Solar leases and PPAs (Power Purchase Agreements) are popular financing options for consumers interested in installing solar PV systems.
They are a good option for consumers who either:
- want a $0-down option, and/or
- are unable or unwilling to use the Federal Investment Tax Credits (ITC) and state tax credits.
Solar Leases and PPAs are similar to renting your solar PV system. Under these arrangements:
- the solar leasing company owns and maintains your solar panel system,
- the solar leasing company is entitled to all rebates, tax benefits (e.g., federal and state tax credits), and other incentives such as SRECs,
- As the system “lessee” or “renter,” you are entitled to the benefits of using the system, i.e. the energy that the system generates.
- contract terms are generally for a 20-year period.
While solar leasing companies tend to emphasize the benefit of providing maintenance and repairs to the solar panel system, you should remember that these systems are highly durable and generally require little or no maintenance. Additionally, there is usually a warranty on the equipment from the manufacturer. Solar panels and inverters carry a warranty of 25 years and 10-25 years, respectively.
Today, Solar leases and PPAs are available to consumers in about 15 U.S. states. In some states like California, Massachusetts, New York and New Jersey, solar leases and PPAs finance up to two-thirds of all solar power systems.
How to break a solar lease or PPA contract?
If you need to terminate your solar lease or PPA before the term ends for some reason, including in the event you sell your property, you have several options, which generally, will be spelled out in your solar lease or PPA contract. They include: 1) transferring the remainder of your solar lease to the buyer, or 2) you buying the PV system from your leasing company and including it in the sale of your property. The price at which you can buy the system generally will be either the fair market value or the price specified in the solar lease contract, whichever is higher.
What happens at the end of the solar lease or PPA term?
At the end of the solar lease or PPA term, you can either:
- buy the system at either the fair market value or the price specified in the solar lease contract, whichever is higher, or
- have the leasing company remove the system at no cost to you, or
- leave the solar panel system in place and renew the solar lease.
What is the difference between Solar Leases and PPAs?
While the terms “solar leases” and “solar PPAs” are generally used interchangeably, there are subtle differences between the two. With a solar lease, you agree either to pay a monthly “rent” or lease payment in exchange for the right to use all of the power produced by the system. A solar power purchase agreement (PPA) 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. Monthly payments for both options are likely to be very similar. Both options can save you money over what you pay your utility and both options will protect you against rising electricity costs