What Is a Solar Power Purchase Agreement (PPA)? A Simple Guide for Homeowners
Rising utility bills and the upfront capital costs of installing solar panels can make the idea of clean energy feel out of reach for many homeowners. A power purchase agreement (PPA) offers a way forward. Instead of purchasing and maintaining a solar system, you agree to buy the energy generated by that system, often at a rate that’s more predictable (and in most cases lower) than your utility. PPAs can be set up with either a fixed rate or a small annual rate increase, giving you options to fit your budget and long-term plans.
What Happens When I Go Solar With a PPA
If you go solar with a power purchase agreement and work with a solar solutions company like Earthlight, the process is straightforward. Earthlight designs and installs a solar system tailored to your roof and household energy needs, while a financing company owns the equipment for the length of your agreement. Once it’s producing renewable electricity, you pay for the power it generates for a set term, typically 25 years, at a stable, agreed-upon rate.
Earthlight manages every step, including securing local permits, scheduling installation, completing inspections, and setting up system monitoring. We also coordinate service calls and routine maintenance for the entire length of your agreement. PPAs can typically be structured in two main ways: physical PPAs, where you purchase the actual electricity from the panels on your property, or virtual PPAs, where your agreement is tied to energy market pricing but doesn’t require on-site equipment. Both options can help shield you from fluctuations in the broader energy market.
If your system produces more energy than you use and your utility offers net metering, that excess power is sent back to the grid in exchange for bill credits. This arrangement ensures steady access to renewable energy and the peace of mind that both the financing company and Earthlight are working to keep your system operating at peak performance.
Why Homeowners Like PPAs
A power purchase agreement offers a way to replace a high, unpredictable utility bill with a steady cost for clean, renewable energy. Homeowners often choose this option because:
Access to federal incentives – PPAs allow homeowners to continue benefiting from the federal solar tax credit beyond 2025.
No upfront cost – start using solar without paying for the system itself.
Start saving immediately – lock in a rate for solar power that’s often lower than your current electricity cost.
Long-term price stability – choose between a fixed rate that stays the same for the life of your agreement or a small annual increase that’s typically less than utility rate hikes.
No equipment responsibilities – the financing company owns the system, removing the burden of repair or replacement costs.
Local support – Earthlight manages the design, installation, monitoring, and service coordination so your system performs at its best year after year.
The Bottom Line on Power Purchase Agreements
A power purchase agreement can be a practical path to solar for homeowners who want predictable energy costs and the benefits of renewable power without the burden of owning a system. With a financing company covering equipment costs, tax credits fueling renewable energy growth, and Earthlight managing every step—from design to long-term service—you can enjoy the advantages of solar with less risk and no upfront expense. If you’re curious about whether a PPA is the right fit for your home, our team is ready to walk you through your options and help you make an informed choice.
Contact our team today to learn more about PPAs and how you can save with the federal solar tax credit!
Frequently Asked Questions About Solar PPAs
What is the Difference Between Physical PPAs and Virtual PPAs?
A physical PPA is when the renewable electricity is produced and consumed at your property. This means you’re buying the actual energy generated from the solar panels installed on your roof. A virtual PPA, sometimes called a financial PPA, doesn’t involve on-site equipment. Instead, it’s tied to the energy market, where you pay or receive the difference between the agreed contract rate and the market price of electricity.
How Do Tax Credits Impact PPAs for Homeowners?
With a residential solar PPA, the financing company typically claims the federal tax credits associated with renewable electricity projects. In return, they can offer homeowners lower contract rates because those incentives reduce the upfront capital costs of developing the system.
Why is the Market Price of Electricity Important in a PPA?
The energy market determines the cost of electricity based on supply and demand, fuel costs, and other factors. Market prices can swing significantly year to year, which is why homeowners like PPAs, which lock in stable pricing that protects them from utility rate hikes and energy market volatility.
Who is my Energy Supplier if I Sign a PPA?
When you enter into a solar PPA, the financing company effectively becomes your energy supplier for the portion of electricity generated by your system. You’ll still maintain your connection to the grid for backup power, but most of your home’s needs will be met by renewable electricity from your panels.