If you are a homeowner and haven’t looked at solar and battery storage to offset your electrical energy, it should be at the top of your home improvement list. Like most homeowners, you probably have a long list of future upgrades like new appliances, a new deck, a patio, etc. The thing is PG&E bills come every month. The PG&E rate increases keep happening. The $500 electric bill is now $800. This is money lost to PG&E from your home improvement budget. It makes sense to look at solar and battery storage first, save on electric bills, and then move on to other home improvements. Solar and battery storage is shown to save homeowners well over six figures during a typical 30-year lifespan of the system. What is the catch? Solar can be expensive, and not everyone has the cash to purchase a system outright. The good news is there are lots of options and there is sure to be a payment structure that works for your particular needs.
Key Take-Aways:
Solar and battery storage can save homeowners hundreds of thousands of dollars over the average 30-year lifespan of the system. There are lots of solar options and there is sure to be a payment structure that works for your particular needs. A PPA or leased system has a lot of benefits that may be a good fit for your solar install, including no up-front costs, and a full 25-year warranty on the solar and battery.
Ways to Purchase Solar/Battery
This article is diving into power purchase agreements (PPA), but let’s quickly touch on the other common ways to purchase solar/batteries. No matter which choice you make, all solar/battery options are better than relying only on PG&E and can show tens or hundreds of thousands of dollars in savings over the life of the system.
Cash Purchase
A good old-fashioned cash purchase is a great option if you have funds available for the project. It is strongly encouraged to include battery storage in your solar project, and that means an increased cost for the overall system. As a rough ballpark, solar and battery systems can range from $35k-$60k or even more depending on your particular electrical needs. The silver lining is you get a 30% tax credit which can be a huge savings at tax season, as well as the benefits of adding the system to the value of your property.
Financed Purchase
Another great option is to purchase the solar/battery using financing. Solar lenders have financing available specific to the needs of the homeowner. Whether you are looking to finance for a short term and buy the system outright, or finance for the long term and make consistent monthly payments, it can be a great option with no upfront costs. The best part is it is still considered customer-owned, therefore you get the 30% tax credit, as well as the benefits of adding the system to the value of your property.
Power Purchase Agreement / Lease
A power purchase agreement (PPA), or lease is another great option for no-up-front-cost solar. It works a little bit differently than a traditional solar purchase. It is an agreement where a PPA utility owns the solar/battery that is installed on your property, and you pay a low consistent month-to-month payment for the electrical. It has a lot of benefits and a couple of trade-offs from a traditional solar/battery purchase.
What are the benefits of a PPA?
Here are five benefits of PPA:
1. No Up-Front Costs
With a typical PPA, there are no up-front costs to install your solar and battery system. This means you can keep your money in savings or use it for other home improvement projects on the list.
2. Easier to Qualify for a PPA
PPA programs are easier to qualify for than solar financing. You generally need a credit score of 620 or higher, but the PPA does not look at your debt-to-income ratio, because you aren’t purchasing anything. The PPA will not go against your credit history. This is a huge benefit for homeowners that have other purchases on the horizon that they may need to qualify for such as a car purchase or other large home improvements.
3. Save Money on Month One
While solar will always save you money long term compared to PG&E, the PPA option will save you money on month one. Given the current interest rates and financial situation, financing for solar and battery does not always show savings on month 1. It is important to work with a solar installer that will show you these different options and how the economics work for your particular situation.
4. 25-year Warranty on the Entire System
One huge benefit to the PPA is the system is under warranty for a full 25 years through the PPA utility, not the installer. This has a couple of benefits for the homeowner. If the installer goes out of business at some point, the system is still covered under warranty by the PPA utility. The other benefit is the battery is covered for a full 25 years even though most battery warranties are only 10-15 years. This means the battery is likely to be replaced at least once during the 25-year period at no cost to the homeowner.
5. Same capabilities as typical Solar/Battery Install
Whether you are buying the system, or doing a PPA, the equipment is identical. The solar and battery installation is the same. The solar can be sized large enough to offset all of your PG&E bill. The battery can be sized to give you backup capabilities. You can do a rooftop system or ground mount with a PPA. There is no compromise in capabilities when going with a PPA.
What are the Trade-Offs with a PPA?
The Solar/Battery is Owned by the PPA Utility
The biggest difference with a PPA is the equipment is not owned by the homeowner. It is owned by the PPA utility and power is simply sold to the homeowner. This may or may not be a big deal for each homeowner, but it is the biggest difference between a PPA and owning the solar/battery. As a result, the homeowner is not eligible for 30% Federal Solar/battery Tax Credit. The PPA utility gets the tax credit. For a retired homeowner, or new homeowner with a low federal tax liability that might not be a big concern. For others it may be the main reason for looking at solar.
Diminished long-term savings compared to ownership
A side-by-side comparison can determine whether a cash purchase is the best return on a solar/battery investment compared to financing, especially a PPA. A cash purchase will have a break-even timeline of approximately 5.5 years currently. There are other ways to look at this comparison, however. Some may argue the up-front investment cost of solar/battery can be better invested elsewhere. Also, having a trouble-free warranty for a full 25 years makes the PPA enticing versus having to cover potential repair costs with ownership. Factoring in the free battery replacement at some point during the PPA changes this comparison as well.
Options If You Sell Your Home
Having a PPA system may complicate the process of selling the property. In recent years PPA utilities have been working on this issue. Modern PPAs can be transferred to the new homeowner or purchased outright when a home sells. The new homeowner has much lower qualifying requirements than PPAs of the past. This has made the process much easier.
Conclusion
While purchasing solar/battery might be the best fit for some homeowners, leasing with a PPA has lots of benefits, and doesn’t require up-front costs. The key is to have a choice of where your electricity comes from and lots of options for how to purchase it. Whether it is a cash purchase, financed purchase, or lease with a PPA, all solar options are better than staying with PG&E. Please reach out to the experts at Diamond Solar Solutions to discuss the best option for your particular home.