Solar Lease or PPA (Power Purchase Agreement)

Anastasia KravchukMay 5, 2017 2086 0

If you are considering going solar and do not want to buy the solar equipment, you have the option of a solar lease or a PPA, or Power Purchase Agreement. Though the two are very similar in practice, and are often spoken of interchangeably, they still have some key differences. Lets take a closer look at the pros, cons, hidden costs, and different types of solar leases and PPAs.


Pros of Solar Lease or PPA

1. No upfront payment

One of the main reasons solar leasing agreements are so popular, is that they allow people to switch to solar without spending thousands of dollars upfront on solar panels and other equipment.

2. Lower energy costs

Instead of paying your local utility company for power, you will be paying the solar company a monthly “rent” payment for the use of their PV system. However, unless your agreement is for a full-coverage system, you will still be getting about 20% of your electricity from the grid. So, if you do get an electric bill in addition to the lease payment, it will be at bottom tier prices and dramatically lower than what you would pay without a solar lease.

3. Multiple financing options

You can choose to lease with $0 down, or pay some money upfront, so your monthly payments will be lower. If you choose a solar lease, you will pay a fixed monthly “rent” amount, for the solar equipment. With a PPA, you will pay a variable amount each month for the power itself, depending on how much energy you use.

4. Less maintenance

Since you do not own the solar panels, you will not have to worry about fixing them if anything goes wrong. All you need to do is contact the solar company that you are leasing from, and they will handle all the maintenance, repairs, and if necessary ─ replacement.

5. Option to purchase

If you decide that you want to purchase your solar equipment after all, many leasing companies will sell the solar equipment to you at a discounted rate, based on its depreciated market value.


Cons of Solar Lease or PPA

1. No ownership

The solar equipment on top of your house does not belong to you, so you are essentially always paying the solar company for the free electricity generated by the solar panels. Since the solar company owns your PV system, they are the ones who will benefit from the financial incentives, such as tax breaks and rebates, which are available only to the party who owns the solar panel system.

2. Costs more than buying

Though buying a turn-key solar panel system is expensive, you save a lot more money in the long run than you would with a solar lease, especially after you have paid off your system. As the price of solar equipment becomes more affordable, the leasing option will lose popularity.

Here is a graph comparing the potential savings of a homeowner in New Jersey, depending on whether or not a solar system was bought up up front, bought with a loan, or was leased.

cost of solar, solar lease, PPA, solar loan

3. Contractual terms

With most solar leases, you are bound by a contract for 20 years, after which the lease can be renewed. This may be tricky, because there is no guarantee your monthly costs will stay the same with a new agreement. If you decide not to renew your lease, the solar company has the right to remove the solar panels if they wish.

4. Can complicate home sale

If you put your house up for sale before the lease has expired, you need to find a buyer who will be willing to take over responsibility for the lease. Some companies have the option to relocate your solar panels from one house to another, but this will cost you over $1000.

5. Limited availability

Not only do you need a good credit score to qualify for a lease, your state may not have leasing options at all. As of today, solar leasing agreements are only available in 25 states in the U.S.


Hidden Costs of Solar Lease or PPA

1. May change insurance premium

Before committing to a lease, be sure to check with your insurance provider whether or not your homeowners insurance will be affected. Depending on your provider, your insurance costs may increase to cover large home improvement upgrades, such as solar panel installation.

2. May not cover accidental damage

If an inexperienced installer is mounting solar panels to your roof, there is a chance you may end up with a damaged roof. Before you sign you lease, make sure the contract specifies who is responsible for covering potential damages.

3. Annual escalation

With most solar leases and PPAs, the monthly rate you pay will increase 1-3% per year. The pre-determined rate will me mentioned in your lease, so understanding your lease is crucial to avoid surprise costs.


Solar Lease / PPA options

  • $0 down: Pay no money upfront, agree to either fixed monthly “rent”, or fixed per-kWh rate.
  • Custom, with down-payment: Pay a portion of your lease upfront, lower your future monthly payments. Most providers waive the annual rate increase, fixing your costs for the duration of the contract.
  • Prepaid: Pay 100% of the costs upfront, and do not pay anything later. Since you pre-pay, the solar company is usually willing to make adjustments to the terms that are favorable to you. The leasing company still owns the system, but the lease amount will be similar to what you would pay if you bought the system yourself.


Key Difference

The main difference between a solar lease and a PPA, is that with a solar lease, you are essentially renting your solar equipment, and your fixed monthly “rent” payment is calculated based on the estimated amount of electric power your system will produce.

With a solar PPA, you pay for the power generated by your solar panels at a set per-kWh price. No power = no payment, so if your system is shut off during a certain month, you will not pay anything since no electricity was used.

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