Weighing your options for going solar? You may have encountered the terms of the solar lease and power buy agreement (PPA).

They have advantages and disadvantages that vary. Understanding their differences is critical. It is to make the right decision for your home and/or business.

I know you’re curious about the difference between a solar lease vs PPA. This is so you can manage your home financing needs and get the solar power you deserve, keep reading.

What Is A Solar Panel Lease?

A solar Lease is an agreement with a third party. It is usually a solar financing company. This involves buying solar power and installing a solar system owned and operated by a third party.

This agreement typically requires no upfront cost to the consumer and a nominal monthly lease fee. Under a Solar Lease, the customer pays for all their electric consumption, including from solar, to their utility provider.

What Is A Power Purchase Agreement (PPA)?

A Power Purchase Agreement (PPA) is a contract that allows an organization to buy electricity generated by a solar energy system. The agreement is structured to give an agreed-upon rate per unit of electricity consumed over a fixed period. It allows the organization to have more control over its electricity bills.

Under the PPA, the organization retains its electricity billing rights. It makes the PPA more attractive to those who don’t want to buy or lease solar equipment outright.

What Are The Advantages & Drawbacks?

The Benefits:

  1. The main benefits of solar leases are stability, low initial costs, and no responsibility on the customer’s behalf. The stability of fixed monthly lease payments helps customers plan budgets. It also helps them manage their investments.
  2. The customer typically has no responsibility for the maintenance or operation of the system. Alternatively, with a power purchase agreement, the customer agrees to buy solar-generated electricity at a set rate per kilowatt-hour.
  3. On the other hand, the benefits of a solar PPA come with more responsibility but provide more freedom and lower energy costs. A PPA is a contract between you and an energy company. They provide the energy company with the right to buy your solar energy production at a specified rate.
  4. Customers can take advantage of various incentives, tax credits, and rebates. They are able to manage the system more efficiently without third-party involvement.
  5. Click for more information as both solar leases and PPAs allow individuals and businesses to install solar energy systems without having to purchase them directly.

The Risks:

  1. When evaluating the risks associated with solar leases and PPAs, it’s important to consider the impact of variability in energy production and changes in the electricity rate.
  2. Solar leases come with the risks of signing long-term contracts which place you financially at risk if the system malfunctions. This is because most contracts are between 10-25 years. Finally, it can involve buyback or termination agreements in which the homeowner agrees to pay the solar provider a sum when the agreement ends.
  3. However, this cost can be used to offset the costs of a newly installed solar system or other solar financing options.
  4. If the solar energy incentives change faster than the speed of your contract, resulting in not being able to recoup the cost of the system.
  5. Solar energy production can vary depending on climate conditions, leaving you with the potential for unpredictable costs. Additionally, fluctuations in the electricity rate can reduce the long-term savings generated by the solar lease or PPA.
  6. As such, In most cases, the lower upfront costs associated with a solar lease make it the preferable option for most individuals and businesses.
  7. On the other hand, PPA has its own unique risks, such as missing out on potential tax credits or incentives, being locked into a higher rate of energy over a period of time, or the risk of the third-party energy provider going out of business.

Cost Comparison: Solar Lease Vs PPA

The cost comparison between a solar lease and PPA depends on the contract structure. It also depends on the terms of each agreement. With a solar lease, you are essentially renting the solar system and paying a set amount per month for the life of the lease. This can be beneficial for homeowners who just want to pay a fixed rate without worrying about utility bills.

On the other hand, a PPA is an agreement where the homeowner can buy their own solar system and pay a fixed rate per kWh to the solar company. Unlike a solar lease, PPAs can increase savings over time as electricity prices can potentially go up over the life of the agreement.

Ultimately, which choice is best depends on the individual’s situation and needs. For example, a solar lease may be better if you don’t want to worry about maintenance because a PPA could provide more savings in the long run.

Solar Lease Vs PPA: Which Solar Option Is Right For You?

Due to their differences in cost structure, financing, and tax incentives, the cost of a solar lease and a PPA vary significantly. To select the right option for your solar project, consider your budget, before and after-tax incentives, and how quickly you need the system to generate savings.

To break down your solar lease vs PPA decision for your specific needs, reach out to a trusted home energy professional.

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