What does it mean to go solar through third party ownership?

By SUN Admin on September 18, 2017

Third-party ownership means that a solar company will own and maintain the panels installed on your roof. As the homeowner, you simply purchase the power the panels produce through a power purchase agreement (PPA) or pay a fixed, monthly rate (lease) for the panels. PPAs and leases can offer a no-upfront payment alternative when going solar, while still saving you money. Typically, the price of solar is lower than your standard electricity price, so you will see savings right away. A PPA or lease contract typically runs 15 to 20 years, but will often include an option for the homeowner to purchase the system outright later in the contract term. In this model, the company that owns the system will take advantage of the federal tax credit and any other available local incentives.

Benefits of power purchase agreements and leases
  • Third-party ownership models allow individuals and organizations to go solar without a large initial capital outlay.
  • The project developer is responsible for maintaining the system for the length of the contract.
  • If you are unable to take advantage of the federal or state tax credits or other incentives, the installer will be able to and can pass on the savings.
Disadvantages of power purchase agreements and leases
  • PPAs and leases can be complicated and organizations must dedicate time and money to ensuring that they negotiate a fair and equitable contract with the solar developer.
  • Since the third-party, typically the installer, owns the system, the individual or business will not be able to take any incentives like SRECs or grants.
  • At the end of the life of the contract (typically 15 years), you will usually have three options: purchase the system at fair market value, extend the life of your PPA or lease, or have the installer remove the panels from the roof.
  • Most PPAs may increase the price you pay for the electricity your system produces over the life of your lease. This is known as an escalation rate, or escalator, for short. Sometimes those escalation rates are very steep, so make sure you look closely at the fine print of your contract.
  • Third-party ownership is only available in certain states.
Questions to ask about leases and power purchase agreements
  • Does the agreement include all components in the SEIA Transaction Disclosures?
  • What is the term of the agreement?
  • What is the cost of energy ($/kWh) in the agreement or the monthly payment?
  • What assumption does the proposal use to project how much my utility electricity costs will go up over time? (The assumption is usually based on 10- or 20-year historic information, but can vary by provider and even by proposal. The higher the assumed rate of increase, the better the economics will look in the proposal.)
  • Is there an escalator for my monthly payments? In other words, will my monthly payment go up during the life of the agreement? If so, by how much and how often? If your payment goes up over time, the cost of electricity from your utility has to go up at a higher rate than your solar payment in order for you to save money with the solar system.
  • What are my options if I decide to sell my house before the agreement ends?
  • What are my options when the agreement ends?
  • How long are roof penetrations warrantied?
  • Why this is important because an installation warranty describes how long an installer’s work is covered against problems encountered due to the act of installing components on the home (e.g., roof leaks). You should determine if your agreement covers that for the entire term or for a shorter period.
  • Will system components be covered for the life of the term or just for the manufacturer’s warranty length? What additional costs apply if equipment should fail after warranties expire? This is important because equipment warranties can range from 10 to 25 years. If you have a 20-year term on your agreement but the inverter (for example) is covered for 10 years, what happens in year 11 if it fails? Do you incur additional charges?
  • Is additional insurance coverage provided by the company in the agreement?
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