Solar leases vs. Solar PPAs

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Solar energy continues to grow in the U.S., especially in California, Texas, Florida, and many other states. Residential solar panels are a significant investment, and the initial cost may turn you away. However, a cash purchase is not the only payment method, and there are many options to fit your budget. 

Solar leases and power purchase agreements (PPA) are two payment options with minimal upfront costs. Learn more about solar leases and PPAs, and the differences between the two options.

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What is a solar lease?

A solar leasebypasses the upfront costs of solar panels and makes monthly lease payments instead to power their homes with solar energy. With a solar lease, the solar company owns the panels, but you use the electricity they generate to power your home. Solar leases lead to lower energy costs because you are creating your own electricity, separate from the grid.

The main difference between a solar lease and PPA is under a solar lease, you pay a fixed monthly rate, no matter how much energy is generated or consumed. A solar lease is similar to a car lease, where the company owns the product, except the company performs any needed maintenance in a solar lease. 

Solar leases usually last 15–25 years, whereas car leases last about two to five years. When the lease expires, you can either renew your lease again, let the solar company take the solar panels back, or you may have the option to purchase the solar panels at market value.

Pros and cons of a solar lease

There are several advantages to solar leases, including the following:

• Avoid the upfront costs of buying solar panels
• The solar company is responsible for maintaining the panels at no additional cost
• Lower your overall energy costs during the lease

However, there are a few drawbacks to solar leasing that are important to keep in mind. These can include:

• Cost savings are much lower compared to if you purchased the panels
• You will always have to pay a monthly leasing fee
• You cannot sell excess energy back to the grid
• Not eligible for the federal tax credit or other solar incentives
• If you sell your home before your solar lease expires, the potential buyers will have to take over the lease

What is a solar PPA?

A solar PPA is another way to invest in solar without purchasing the panels upfront. Solar PPAs are similar to solar leases because the solar panel company retains ownership of the panels, even though they are installed on your property. 

With a solar PPA, you opt into a contract (like you do with a solar lease) that typically lasts between 15–25 years. During this time, the solar company is responsible for maintaining and repairing the solar panels. You will likely experience energy cost savings since you rely less on the traditional energy grid.

The difference between a solar PPA and a solar lease is how the solar company determines your monthly payment. With a solar lease, the total monthly amount you pay is the same. Under a solar PPA, your monthly payment is based on your energy consumption at a fixed rate per kilowatt-hour (kWh). 

Pros and cons of a solar PPA

There are pros and cons to signing a solar PPA. Some of the major advantages include the following:

• Lower energy costs while powering your home with solar energy
• Maintenance and repairs are handled by the solar company
• Less financial risk and very few upfront expenses

Disadvantages worth noting include:

• Not qualified for tax incentives or rebates
• During months when you consume a lot of electricity, your monthly payment will be higher
• Locked into a contract and could have to pay a fee if you end it early
• Your overall cost savings will be lower than if you were to purchase a solar panel upfront