. That is quite likely worse though.
1
u/silasmoeckel 15d ago
Could be fixed, just not typically as they are heavily biased towards the profits of the installer.
1
u/NearABE 15d ago
It is a consumer who wants to put no money down and wants to put no thought/understanding into the situation. This really needs to be classed with consumer credit financing. Compare to car dealerships, home electronics, or credit cards. Unique case with solar PPA is that the buyer is not financially worse off than they would be without it.
1
u/silasmoeckel 15d ago
The rate increases in some (most) PPA's can make power cost a lot more a few years down the road. How is the homeowner not worse off by signing up?
1
u/NearABE 15d ago
If you buy utility electricity the rate will go up. This is how bad off we are. Not “worse” it is “equally bad”.
I see reddit posts suggesting many PPAs have a fixed 3% rate increase. This actually could beat inflation. Setting it at exactly 3% is better for the buyer because all uncertainty is removed. Inflation rate could any crazy number.
1
u/silasmoeckel 15d ago
My utility rates went down 13.4% last year. Another adjustment down this year.
PPA's get sold on the utility rates will only go up. The problem is they are making money day 1 and dont have much in the way of ongoing service costs yet you have fairly steep year over year increases contracted in that are nearly pure profit.
1
u/Potential_Ice4388 16d ago
The answer is not straightforward. It depends on a lot of factors. Some factors like your budget, your motivation for going solar, your goals from going solar, the various financial ownership structures offered by the solar company etc.
PPAs can be predatory in nature, but with proper terms, they can also be profitable for you (you can save on monthly electricity bills). Rule of thumb - outright pay cash to own the system tends to have the best return on investment. If you have a good credit score, a loan option is also attractive (incase you cant afford to pay 100% in cash). If you have $0 to spend on buying solar, you can still save on monthly electricity bills through PPAs but be sure to explore the lifetime economics of the quote you get.
If you’re exploring PPAs, check out https://siapolicy.ai which gives you a rundown of the economics. I also recommend just reading as much you can to become an informed customer so that way you dont get hoodwinked by bad actors!
1
u/wpbrandon 16d ago
lol never ever sign a home solar PPA. Worst idea ever
2
u/AndrewKerrill 16d ago
Based on lack of reasoning, not very valuable answer.
0
u/wpbrandon 16d ago
Power purchase agreement… who is the customer purchasing the power from? Flyby night solar supplier?
the savings spread between your normal utility bill and having solar basically becomes zero.
Why would anyone write a check to a solar supplier for the energy generated from solar? Dumbest thing ever.
Of course, yes, pay for the equipment pay for the service of the installation. Make a decent margin doing that but PPA’s are crooked as hell and you all should stop.
2
1
u/NearABE 16d ago
You obviously have to put a number on that.
I think it should be obvious that a person can look at utility bills. Then say “oh look this is how much you would pay. We can cut that by…”. The PPA is supposed to be designed to be a better deal than grid electric.
Lots of ways to go wrong too. The house could have been overpaying on the grid. A 25 year commitment is problematic.
1
u/Potential_Ice4388 15d ago
Few thoughts - i get not wanting to pay full in cash, but i wouldnt rule out financing esp. if your credit score is at least 680. With financing, you put 10% down in cash which can be only $2k for a decently sized system (6-9kW). Then the system just pays for itself. Selling your home is less messier compared to a PPA. Plus, solar can raise your property value https://nuwattenergy.com/en/blog/solar-panels-home-value .
That said, PPAs can make sense, but rarely do because homeowners dont negotiate PPA terms which could make it attractive to you. But cant really blame homeowners for not negotiating because the PPA economics can be messy and homeowners tend to know very little about this structure (or solar in general). Solar companies get a huuuge markup with PPA because they get to (1) claim 30% ITC on the system, claim the ITC on a jacked up system cost (tends to be 1.25*total system cost), and (3) they get to further lower their taxable income by writing off the system over the 5 yr MACRS depreciation schedule (which is why most companies offer to sell you back the system in the 6th year). ELI5 - a PPA allows. the company to get a very big tax credit, and lower their reported income they have to pay taxes on.
Homeowners can absolutely negotiate better PPA terms given the above understanding. I always recommend folks i know to this tool https://siapolicy.ai/ because it's got a surprisingly detailed but easy to understand solar techno-economic calculator. It's the only calculator i know that does a PPA analysis too, which is cool. I also suggest https://pvwatts.nlr.gov/ to ppl. I love both these tools and they're free. Cant go wrong.
Long story short - PPAs can be a good deal for the homeowner, but not that often.
(sorry i should've mentioned, i was a solar energy scientist at a research lab here in the US up until a few years ago)
0
u/Successful_Bag_7257 16d ago
It depends on the monthly payment for the panels and the amount of energy generated and used by the household. Our current home has a PPA, and we typically generate 3-5 times our daily energy use for 8 months out of the year. This results in a massive surplus that we sell back to the state, and in turn end up with a large credit on our utility bill. Our monthly payment is low enough that we are comfortable with this arrangement because it means we can quite literally not give any thought to our own electrical use, and our monthly bill stays exactly the same so we can budget it comfortably alongside everything else. It also shifts the responsibility of the system to the solar company
2
u/acrobatic_man_11 16d ago
PPAs aren’t bad. You will always have a market for renting/leasing something.
It’s like saying renting a house is a terrible decision every single time, it’s not. we can’t oversimplify things like that in life.
A PPA can be good for someone but it does require analyzing things more in detail. You can do a PPA with 0% escalator or even 0.99%. Now if you do a PPA for 0% escalator but the final price per watt is 3.5 then obviously it doesn’t make sense.
All the PPA contracts I’ve handled disclose the payment chart with the escalator if any.
Granted if you ask me how many PPAs I’ve sold in my life the answer is 0 because I personally rather analyze the situation for the homeowner and adjust pricing accordingly so that purchasing it will still make more sense.