Deciding How to Pay For Your Solar PV System

Outright Purchase, Solar Lease, or Power Purchase Agreement (PPA)?

You've determined that a solar photovoltaic (PV) system is the right choice for you. Your next decision is how will you pay for it? Solar PV purchases have several options: an outright purchase, a loan, a solar lease or a power purchase agreement (PPA). Leases and PPAs are generally only available for Solar PV system purchases, but they're starting to catch on for other technologies, too.

The decision about how to pay for your solar PV system is a function of your particular goals. Everyone's goals are different, so the best payment option varies from individual to individual. With so many variables, these purchases can get really complicated. That's why EnergySage is here to help you simplify the process.

The main things to consider are:

  • How much money are you willing to pay upfront?
  • What is your investment goal? Are you looking to make a small investment with a fabulous return? Or, a bigger investment with a really good return? To help you think this through, think about the difference between a $10 investment with a 50% return and a $5 payout vs. a $1,000 investment with a 20% return and a $200 payout. In the first example, the % return is large but the payout is low. In the second, the % return is good, but the payout is significantly greater. Either way, a solar PV system investment, unlike other investments, is practically risk free.
  • How long will you be at this property? Some financing options involve extra steps if you sell your property. It's not a big deal, but you'll need to understand what those steps are and whether or not you want to be bothered with them.
  • What rebates and incentives are available in your area? Depending on the purchase option, these benefits are assigned to either the homeowner or the financing entity and will impact your returns.

Now, you have the information you need to explore financing options.


Solar leases and Solar Power Purchase Agreements (PPA)

As solar PV systems became more popular, companies created new purchase plans that provide flexibility in how consumers pay for their systems. Solar Leases and Solar Power Purchase Agreements (PPA) make the decision more complicated, but their benefits are often worth it. Today, in states like California, Massachusetts, New York and New Jersey, these options finance up to two-thirds of all solar power systems. Used mainly for solar PV purchases, leases and PPAs are beginning to be used for solar hot water and small wind systems, too.

Solar Leases are similar to renting your solar PV system. There may be some upfront costs (just like there are some upfront costs to renting an apartment, e.g. the security deposit), but they are significantly less (half or more) than the upfront costs needed for a loan down payment. They range from no money or $0 down to a small down payment (usually $1,000) to pre-paying the entire lease. With the first two options, you make monthly lease or "rent" payments over the lease term (usually 20 years). With the pre-paid option, you pay all your lease payments upfront when you sign the contract. With each option, the leasing company, not you, owns the solar PV system. The ownership benefits, such as purchase rebates, tax credits, or other incentives belong to the leasing company. The company also is responsible for maintaining and repairing the system. As the system "lessee" or "renter," you are entitled to the benefits of using the system, i.e. the energy that the system generates.

The Solar Power Purchase Agreement is similar to a solar lease but differs in one key way. Instead of "renting" the system and receiving the benefits of using it, you instead agree to buy the power generated by the system at a set price per kWh. This price you pay for the power generated is either fixed over the PPA term (usually between 10-20 years) or increases agreed upon times and rates each year. The monthly solar lease and PPA costs are approximately the same. Both options hedge against rising energy costs, reduce the upfront investment required (zero down or small down payment), and have the same ownership and maintenance characteristics.

If you need additional information or have questions we can help you with, please feel free to send us a note to info@energysage.com