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Types of Solar Leases and PPAs

Last updated 1/11/2019

Solar lease and PPA options

Solar leasing companies offer three types of solar leases and PPAs:

$0-down Lease/PPA

  • Rate per kilowatt hour (expressed as Cents/kWh) for the solar electricity
  • Average rate over the life of the solar lease / PPA contract
  • Discount on current electricity rates

Custom down-paymentsolar leases/PPAs

  • Cents/kWh for solar electricity
  • Average rate over the life of the solar lease / PPA contract
  • Discount on current electricity rates
  • Rate of return on your investment (or IRR)

Prepaid solar lease/PPA

  • Cents/kWh for solar electricity
  • Net cost expressed in terms of dollars per watt of the installed system
  • Rate of return on your investment (or IRR)
Don't overpay for solar! Weigh your options and save.
What’s the difference between a solar lease and a solar PPA?

While the terms “solar lease” and “solar PPA” are very similar in practice, there is a difference between the two. With a solar lease, you agree to pay a fixed monthly “rent” or lease payment, which is calculated using the estimated amount of electricity the system will produce, in exchange for the right to use the solar energy system. With a solar PPA, instead of paying to “rent” the solar panel system, you agree to purchase the power generated by the system at a set per-kWh price.

Compare the three forms of solar leasing and PPAs

$0-down solar lease/PPA

If you sign a $0-down solar lease, you are not required to pay anything upon the signing of the agreement. Once the solar panels are operational, you pay a flat monthly “rent” to the third-party owner (TPO) of the system for the duration of the agreement, but are not required to pay anything up front. In most cases, the monthly payment will increase at a rate of 1%-3% every year, also referred to “annual escalation.”

With a $0-down solar PPA, you pay nothing up front, and agree to pay a fixed per kilowatt-hour (kWh) rate for the duration of the agreement. In most cases, the rate will increase by 1%-3% every year. The financial benefits of owning the system, such as rebates, federal and state tax credits, belong to the third-party owner.

Pros

  • No upfront financial investment required
  • Rate can be 20-30% lower than utility electricity costs

Cons

  • Price paid for solar electricity will increase annually at a pre-determined rate

Custom down-payment solar lease/PPA

If you choose a custom down-payment option, you make a small down payment, generally between $1,000 & $3,000, in exchange for a lower monthly payment (in leases) or a lower rate per kWh (in PPAs). Most providers also will waive the annual rate increase in a custom down-payment agreement, fixing your costs for the term of the contract. The benefits of owning the system, such as rebates, federal and state tax credits, belong to the third-party owner.

Pros

  • Monthly cost of solar electricity is lower than cost with a $0-down option
  • May be able to secure a fixed rate and avoid annual increases

Cons

  • Less financially rewarding than a prepaid solar lease/PPA

Prepaid solar lease/PPA

A prepaid solar lease/PPA is very similar to purchasing your solar panel system. In a pre-paid solar lease/PPA, you pay 100% up front when you sign the contract, and do not have to pay anything for the duration of the agreement. Because you pre-pay, the TPO assumes no risk, and they are generally willing to make adjustments to the lease/PPA terms that are favorable to you. The solar leasing company owns the system in a prepaid lease/PPA, but the lease amount will be similar to the purchase price of the system, including rebates, tax credits, and incentives. The leasing company is usually willing to allow you to benefit from the sale of any available Solar Renewable Energy Credits (SRECs).

Pros

  • Total price is 30-50% lower than what you would have paid if you bought the system
  • Prepaid solar leases/PPAs can increase your home’s value in the event of a sale

Cons

  • Requires an investment in the range of $5,000 to $20,000, depending on where you live and the size and quality of your solar panel system
Compare your solar lease and PPA options

Solar lease & PPA offerings vary significantly by company and type of agreement, so it’s important to shop around to find the best option for your needs. The EnergySage Solar Marketplace will show you multiple quotes and automatically calculate the necessary metrics to help you to understand which quotes are best for you.

Don't overpay for solar! Weigh your options and save.

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