Leasing and Power Purchase Agreement (PPA) Options
If you do not want to or do not have the money to purchase a solar system or other renewable energy system, homeowners have the option to lease a solar energy system just like you might lease a car. With a lease, there is typically no down payment. Instead, there are monthly payments for the lease term with annual increases of about 3-4%, an amount still lower than average utility increases. Depending on the installer, the cost of maintaining the solar system may not always be included in the monthly fee. Lease terms typically last between 15-18 years. Similar to a car lease, at the end of the lease term, you have the option of renewing your lease, purchasing your system, upgrading the system or simply having the system removed.
So with a lease, while you are paying a monthly fee for the solar energy system, that system is producing energy for you for free. And depending on where you live, the size of your electric bill and other factors, it is very possible that the amount you save on your electric bill is more than your monthly lease payment for the renewable energy system.
Power Purchase Agreements (PPA)
A Power Purchase Agreement (PPA) is similar to a lease and has been a popular method of financing solar power systems for many years. In fact, major corporations often use PPAs to put solar systems on their buildings. SunRun Generation, based in San Francisco, was one of the first companies to offer PPA to residential clients.
What is a Power Purchase Agreement?
Under the PPA model, the solar provider secures funding on their own for the solar project and then installs the solar system in your home/office building. Subsequently, the provider maintains and monitors the energy production from the solar system. You pay nothing for this installation and maintenance.
The solar provider then sells the electricity from the installed solar system to the home/building owner at a fixed contractual price for the term of the contract. So in essence, all you are paying for is clean energy produced on the top of your home.
PPAs generally lasts between 5 and 25 years. In some renewable energy contracts, the host has the option to purchase the generating equipment from the PPA provider at the end of the term, may renew the contract with different terms, or can request that the equipment be removed.
How would it work for typical home/office building owner?
Suppose that you want a top solar firm, like SunRun, to install solar to power up your home but you (a) either cannot afford to buy the system outright or (b) cannot secure a loan to help you buy the system. Under a PPA, SunRun will actually buy the solar system for you, install the system in your home and then monitor/operate it for you. SunRun then sells the electricity provide by your solar panel to you at a contractually agreed upon fixed price. Let's say the fixed price is approximately $0.13-0.15 per kWh generated by the solar system (which is typically cheaper than traditional utility rates to start). You will be pay this price for the entire life of the PPA with SunRun. What makes this so valuable is that in 5-10 years as electricity and utility rates sky rocket, you are still paying $0.13-0.15 per kWh and saving more and more money as everyone else's rate climb.
What are the advantages and disadvantages of a PPA?
The key benefits of the PPA is that it enables you to install and harness the power of solar electricity without having to come up with a large upfront cash payment or secure financing for the actual system. And since your electric rates are contractually fixed, you can rest assured that you will only pay that amount for the life of the PPA protected from the rise cost of electricity provided by traditional utility companies.
The chief disadvantage of the PPA model, like leasing, is that you do not actually own the solar system. Since you are essentially renting the equipment, you will not qualify for any tax or rebate incentives offered by the government or by local utilities.
Lease or PPA: Which is Better For Me?
The honest answer is that both are excellent options for home/office building owners looking to lower their electric bills but it simply depends on each buyer.
With a lease, in order to qualify, you will need to have excellent credit. And with a lease, while there is typically no money down, you will be required to pay a monthly fee for the energy system which may go up a small percentage each year for the term of the lease. In the case of PPA, you do not pay a monthly fee but you will be purchasing your electricity from the solar provider. Both are excellent lower cost financing mechanisms and most installers have a leasing or PPA option for you to consider. We suggest you request a FREE solar consultation to learn more.
Just remember that with the lease or PPA model, you will not actually own your own panels and as a result, will not be able to participate in the federal, state and local rebate and tax incentive programs.
What if I Want to Move During My Lease/PPA Term?
If you decide to move during your lease or PPA team, under most leasing options and PPAs, they typically allow the new homeowner to assume the contract or buyout the system upon purchase. This is often an attractive option for the person buying your home. Recent studies have shown that homes with solar systems installed have higher resale values (approximately $20,000 for every $1,000 saved each year in electric costs) and sell more quickly. It is a tremendous selling tool offering a home for sale that is capable of significantly reduce energy consumption and bills.
Also, if you are moving to a new home within the service area of your solar installer, your lease or PPA may be transferable to that new address although there may be a small fee for having your solar installer move your solar system to a new residence.
What if My System is Not Performing Well or Becomes Outdated?
Most people are concerned about entering into a contract for such a long period of time for a highly technical piece of equipment for the fear that it will break or become outdated. There is no reason to worry. In most leasing and PPA agreements, there is usually a clause that guarantees some level of system performance and if the system falls below that level, the installer is responsible for either fixing or replacing the system to get it up to specification. And in the case of a PPA, your electric rates are set contractually so regardless of whether the system is outdated or not, you are always contractually obligated to receive steady performance at a fixed price. However, before you sign any agreements, make you talk about performance guarantees with your installer and ensure all such guarantees are in your lease or PPA.
What if My Solar Company Goes Bankrupt?
If the solar installer you contracted with goes bankrupt, your home system will not be removed or repossessed. You are not responsible for your solar company’s financial situation. We recommend you ask more about this as most companies offering leasing/PPA agreements are backed by major institutional investors and financing. In most instances, whatever entity purchases your solar contract continues to honor the terms of the contract in full.