If you’re considering a solar PPA vs. lease you may be wondering what the differences are…
Both a solar PPA and a solar lease make it possible to go solar with little or no money down, however there are differences between the two, as described below…
Solar PPA vs. Lease
A solar PPA, short for “power purchase agreement”, is a solar PV business structure in which the owner of the solar system and the host of the solar system are different parties.
The owner of the solar system may be referred to as the “sponsor” or “investor” and the host of the solar system may be referred to as the host or “offtaker“.
There are many situations where a solar PPA vs. lease makes sense, such as:
- You own a building that has a nice roof for solar, and you want clean energy, but you don’t have the money to buy the system.
- You own a building that has a nice roof for solar, and you live in an area that has carbon emissions restrictions laws, such as New York Local Law 97, and you need to comply to avoid fines.
- You have a tax liability and want to do a solar tax equity financing to take advantage of the tax incentives. You want to buy the system for another party and host your solar system on their roof (aka the “offtaker”) and sell them the clean energy.
In the first example, let’s say you own an office building with a nice flat roof and you want to go solar. In this case, you could find a solar developer who wants to build you the system and sell you the electricity over a long-term contract, usually 20 years.
- Solar PPA: In a solar PPA you are agreeing to purchase solar power at an agreed upon per kWh rate in a long-term contract where you pay a variable monthly bill based on the clean energy production of the solar panels. Your payment each month will fluctuate based on how much clean energy is generated from the system. Your PPA electricity rate will have an annual escalator on it. You do not own the system, but you may have an option to buy at the end of the term.
- Solar Lease: In a solar lease you are leasing the solar panel equipment at a fixed price per month over a long-term contract. Your payment each month is fixed, regardless of how much clean energy is generated by the system. The lease price will have an annual escalator on it. You do not own the system, but you may have an option to buy at the end of the term.
So the big difference between the two really comes down to what the monthly bill is based on (i.e. monthly energy use or leased equipment) and whether the payment that you make every month is variable or fixed.
In both cases, the good news is that you don’t have to come out of pocket to go solar… And data suggests that solar adds real value to a home or commercial real estate property.
But what are some potential solar PPA problems and lease problems?
Solar PPA vs. Lease Problems
Both a solar PPA and solar lease are long-term contracts where you don’t actually own the system.
In comparing a solar PPA vs. lease you’ll be presented with sales material that shows how you can save money on your energy, but these savings won’t be guaranteed.
If the monthly solar lease payment costs more than the value of the energy you would have used, you could be losing money.
In a solar PPA, if the per kWh rate in your PPA costs more than 100% clean electricity you could buy from your local utility, you could also be losing money.
No Solar Tax Benefits To You
Neither a solar PPA or solar lease will allow you to benefit from any of the tax incentives that come from owning a solar system.
In both scenarios, the owner of the PPA system or leased solar system has the potential to take advantage of various tax benefits:
- 30% investment tax credit (ITC)
- Accelerated depreciation
- Renewable energy certificates (RECs)
As mentioned above, solar panels should add value to your home or building… However, if a would-be buyer of your home doesn’t like the terms of the solar PPA or lease contract, it could have a negative impact on the sale of your home (for that buyer, anyway!)
PPA vs. Lease vs. Buy Solar
When considering a solar PPA vs. lease you should consider your purchasing options as well.
This is because if you can afford to purchase the solar system outright you may benefit more financially than with a solar PPA or a solar lease.
A purchase allows you to take advantage of the tax credit above and perhaps other financial benefits.
You can do a simple payback calculation to quickly consider your ROI on the back of a napkin… Your return on investment (ROI) may be between 5-10 years.
For a large commercial solar purchase you may want to calculate the net present value (NPV) of your investment to see if there’s a positive result and look at clean energy financing options, such as CPACE.
