Solar Lease vs. Power Purchase Agreement

by staff on February 12, 2013

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Going solar can be a costly investment, but it doesn’t have to be. Solar system leasing and PPA’s are making solar more accessible than ever, with little to no money down and reasonable monthly payment plans. But what are you getting yourself into?

Typical residential solar leases range from 10 to 20 years. A solar energy company will install and own the panels, and the homeowner will have a monthly payment plan. When your lease is over, there are a few options. The lease can be renewed for a new amount of time, buy out the system for a fair market value, or ask to have your system removed by the leasing company. It is smart to get a quote on the specific buy-out value before leasing the system.  If the value is vague, the leasing company can name any price they want at that point and generally do not benefit the homeowner. If you move before your lease is over, the lease can be transferred to the new owner, which is great since solar power increases the value of your home.

Another option for low entry rates for solar is a Power Purchase Agreement. A Power Purchase Agreement, or PPA, is a long-term contract to buy power from a specific energy provider, often equal to or less than market rates. A PPA allows you to pay only for the energy the system generates.  In addition to all installation and set-up, some companies offering PPA’s provide maintenance and upkeep of the system. PPA’s usually last from 10 to 20 years. The PPA’s electricity rate schedule is determined at the beginning of the agreement and while terms vary from one PPA to another, the upfront cost is usually reduced for the consumer. The PPA terms also include an annual escalation rate, which determines increases to solar-generated energy costs over the term of the agreement. Customers pay only for the solar electricity generated at the site.

So, leasing does not require you to pay for any power your solar panels generate, as a PPA does. Both PPA and leasing usually have the option to purchase later. Neither will qualify for tax benefits, rebates, or Renewable Energy Credits. PPA’s usually have a set electrical rate that is flat, but may increase over time, whereas leasing requires you pay a lease payment plus any extra power you need to buy from the electric company.

You can discuss different financing options with a solar installer in your area. Click here to get connected to a local solar professional.

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