The adoption of solar energy has increased, with more homeowners in California, Florida, Texas, New Jersey, and other states showing interest in solar installation. Unfortunately, despite the rising interest and benefits, the cost of solar panels remains high, making it impossible for all homeowners to afford. The high installation costs necessitated the need for solar financing options, among them solar leasing and solar power purchase agreements.
Solar leasing and PPAs are generally solar financing options that allow homeowners to enjoy the benefits of solar energy. However, both financing options have similar features, making it daunting for homeowners to differentiate and identify an option that suits their needs. Before making a choice, you should consult with solar experts from Solar Cents.
What is a Solar Lease?
A solar lease is a financing option that allows homeowners to bypass the high upfront costs of solar installation. Instead of taking a solar loan to pay for installation costs, homeowners commit to making monthly payments. Like motor vehicle leases, the solar company owns the panels, but homeowners benefit from the solar energy generated.
Solar lease lowers the energy costs because homeowners use the energy produced by solar panels instead of energy from the grid. Under the lease, the monthly payments largely remain fixed, regardless of the amount of solar energy produced. However, solar companies may adjust the lease according to the projected changes in electricity costs.
Solar lease contracts last between 15 and 25 years. Once the contract expires, homeowners can renew, cancel the contract, or offer to buy the solar panels at a fair market value.
What is a Solar Power Purchase Agreement?
Homeowners can also use a solar power purchase agreement to benefit from solar energy without incurring the hefty upfront costs. Solar PPA closely resembles a solar lease, primarily because the solar company retains solar panels ownership, despite being installed on your house or commercial building.
Like a solar lease, you also sign a contract with the solar company lasting between 15 and 25 years. The solar company undertakes to maintain and repair the solar panels and supply solar energy to your home during this period.
However, the main difference between a solar lease and a solar PPA is the determination of monthly payments. The monthly payments are fixed for solar leases and only change due to fluctuations in electricity costs as per the price escalator. On the other hand, the monthly payments for solar PPAs depend on the solar energy generated by the solar panels. Solar companies offering PPAs have fixed rates for kilowatt/hour.
Pros of Solar Lease and PPAs
- Zero upfront costs
- Easy installation
- Zero maintenance or repair costs
- Limited risks
- Low energy rates
Cons of Solar Lease and PPAs
- Homeowners don’t own the solar panels
- Can’t benefit from solar incentives and tax rebates
- Homeowners can’t qualify for SRECs (Solar renewable energy credits)
Solar Leasing vs. PPA: Which is the Better Choice?
Homeowners still benefit from reduced electricity costs and use clean, renewable energy with solar leasing and solar PPA options. However, you are poised to save more money in the long term by choosing a solar PPA. This is because your monthly payments depend on the energy produced by the solar panels.
For instance, if the rooftop solar panels produced 800kWh in June and the company charges 0.12 per kWh, your bill for the month will be $96. Similarly, if the panels produce only 60 kWh in December due to reduced sunlight exposure, you will have to pay only $73 for December.
However, with a solar lease, your monthly payments are fixed for the entire period. Consequently, they are subject to adjustments affected by the price escalator. Nonetheless, while leasing doesn’t save you as much as PPAs in the long term, having flat solar lease payments makes it easy to pay for electricity bills. You won’t be bothered by the fluctuating monthly bills, making it easy to budget around the standard payments.
The Bottom Line
Before deciding, you should consider several solar financing options and compare quotes from multiple installers. Purchasing the entire system or taking a solar loan will save on long-term costs and homeowners benefit from solar incentives and rebates.
However, those who don’t have upfront cash or don’t qualify for a solar loan should consider a solar lease or PPA. Working with Solar Cents can help homeowners choose a financing option that suits their needs and financial condition.