Dear Solar Fred,
What’s the difference between a Solar Lease and a PPA?
-Confused in Cali
You’re right to to be confused because they’re similar…yet very different. I outlined each option and others in my Cash Poor Series of posts, so you can see an outline of each program there.
Update Feb 27, 2014: Solar Leases have been for years now, but in the latest of those years they mostly come with performance guarantees, which can make the difference between them and many power purchase agreements almost semantic. In short, this article will well explain the differences, but in practice, none of this should matter and whether it’s a lease or PPA probably won’t affect your decision making. What WILL affect your decisions is the bottom line guaranteed cost to you each month and the bottom line value of the electricity is promised to produce every month. If you’re getting a quote for a solar lease and also one for a solar PPA, each will break it down to monthly guaranteed costs and savings so… who cares whether you’re paying for the electricity or renting a piece of equipment that happens to produce free electricity?…. what you call that agreement doesn’t matter all that much”
Solar lease vs a PPA (Power Purchase Agreement)
- Solar PPA stands for solar “Power Purchase Agreement.”
- PPA gives you a low ($1000 or more) up front cost.
- You’re locked in for 15 to 18 years to this agreement, which is transferable to a new owner or home.
- They charge you a set electrical rate that is sometimes flat, and sometimes calculated to rise over the term of your agreement. So instead of paying for coal fired electricity rates, you’re paying for PPA rates generated through your solar panels.
- The PPA company takes care of the maintenance and any needed repairs and monitors your system.
- You don’t get any tax benefits or State rebates or Renewable Energy Credits (RECs).
- You usually have some kind of option to buy later or at the end of the agreement for a set price per watt. Sometimes this is negotiable (and you should at least try since used solar panels aren’t worth much.)
- You need to have an excellent credit rating to qualify.
- You’re always tied to the grid, so any residual electricity needs that your solar panels don’t produce is covered by your utility.
- There is usually no down payment, so 0 down.
- You’re locked into 15 years or more years, which is transferable to a new owner or home.
- In a solar lease, vs. PPA, you do NOT pay for any power that your solar panels generate.
- Instead, you pay a lease payment plus any extra power you need buy from your electric company. So, solar panel power is technically free, but you have a set lease payment that rises 3 to 4% a year. That’s typically less than the 5% rate increases by your electric company. Some programs, like the CT Solar Lease program, is a flat rate, so no yearly increases.
- Like a PPA, they may take care of maintenance and repairs and monitor your system, but that’s not always the case.
- Similarly, you don’t get tax benefits or rebates or Renewable Energy Credits (RECs).
- Like PPA’s, you have an option to buy later or at the end of your term for a set residual price. You should try to negotiate the Fair Market Value (FMV) at the end of the lease, as used panels ain’t worth much more than the cost of taking them off your roof.
- You need to have a good to excellent credit rating also, depending on the program.
- Also like a PPA, you’re always tied to the grid, so any residual electricity needs are covered by your utility.
So, bottom line for a solar lease vs. PPA:
- PPA, you pay for power generated by solar panels with some money down and flat or yearly increases on your PPA electric rate. You also benefit from tiered rates.
- Lease, you have no money down (typically) and pay a flat leasing fee that rises every year by a certain percent, plus left over utility bill. You also benefit from tiered rates.
While both these options are good for low cost financing, there’s not a huge difference when it comes to a solar Lease vs. PPA. If it saves you money and you like what you see, go for it.
Either way, you have nothing to lose by getting a quote from these various companies and comparing the financial pros and cons. Some companies can give you both options, so you can compare solar leasing/solar ppa with purchasing.