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Many solar installers promote solar leases and power purchase agreements (PPAs) as a hassle-free way to lower your electricity bills, and they’re absolutely right—these options can be a great fit if you’re looking for a straightforward, low-maintenance approach to installing a solar panel system on your home. With no upfront costs and minimal responsibility for system maintenance, solar leases and PPAs offer an appealing path to going solar without the complexities of ownership.
However, it’s important to understand that while these third-party ownership models provide convenience, they come with trade-offs. Over the long term, you’re likely to save significantly less compared to financing your system with a solar loan or paying for it outright. The primary difference between these two models lies in how you’re billed: with a solar lease, you’ll pay a fixed monthly fee, regardless of how much energy your system produces. On the other hand, a PPA charges you based on the actual amount of electricity your solar panels generate, meaning you pay per kilowatt-hour (kWh) of energy used.
Both options have their advantages, especially for those who prefer a more hands-off approach to solar energy. But before deciding, it’s crucial to weigh the potential long-term savings against the convenience and lower upfront costs. Here’s what you need to know to make an informed choice between solar leases and PPAs.
Understanding Solar Leases and PPAs: How They Operate
Solar leases and Power Purchase Agreements (PPAs) function similarly to leasing a car. Rather than purchasing a solar panel system outright, you lease it for a period typically ranging from 20 to 25 years while benefiting from the electricity generated by the panels.
During the lease or PPA term, you pay a leasing company for the solar energy produced, which powers your home. Since the leasing company owns the equipment, they are responsible for its maintenance. They also claim any rebates, tax incentives, or performance-based rewards associated with solar energy in your region.
Differences Between Solar Leases and Solar PPAs
Although “solar lease” and “solar PPA” are often used interchangeably, there’s a crucial distinction between the two.
Solar Lease
You agree to pay a fixed monthly lease amount (e.g., $150 per month). This amount is determined by your leasing company based on the anticipated annual output of your solar panel system.
Solar PPA (Power Purchase Agreement)
You agree to purchase the electricity generated by the system at a predetermined price per kilowatt-hour (kWh) (e.g., $0.15 per kWh), rather than paying a fixed monthly fee. Because solar panels typically produce more electricity in the summer than in the winter, those with a PPA often see higher electricity bills in the summer (but also greater savings) during the winter months.
Both options generally result in similar savings over the course of a year. In other words, the average monthly payments under a solar PPA would typically equate to a monthly solar lease payment when averaged out annually.
Understanding Solar Lease and Solar PPA Agreements
Solar lease and Power Purchase Agreement (PPA) contracts are typically more complex than solar loans or cash purchases due to additional terms and conditions. Here are key elements commonly found in solar leases and PPAs that you should be aware of:
Annual Escalator
Often included in lease and PPA agreements, this clause allows the leasing company to increase your monthly payment (for a lease) or the rate per kilowatt-hour (for a PPA) annually.
Term Length
Residential solar leases typically span 20 to 25 years, while commercial leases can vary from 7 to 20 years depending on customization.
Performance & Maintenance
The leasing company monitors the system’s performance throughout the lease and is responsible for maintenance and repairs, although solar panels generally require minimal maintenance.
Monitoring
Many leasing companies offer free online or mobile apps to monitor the performance of your solar panel system.
Buyout Option
Some solar leases allow you to purchase the system at a defined price in the contract or at fair market value, whichever is higher.
Home Sale
If you sell your property, you can typically transfer the remainder of your lease to the new homeowner or buy out the system and include it in the property sale. The new homeowner may need to pass a credit check to assume the lease.
End of Term Options
When the lease or PPA term ends, you can choose to purchase the system outright, have it removed by the leasing company, or renew the agreement.
Understanding these terms can help you make an informed decision about whether a solar lease or PPA is suitable for your needs.
Should You Choose a Solar Lease or PPA?
In most cases, opting for a solar loan instead of a lease or PPA is often more advantageous. With a solar loan, you own your solar panels outright, allowing you to maximize benefits from incentives such as the federal tax credit.
Solar loans are accessible across all states and typically result in greater long-term savings compared to leases and PPAs. Some loans even require no upfront payment, enabling you to begin saving immediately.
Disclaimer
The information provided here is for informational purposes only and should not be considered as financial or legal advice. Decisions regarding solar leases, PPAs, or solar loans should be made after consulting with a qualified financial advisor or solar energy professional who can assess your individual circumstances and goals. While efforts have been made to ensure the accuracy of the information presented, individual financial outcomes may vary based on factors such as location, solar system specifics, tax laws, and local incentives. Always conduct thorough research and consider all available options before making a decision.
