Which is Right for You? Solar Lease or PPA

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How can companies like SunRun, Sungevity, and SolarCity provide a zero down or $1000 down solar lease while charging less per month than a utility company? Sound too good to be true? It’s not. Here’s a high level overview of how solar leases (and PPAs) work.

First, let’s briefly review how a homeowner would purchase and install a solar system without the benefit of a solar lease or PPA.  A home owner purchases the system and pays for installation–either outright with cash or via some form of financing (e.g. a home equity loan). Disadvantages of this approach include the need for a significant amount of capital and the fact that the homeowner is responsible for maintenance and repair if anything goes wrong with the system that isn’t covered by a manufacturer’s warranty. However the advantages of buying a system outright are that the panels usually continue to produce energy well past their 25 year warranty, they often require very little maintenance beyond washing the solar panels twice a year, and once they pay for themselves everything you save after that is yours to keep.

The solar lease is designed to address two concerns of homeowners considering solar: the large upfront cost and the hassle/obligation of ongoing maintenance during the life of the system. Companies offering solar leases or PPAs purchase and operate the system on behalf of the homeowner–and take on all maintenance and repair obligations–in return for a the homeowner’s long-term (10-20 year) commitment to lease the solar equipment at a fixed monthly rate (solar lease) or to purchase the power produced by the system at a designated price per kilowatt-hour (solar PPA).

In order to make the business model work, solar leasing companies must raise significant amounts of capital, normally from tax equity investors or from commercial lenders.  This capital, often referred to as “project finance”, allows the solar leasing company to make the upfront purchase of solar components and to pay for installation. Solar leasing companies collect the federal “Solar Investment Tax Credit”, as well as any applicable state/local incentivesassociated with the project and handle the paperwork associated with installation and permitting of the new system.

The tradeoff homeowners should consider is the size of the upfront payment versus the long term savings.  Buying a system outright has the greatest long term savings, but requires a big up front cash (or finance) payment. The alternative is much smaller monthly lease payments which result in almost instant savings over the prior energy bill, but result in less money saved over 20 years when compared with an outright purchase.  It depends entirely on which approach better matches your financial situation and financial goals.

The question is, do you want to buy your solar power system outright or lease one?  Or if you already have solar panels on your house, how did you choose to pay for them and why?

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6 Comments

  1. PPAs are usually not applicable for home owners.

    Also what is this “wash the modules twice a year”? I have working Motorola, ARCO, Mobil, modules on the roof that are over 30 years old and have never washed them! Very heavy dust will cause less than 2% or 3% loss in output. Very dirty looking modules simply diffuse the incoming light which the modules still pick up. Washing modules frequently leaves Calcium spotting and streaks which are hard to wash off even with clean rain water. My modules are always clean after a rain here in very dusty Scottsdale AZ. Modules should only be washed occasionally, if needed, in the path of tire dust and diesel soot along a freeway, or directly in the fly-way of a major jet airport where they get greasy fallout. The need to wash modules is an Urban Legend!
    Regards,
    Lane S. Garrett, P.E., C.E.M.
    CEO – ETA Engineering, Inc. &
    Dependable Solar Products, Inc.
    “Renewables are our future”

  2. I agree with Lane’s comments on both the washing (generally we don’t wash panels in Tucson) and the PPA comment. So far no one I have seen has come up with a true PPA for homeowners or small businesses because the transaction costs (legal, accounting, etc) are hefty, so PPA’s under 100 kW seem to be rare. Having said this, Solar City, SunRun and others are offering something like a residential PPA among their options in some locations, which does many of the same things that the article dexcribes as benefits of leases: likely lower cost electricity without the hassles of O&M.

  3. Lane, Bruce, thanks for the comments.

    Our recommendation to wash panels is based on what installers have told us works best and based on data from our friends panels. We watched a friend wash his panels and we saw a noticeable jump in the power output. The water may have cooled off the panels which would increase efficiency and the sun would have moved during the 10 minutes as well, but the jump was significant enough that it seems to me that the dust and pollen build-up was impacting the performance. Here’s the video & write up from the conversation with Daniel about his solar array.

    But if you don’t need to clean your panels, then all the better! I’m all for anything that makes owning and maintaining solar panels easier.

    As for the PPA, we were mainly referring to SunRun’s PPA which is only relevant in certain states. But I think it’s still worth educating home owners about solar leases and PPAs since I do think we’ll see more and more companies offering them in the future.

    -David

  4. So, can you give us some quick math on how much a PPA company earns from a residential deal? I’d like to understand how the “other side” views this investment.

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