What to look out for before you lease or sign a PPA

First, understand the difference between a lease agreement and a PPA. Leasing a solar energy system basically means allowing the leasing company to set up the panels on your roof, have them feed electricity into your home and take advantage of the new, lower utility bill. For that, you pay rent, the monthly leasing fee. Depending on how much your panels produce and how the price for the power you still receive from the grid develops, your savings might vary. Every kilowatt-hour the panels produce is worth as much as the kilowatt-hour you don’t have to get from your utility would have cost you.

A PPA means that you are purchasing the electricity from the panels on your roof in advance for a fixed price. Typical PPAs in Northern California charge between twelve and 16 cents per kilowatt-hour. PPAs often (and leases sometimes) come with an escalator, which is the amount the price per kilowatt-hour will go up year by year. Typical escalators are around 3%. The contract will require you to purchase all the electricity the panels produce – so make sure, the system is not oversized and produces more than you consume in the course of a year.

Sizing a system correctly can actually be tricky because your consumption might significantly change over the next 20 years (the typical duration of a lease or a PPA). When will the kids be out of the house? Will you buy an electric vehicle? Are you going to reduce you consumption by upgrading to appliances that are more efficient?

Solar lease companies have to provide a detailed financial plan with their bids. Comparing apples to apples is still not easy. One of the biggest factors that determines how much you will save over 20 years is the assumed rate by which the electricity costs from your utility will go up. Historically in California, the rate was around 3%. But some solar installers assume an electricity rate escalator of 4% or more, making their offer look better. Services like www.solarpowerreport.com offer online tools that make it easy to compare bids.

Before you sign a lease agreement or PPA you should also have a look at the legal fine print. Watch out for production guarantees, how the companies handle warranty claims, how the installation might affect the warranty for your roof, and what the procedure is if you decide to sell your house before the 20-year contract is up. Especially the latter issue has already caused some headache for homeowners because it slowed down the selling process or forced them to buy out their lease contract.