Solar lease vs. solar PPA
Solar leases and solar power purchase agreements (PPAs) are two kinds of solar financing options that make it easy to install a solar system on your roof. Both solar leases and solar PPAs are very similar, making it hard to tell the difference between the two.
In this blog, we break down how exactly these financing options are different and which one might be the best choice for you.
What are solar leases and solar PPAs?
Solar leases and solar PPAs both work similarly to leasing a car - you don’t own the solar panel system, but you make monthly payments for having it put on your roof.
You then get to use the solar energy the system produces to offset your utility bill through net metering. In return for the solar energy, you pay the solar company a monthly fee that is less than your electricity bill.
Here are some of the key features of solar leases and solar PPAs:
No upfront costs
You don’t pay for the cost of the solar panels or installation. However, this means you are not the owner of the solar system on your roof.
Instead of paying the upfront costs of a solar installation, you make a monthly payment for the services the solar panels provide - generating clean energy! So, you don’t own the panels, but you do get to use the energy they produce.
The solar energy your panels produce cuts down (or eliminates!) your utility bill. A solar lease or PPA monthly payment will typically be less than what your monthly utility bill would be without solar.
The amount that you pay for your solar lease or solar PPA payment will increase each year. The amount in which your payment will increase by will be defined in your solar contract. The price escalators for solar leases and PPAs are usually between 3% and 5%.
You will be entering into a long-term contract with a solar company. Solar PPA contracts usually have terms between 20 to 25 years. Solar leases may have shorter terms, between 10 and 25 years.
At the end of your contract, you can choose to purchase the solar panels or have them removed.
The solar company will be responsible for the maintenance and monitoring of the system. This means maintenance and monitoring costs won’t fall on you.
Uncertainty with selling your home
If you want to sell your home, solar leases and PPAs can be passed onto the home’s next owner. However, this can sometimes make it harder to sell your home.
In the case that new homeowners don’t want to continue with the solar lease or PPA, you might have to pay a break fee to end the contract.
What is the difference between a solar lease and a solar PPA?
Solar leases and solar PPAs are extremely similar, making it difficult to tell the difference between the two. So, how exactly are solar leases and solar PPAs different?
With a solar lease, you pay a flat fee each month. The payment amount will be outlined in your lease contract. This payment will be less than your utility bill before you started leasing solar panels.
For example, if your utility bill was $150 a month, your solar lease payment might be $80 a month. The actual lease payments vary depending on location, installer, and system size.
A solar PPA works more like your utility bill, where you pay for each kilowatt hour (kWh) of solar energy you use. Your solar PPA bill will fluctuate depending on how much energy the solar panels produce.
The price you pay per kWh with your PPA will be lower than the price your utility charges you per kWh. So, if your utility charges you $0.15 per kWh, a solar company might charge you $0.12 per kWh with a PPA. The actual PPA cost will vary depending on location, installer, and the price of electricity.
Is a solar PPA or solar lease the better choice?
Whether you get a solar PPA or a solar lease, you still save money on your electricity bill, all while using clean, renewable energy. However, a solar PPA has the potential to save you more money over the entirety of your contract because your monthly payments are directly related to how much energy the solar panels produce.
Let’s say in July the solar panels on your roof produced 800 kWh of solar electricity and your PPA company charged you $0.12 per kWh. Your July PPA bill would be $96. Then, in December the panels produced only 600 kWh of electricity because there are less sun hours in the day. Your PPA payment would only be $72 because less energy is produced.
With a solar lease, your payment would stay the same throughout the year, no matter how much or how little power the solar panels produced. While leasing might not save you as much as a PPA could in the long term, having one flat lease payment makes paying for your electricity much easier. You don’t have to worry about fluctuating monthly payments, and can easily build your budget around your standard monthly payment.
Other financing options can save you more than a solar PPA or solar lease
While you don’t have to pay the upfront costs of a solar panel system with a solar PPA or solar lease, they do come with their downsides.
With both solar leases and solar PPAs, you do not own the solar system on your roof. This means you are not eligible for various solar incentives, most notably the federal tax credit, which reduces the cost of installing solar by 26% until the end of 2022.
After 2022, the credit steps down to 22%, before expiring completely in 2024. It’s best to take advantage of the credit now, in order to maximize your savings.
Solar PPA’s and solar leases also don’t give you the same long-term savings as other solar financing options do. When you purchase a solar energy system with cash or through a solar loan, the system will eventually be paid off.
After that point, you are generating free electricity for your home without having to make monthly payments. Cash-purchased systems and those financed with solar loans will give you greater long-term savings than systems covered by solar PPAs and solar leases.
Plus, solar leases and PPAs include price escalators, which means the price you pay for the solar system will increase each year. Typically, these escalators are between 3% and 5%.
If the price of electricity from your utility does not increase at a similar rate to the price escalator in your contract, you won’t see as big of savings. After a few years you could even end up paying more than if you never got a solar lease or PPA at all.
Is a solar lease or solar PPA right for me?
It is important that you consider all of the solar financing options available and get multiple solar quotes from different installers. Purchasing a solar energy system outright or taking out a solar loan will give you the best savings in the long term, and you can take advantage of solar incentives and rebates.
You should really only consider a solar lease or solar PPA if you don’t have the cash to purchase solar or you don’t qualify for a solar loan. If this is the case, then solar leases and solar PPAs could be the best way for you to go solar.
- Solar leases and solar PPAs are two popular solar financing options that help homeowners go solar even if they can’t afford the full upfront costs.
- With both solar leases and solar PPAs, you do not own the solar panel system on your roof. Instead you make monthly payments to your solar company in exchange for the energy the panels produce.
- The main difference between a solar lease and solar PPA is how the monthly payments are determined.
- Solar PPA payments are determined by how much energy the solar panels actually produce. Solar leases have a flat payment each month, and do not change based on the amount of solar energy produced.
- It is almost always better to purchase your solar panels either with cash or a loan than it is to enter a solar lease or PPA.
Author: Andrew Sendy | Home Solar Journalist
Andy is deeply concerned about climate change but is also concerned about cost of living pressures on American families. He advocates for solar energy and solar battery storage only to the extent that they make financial sense for homeowners. He is not affiliated with any particular solar company in the United States.