Look Ma, We've got a Solar PPA!

A solar PPA seems to be a wonderful way to start converting to solar energy, if you have a roof with the right exposure. Not so fast. Solar PV is probably one of the worst options for property appreciation, if you consider the alternatives. I know, happy, shiny salesmen are coming through your door with free solar panels, just asking when they can install them? Why is that not a good deal? After all, you're saving on your power bills? It says so right here in black and white! Again, not so fast. A bit of caveat emptor is in order.

Solar PPA: follow the money

The Solar PV Model

As with any good crime story, the answer is always: "Follow the money." In this case here is how solar PPA's really work, and why they are not to the benefit of real estate owners in the vast majority of cases. First, here's the economics of a solar PPA for the power company:

1. An energy company offers a building owner a "free" solar panel. That concept should tip you off right away.
2. They cash in on all the tax and other incentives, not the owner of the property.
3. They get to claim that solar PPA panel as a credit for them towards their fulfillment of the green portfolio standards in the state.
4. They get to retain a customer for 20 years. Nothing else would do that in this age of deregulation.
5. They occupy valuable roof space for their benefit, for a very small cost. In essence they are renting space on your property for free, that might have a higher value. Owners give up potential property appreciation.

WHY SOLAR PPAS SWINDLE CONSUMERS OUT OF ASSET APPRECIATION

The simple answer is, the property owner is locked out of putting that space to better use for 20 years, even if vastly better options exist, and they do. A few examples will suffice:

1.  Generally, the efficiency of solar PV in converting sunlight to energy is 15-20%. Solar thermal is arguably at least 700% more efficient. The technology itself is about 500% more efficient (up to 98% efficiency vs. 15-20%), and it allows for storage of energy in the form of process heat, which effectively gives it even greater utility.
2. Modern, building mounted, wind turbine designs in many cases have even higher returns than solar PV, and, if the location is suitable, should probably be evaluated first.
3. Roof gardens are another competing solution, and it should be noted they could possbily exist side by side with solar thermal on a canopy of evacuated tubes, but they would be locked out by solar panels.
4. In general, these offers tempt building owners to make decisions on emotions, after all a solar panel on your roof tells the neighbors how green you are, but they run afoul of the need to first make a capital budget for your property, and have a well thought out energy plan, if you are going to attempt a conversion to renewables to any degree, or come off the grid entirely. Before you make yourself an energy plan and a capital budget, you should not make snap decisions about any of these components regardless if they are free or not, and you certainly should not lease hundreds or thousands of square feet of your valuable roof space for mere pennies.

All of these cases point to the fact that the value of that space may be far greater than what an owner get out of it with a solar PPA, so these agreements are a theft of potential building appreciation, which you could realize by doing a real energy plan. The square area you are giving up to the provider of the Solar PV, might have been enough to put a solar thermal installation that could have provided all the heating and cooling for your entire house for the next thirty years, which is a lot better than the pennies you save on your power bill with a solar PPA. In short, it might be cheaper to just make a $50,000 donation to the shareholders of SolarCity, but pass up the PPA.

Make your own green energy plan

If you own property you should definitely look at the potential for investing in green energy infrastructure, but to do so requires some thought. You need to make yourself a 30 year energy plan, even if you are planning to sell your property in 10 years, for an effective green energy solution will really come back to you in the form of property appreciation. However, there are a number of interdependencies going on, and you have to figure out in what sequence you should do things.

It is possible that you decide at some point you have space for that solar PPA, but now it becomes a financing option for a part of your plan, but again, chances are the solar PPA is the worst alternative, or very nearly so, for your valuable roof space, since its low efficiency means that it occupies a lot of space. A proper plan will guarantee future property appreciation with every energy price hike.

If you do that 30 year plan with a view to property appreciation, and you do have space for that Solar PPA, fine. Figure out if that's the most advantageous form of financing. You should evaluate a solar PPA vs lease, and really research the benefits of it with a Power Purchase Agreement Calculator. Of course there are PPA Agreements for other technologies as well, but your job is to FIRST have an overall plan, otherwise you will compromise your financial future. You may be leaving 20% of the value of your property on the table. So, make your own capital budget for energy retrofits, it is your property appreciation calculator.

Conclusion: solar PPAs are not your first choice for property appreciation

As one of the best con-artists I ever met used to say, logic and reason are the horse the emotions ride in on. A solar PPA grants the right of use of the roof space on a building to an energy company, and it makes a good show of green energy, at the expense of potential future property appreciation.