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What’s the difference between a solar lease and a PPA (power purchase agreement)

difference between a solar lease and a PPADear Solar Fred,

What’s the difference between a Solar Lease and a PPA?

-Confused in Cali

Dear 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:

  • 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.

Solar Lease:

  • 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.

Last modified: May 16, 2019

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Sheek
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Sheek

This isnt completely accurate, i am a solar rep in california and ive dealt with dif solar options, the ppa is also a $0 down, furthermore a lease option tends to put a lien on the property qnd most companies that offer the lease do not do a full coverage system, they do an offset where you get for example 80% from the panels and 20% from the grid. Also a ppa does allow you too purchase excess power from the grid.

Anonymous
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Anonymous

In working with a PPA or a Lease, will either of these have any responsibility over the condition of the roof?

Anonymous
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Anonymous

So if with some leases that charge a monthly rate, and which produce electricity in the day time when you’re not even home because you’re working, and you use electricity at night from the electrical company, is it worth it to have 2 electric bills?

Anonymous
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Anonymous

Contrary to what is stated below, a PPA agreement does show on your title.

Anonymous
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Anonymous

one other considerable difference to note between a PPA & Lease is in the even the entire system is not functioning. With a PPA you would not pay the company anything because the system did not produce anything, you would just get your electricity from your normal utility company during that time period. However, with a lease you are still required to pay your monthly lease payment whether the system is functioning or not while you would get a bill from your normal utility company for the electricity while the system is not functioning, potentially giving you a double payment.

Anonymous
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Anonymous

Another thing to note is that a Lease normally shows up as a Lean against the home or property whereas a PPA DOES NOT (and even specifies in the agreement for SolarCity). Homes with solar sell at least 20% faster than homes without solar on a national level studies show. Home’s that consider purchasing the system also raise the value of the home on average 5-6%

Anonymous
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Anonymous

2 points that haven’t been taken into account. I’ll concede that I don’t know the exact numbers, but I know that they should factor into the equation.

tom
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tom

The link for “energy efficiency mortgage” is broken, you forgot the slash after com.

Dave Llorens
Member

Fixed, THANKS!!!!

Richard
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Richard

Do you guys have any idea what the Big Island of Hawaii is paying for residential energy right now $0.42 kWh while a good majority of the country is closer to $0.10 kWH. Every option out there is better than Hawaii’s rates (and the rates are only going up). I looked at three options for a PV system. PPA zero down with a fixed effective $0.30 kWh for 20 years. PPA Prepaid with an effective rate of $0.09 kWh for 20 years. Outright purchase of the industries best system with an effective rate of $0.075 – based on a 25… Read more »

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