PPA"s (Power Purchase Agreements) and Leases
PPA’s “Power Purchase Agreements” are very similar to a solar
lease. A lease provides a solar system
to a customer with repayment in the form of a monthly payment. Some payments escalate and are not a good way
to go. Always pick a fixed payment.
PPA’s sell you the energy they produce at a lower price than
the utility company does.
Both products are typically 20-25 yrs right now.
Both require a “buy out” at the end of the program.
Sales people have been told to tell customers
that at the end of 20-25 years the solar system is worth nothing and their
company will take what ever they can get.
$1,000 is a number that is thrown around a lot in the past by sales
people.
However, the buyout requires an appraisal at the end or the
ppa or lease term. Unlike a 25 year old
paint job or roof, the solar will be appraised based on a cash flow basis.
This means that the money it generates at that time is
directly tied to the appraisal and thus the buyout.
In talking with the key mathematicians for leasing companies
at private events at solar conventions two different leasing gurus informed me
that the buyout would in essence equate to 32% of the sales price of a new
system at that time. When I asked why
32% I was told that is a price point where a customer will write a check versus
putting on a new system.
However, that is not the goal of the buyout. The buyout will be high enough that these
private investors want to re-sign their customers for (2) more five year terms.
So you will have financed your solar at a much higher rate
than just refinancing your home loan and including the solar into it today.
Also, the PPA or lease requires all monies from payments be
paid if a buyout occurs. This means if a
customers payments amount to $40,000 over 20 years, and this same customer must
sell in two years, They owe the entire $40,000.
Unlike a loan where the principle amount of say $20,000 would need to be
paid off. Big difference.
Now the crowning jewel customers aren’t told. If you think you can just let someone take
over your payments, think again. Call a
couple of real estate brokers and they will tell you buyers do not want the
leases and PPA’s. Worst yet, the lenders
don’t like them as it is looked at as debt and the debt to income ratios lower the
amount of home people are allowed to buy.
The bottom line with buyers is they can put a new system on,
take the tax credits, and it is much cheaper than “taking over” solar payments
over a long finance term.
This has meant that sellers have had to pay off the entire
PPA plus buyout with equity in their home.
If they don’t have enough equity then it must come out of
savings. And if that isn’t an option
then they can not sell their home. Realtors,
due to disclosure laws and for liability purposes have to disclose information
on leases that is very unattractive to new buyers. Realtors hate PPA’s and leases because it
costs them being able to sell a home and make their commission.
Lets look at financing options for a solar purchase for
people that do not have use for the tax credit.
Good news is it can be rolled over for 5 years.
Ownership is always better than leasing. In 15-20 years you own your power, no buyout,
and added value to your home due to the new buyers lowering the cost of energy
and being able to easily finance it in with the home. Much different than a PPA or Solar Lease.
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