What Is a Solar PPA? How Power Purchase Agreements Work

What is a solar power purchase agreement?

A solar power purchase agreement, or PPA, is a contract to buy the electricity a solar system makes on your roof. A solar company designs, installs and owns the system. You agree to buy its power at a set price per kilowatt-hour for a fixed term, usually 20 to 25 years.

The appeal is simple: you get solar power and a lower bill with little or nothing up front, and you don't take on a loan or the job of maintaining equipment. The company monitors the system, fixes it if something breaks, and carries the cost of the panels.

A PPA is one of five ways to pay for solar, alongside cash, a loan, a lease and a prepaid PPA. Our guide to how to pay for solar compares all five. Evergreen Solar offers each of them, so you can see a PPA priced next to the others on the same system.

The panels themselves are the same ones an owner would buy. A PPA changes who pays for them and how the savings are shared, not the equipment on your roof or the power it makes.

How do you pay for electricity under a PPA?

With a PPA you pay for what the panels produce, not a flat monthly amount. Each month the company reads the system's production and bills you for those kilowatt-hours at your contract rate.

That means your solar bill follows the seasons. In June, when the days are long, the system makes more power and the bill is higher. In December it makes less, and the bill drops. Over a full year, you pay for exactly what the system delivered.

You still have a utility account. You draw power from the grid at night and on cloudy days, and when the panels make more than your home uses, the extra flows to the grid. Net metering credits for that extra power appear on your utility bill whether you own the system or not. The goal is for your solar bill plus your smaller utility bill to come in below what you paid the utility before.

The PPA rate is set when you sign, based on the size of the system, how much sun your roof gets, the incentives that lower its cost, and whether the rate stays flat or rises over the term. A roof with better sun exposure produces more power from the same panels, which spreads the company's cost over more kilowatt-hours. When you compare offers, line up the starting rate, the escalator and the term together, because a lower starting rate with a steep escalator can cost more over 25 years than a flat rate that starts a little higher.

How do solar incentives lower your PPA rate?

A PPA system qualifies for the 30% federal clean electricity investment credit under section 48E of the tax code, and that credit is the main reason your rate can start below what the utility charges. A system can qualify for 10 more percentage points if it sits in a federal energy community, and another 10 if it uses enough U.S.-made equipment. You don't file anything: the company that owns the system handles the credit, and you see it as a discounted rate.

In Massachusetts, SMART 3.0 payments for the power the system produces also help lower your rate. Ask how each incentive is reflected in the rate you're quoted, so you can see the full value you're getting.

Net metering adds to your savings, too. Credits for the extra power your panels send to the grid land on your utility bill, because they are tied to your utility account, not to the equipment.

Timing matters for the federal credit. Systems that begin construction after July 4, 2026 must be in service by December 31, 2027 to qualify. Our article on whether you get a tax credit when you lease solar explains how that works.

What's the difference between a PPA and a solar lease?

A PPA and a lease look alike from the street. In both, a company owns the panels on your roof and handles the maintenance. The difference is what you pay for.

A lease gives you a predictable payment that is easy to budget. A PPA ties what you pay to what the system actually delivers, so a cloudy year costs you less. Our comparison of leasing vs. buying vs. a PPA adds ownership to the picture, and our full solar lease vs. PPA comparison goes deeper on the two.

What should you check in a solar PPA contract?

Read these terms closely before you sign. A good PPA answers each one in writing.

• The starting rate. Compare it with your current utility rate per kilowatt-hour, which is on your bill.
• The escalator. Some PPA rates stay flat for the whole term. Others rise by a set percentage each year. Ask for the rate in year one and in the final year.
• The term. Most run 20 to 25 years. Match the term to how long you expect to stay.
• The production estimate. Ask how much power the system is expected to make each year and what the company commits to if it falls short.
• Roof work. Find out who pays to remove and reinstall the panels if you need a new roof later.
• Selling your home. Check how a buyer takes over the agreement and what a buyout costs. See selling a house with solar panels.
• The end of the term. Most PPAs let you renew, buy the system or have it removed.

Is a solar PPA right for your home?

A PPA tends to fit homeowners who want a lower bill without debt, don't want to manage equipment, or can't use state tax credits. It also suits anyone who likes paying only for what the system produces.

It is less of a fit if you plan to sell within a year or two and don't want a buyer to take on a contract, or if you would rather collect every incentive yourself. In those cases, compare the PPA against a cash purchase or a loan on the same system and look at the total cost over the full term, not just the first bill.

If you would rather avoid a monthly solar bill altogether, a prepaid PPA lets you pay for the system's power once, up front. If you want the most savings over 25 years and can pay or borrow at a fair cost, owning usually comes out ahead. Our short answer on whether to buy or lease solar panels walks through that trade-off, and our look at "free solar" offers explains how $0-down pitches usually turn out to be a lease or PPA.

Frequently asked questions