Determining the Best Option When Purchasing Residential Solar Power
One of the most common reasons why some homeowners are hesitant to add solar panels to their homes is the cost of installation. Despite dramatic drops in solar equipment prices, the cost of going solar is still a considerable amount for most homeowners with the average installation in 2021 costing between $16,000 and $21,000.
But today there exist a variety of ways for homeowners to enjoy all the benefits of solar without having to cover the steep upfront costs. From financing the purchase to choosing a solar lease or power purchase agreement (PPA), homeowners who want to go solar can do so by paying a more affordable monthly payment.
In this guide, we will look at the differences between solar leasing and solar PPA, so you can have a better idea of what to expect from each when choosing the right financing option for you.
What is a Solar Lease?
A solar lease works just like a car lease. This type of financing allows you to pay a flat monthly amount to your solar installer that is typically significantly lower than your average energy bill. With a solar lease, the solar installer retains ownership over all the equipment. Solar leases typically last from 10 to 25 years depending on the contract.
Since you do not own the solar equipment when you lease, the solar installer will be responsible for any maintenance the system may require, but they will also be the one entitled to all the rebates, tax breaks, and performance-based incentives that might be available for solar in your area.
What is a Solar PPA?
A solar PPA is very similar to a solar lease, as both feature lengthy contracts with solar equipment’s owner (usually either a solar installer or a housing developer), but with a few differences. Unlike a solar lease, which has you paying a flat monthly fee, a solar PPA works more like your utility bill. You pay for each kilowatt hour (kWh) of solar energy that your household uses. As a result, your solar PPA bill will fluctuate depending on how much energy the solar panels produce and how much energy you use.
With a solar PPA, the price you pay per kWh will be lower than the price your utility charges you per kWh, with the actual PPA cost varying by location, installer, and the local price of electricity.
Who is an Ideal Candidate for a Solar Lease or PPA?
Both solar leases and power purchase agreements offer homeowners a great way to take advantage of solar’s benefits without having to cover the cost of installation. The downside is that the homeowner never takes ownership of the solar panels or any other equipment. But these types of financing options can be especially useful to certain homeowners, including those who:
- Don’t own their homes
- Can’t get approved for a solar loan
- Can’t afford to pay for a solar installation outright
Solar Lease vs. Solar PPA: Which is the Better Choice for You?
Whether you choose to pay for your solar energy using a solar lease or a PPA, your decision is personal. The good thing is that you will save money on your electricity bill and enjoy the peace of mind that comes from using clean, renewable energy with either choice.
However, when it comes to choosing between the two there is one important thing to consider that will help ensure the financing option you choose fits your expectations and lifestyle.
Is it more important for you to have a set monthly payment for your solar use or do you want to have more control over how much you pay?
Entering a solar PPA instead of a lease allows you greater control over your energy bill because the amount you pay is directly related to the amount of energy you use. So, if you conserve more, you’ll pay less. On the other side of that coin, if you wind up using more solar energy, then your payments will be higher.
That said, with a solar lease, your payment stays the same throughout the year, regardless of how much or how little power the solar panels produced. With a lease, you don’t have to worry about fluctuating monthly payments, and this will make it easier to build your budget around your standard monthly payment.