Many solar installers advertise solar leases or power purchase agreements (PPAs) as an easy way to reduce your electricity bill. And they’re not wrong; if you’re interested in a simple, low-maintenance way to install a solar panel system for your home, leasing solar panels may be a good option for you.
Solar lease and solar PPA overview
- Most solar lease and PPA options are $0-down, but some require a down payment or ask you to pay upfront.
- You can typically expect 10-30 percent savings over utility bill costs with a solar lease or PPA.
- With both options, you do not own the solar equipment on your property.
- If you sign a solar lease or solar PPA, the tax credits and other financial incentives belong to the owner of the system (not you).
- The EnergySage Solar Marketplace can help you find and evaluate your solar lease and PPA options, as well as high quality pre-screened solar installers.
What is a solar lease?
A solar lease is a type of solar financing where you agree to pay a set monthly amount to a solar installer as opposed to owning the solar panels while still receiving the energy produced by the panels.
How do solar leases and solar PPAs work?
Do you lease your car, or have friends that do? Solar leases and PPAs work similarly – instead of buying a solar panel system, you can lease it for 20-25 years. During this time, you pay the solar leasing company for the benefits of the solar panel system (i.e. the solar electricity powering your home). However, because the solar leasing company owns the equipment, they are responsible for maintenance, and are also entitled to all the rebates, tax breaks, and performance-based incentives available for solar in your area.
Can you rent solar panels?
So, we’ve established that you can lease solar panels like you would a car: what about renting?
Up until 2019, it wasn’t possible to rent a solar panel system with a short-term contract. That all changed with Tesla’s launch of their subscription model, which allows you to actually rent the panels. For a set, monthly fee, Tesla will install and maintain the system, and they’ll come remove the panels if you decide solar isn’t for you. To learn more about the Tesla subscription program, here’s our overview of the program, and here’s our comparison of renting panels to other financing options.
Solar leases and solar PPAs: what’s the difference?
While we use the terms “solar lease” and “solar PPA” interchangeably in this article, there is a key difference between the two.
With a solar lease, you agree to pay a fixed monthly lease payment (i.e. $150 a month). Your leasing company determines this amount based on the estimated annual production of your solar panel system.
However, with a solar PPA, you agree to purchase the power generated by the system at a set price per kilowatt-hour (kWh) (i.e. $0.15 per kWh) instead of paying a fixed amount per month. Because solar panels typically produce more electricity during the summer than during the winter, most people with a PPA have higher solar bills in the summer (and more bill savings) during the summer months.
Between the two, savings are typically the same over the course of the year. In other words, if you average out solar PPA payments over a year, that would come out to a monthly solar lease payment. Here’s how this plays out for a 7 kilowatt (kW) a state like Massachusetts that covers 100 percent of a household’s electricity consumption over 12 months:
Lease vs. PPA payments
|Month||Solar production (kWh)||Lease payment ($96.60 per month)||PPA payment ($0.15 per kWh)|
|Average solar payment||----||$96.60||$96.60|
With both options–a monthly lease payment of $96.60, or a PPA rate of $0.15 cents per kWh–you’d pay about the same over 12 months, generate the same amount of solar electricity, and therefore save the same amount on your utility bills.
Whether you should choose a solar lease or a PPA mostly comes down to preference: it’s easier to budget lease payments, since you know what to expect each month. However, because your solar payment with a PPA is tied directly to the production of your system, you have more of a guarantee there that you’ll get exactly what you pay for.
What solar lease options are available in your state?
Solar leases are available in many states, but not all. Lease and PPA terms also vary greatly by area and by installer, so we recommend exploring multiple options to ensure that you choose the financing solution that best fits your needs
What does a solar lease/solar PPA agreement look like?
Solar lease agreements and PPAs agreements look more complicated than a solar loan or cash purchase because of the additional terms included. However, they generally come with some flexibility in terms should your circumstances change.
Common terms included in solar leases & PPAs
- Annual escalator: These are pretty common in lease and PPA agreements; if included, your leasing company will increase your monthly payment (for a lease) or rate per kWh (for a PPA) each year.
- Term length: Residential solar leases are usually for 20 to 25 years. Commercial solar leases can be customized, and generally range from 7 to 20 years.
- Performance & maintenance: The leasing company will monitor the system’s performance to ensure that it is operating correctly for the duration of the lease. They are also responsible for maintaining and repairing it (but for what it’s worth, solar panels require little to no maintenance over their lifetime.)
- Monitoring: Most solar leasing companies offer free online, smartphone, or tablet programs to track your solar panel system’s performance.
- Buying the system: Many solar leases allow you to buy out your solar panel system during the lease, typically at a price defined in your contract or its fair market value, whichever is higher.
- Selling your home: If you sell your property, you can transfer the remainder of your lease to the homebuyer or buy the system from your leasing company yourself and include it in the sale of your property. Your potential homebuyer will likely have to go through some form of credit check, but generally speaking, if they can obtain a mortgage, they’ll pass the credit requirements for your solar lease.
- At the end of the term: When your agreement ends, you can either buy the system outright, have the leasing company remove it, or leave the system in place and renew the agreement with the owner.
Types of solar leases & solar PPAs
While solar leases and PPAs are commonly offered as $0-down agreements, you may also encounter custom down payment or prepaid options as you shop for solar. Learn more about commonly offered solar lease/PPA structures, as well as the solar energy advantages and disadvantages.
Start your solar journey today with EnergySage
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