Solar lease vs. solar PPA
Which contract is right for you?
Going solar isn’t cheap. Many pay for their solar energy systems with solar leases or solar power purchase agreements (PPAs) — both mean trading ownership of the system for upfront savings.
“There’s not a huge difference between a PPA and a lease,” Dan Orzech, general manager of the Oregon Clean Power Co-op, said. But there is some difference between the two — which is best for you essentially depends on whether you want to pay a fixed monthly fee or a variable fee based on the amount of power you use.
Key insights:
- Solar leases and PPAs are very similar and often conflated.
- Solar leases generally require a flat monthly fee; PPAs have you pay per unit of electricity.
- Both those who opt for a PPA and those who sign a lease should pay attention to rate increases built into their contracts.
- Signing a virtual PPA or off-site lease agreement allows green power consumption on a property without solar panels.
What is a solar lease?
Leasing solar panels is much like leasing a vehicle or a place to live: Instead of taking out a large loan to finance the system, you pay a company to use its solar power equipment. With this type of agreement, the company that owns and installs the solar panels typically takes care of all of the maintenance, repairs and monitoring.
Throughout a lease agreement, you typically pay a flat monthly fee in exchange for the energy the system produces. Solar leases can dramatically cut down on utility power use and reduce your monthly electricity expenses.
Some solar leases let you purchase the panels at the end of the lease and continue using the solar power produced on-site. Otherwise, the installation company will also be responsible for removing the system.
» MORE: Solar financing companies
What is a solar PPA?
With a solar PPA, green energy adopters only pay for the exact amount of energy they use. The payment structure for a PPA is similar to that of a traditional utility company, but it typically comes with lower rates than what grid power offers.
As with a solar lease, you won’t own your panels if you get a solar PPA, and the installation company typically handles any maintenance, monitoring or decommissioning services.
» LEARN: What to know about solar PPAs
Solar lease or PPA: Which is right for me?
Both solar leases and PPAs can help reduce your overall power expenses. If you’re going solar and opt for one of these more affordable options versus buying the system yourself, the decision really comes down to what payment structure you prefer: variable (in other words, based on your actual usage) or fixed.
| Solar lease | Solar PPA | |
|---|---|---|
| Upfront costs | None (typically) | None (typically) |
| Payments | Flat monthly payments | Pay for energy used |
| Contracts | Long-term; may include payment escalations | Long-term; may include electricity rate escalations |
A real-life example: A reviewer on our site from California decided a solar lease was the best option for their property and family. They recalled their experience: “Once we started looking into Sunrun and what they had to offer, we never really took a hard look at anybody else because leasing was really the only way for us to go. Their lease seemed to be the best workable thing for us.”
People that cannot put solar on their roof[s] can try a virtual PPA or virtual solar lease. If you have too many trees, or your roof is facing the wrong way, or its too old, or you don’t own your roof, you can still lease solar panels with a community solar agreement.”
But how do you know which is right for you? Often, this primarily depends on what options are available in your area. Access to lease and PPA options varies widely throughout the country, but the agreements are overall very similar in nature and value.
Even those who don't own property now have green energy options to consider, including remote solar leases and PPAs focused on a shared or community solar project.
“People that cannot put solar on their roof[s] can try a virtual PPA or virtual solar lease," Orzech said. "If you have too many trees, or your roof is facing the wrong way, or its too old, or you don’t own your roof, you can still lease solar panels with a community solar agreement.”
FAQ
How do you get free solar panels from the government?
Although solar leases and PPAs can let homeowners go solar without any upfront costs, there’s really no such thing as free solar panels.
However, the U.S. government currently offers an investment tax credit (equal to up to 30% of the total system cost for systems built between 2022 and 2032) for homeowners who purchase their systems. However, most homeowners with leases or PPAs don’t qualify for this incentive because they don’t actually own their systems.
How many solar panels do you need for a 1,500-square-foot house?
The number of solar panels you need for a 1,500-square-foot house is highly dependent on the property’s annual electricity consumption. Homeowners typically need between 25 and 35 panels to fully rely on solar power, but most American homes are larger than 1,500 square feet — so a house this size may require fewer, depending on the efficiency of its solar panels and how much energy it uses.
How much does it cost to lease solar panels?
It typically doesn’t cost any money upfront to begin leasing solar panels. Instead, you’ll generally pay a monthly fee to an installer who adds panels to your property. The amount you pay the solar company depends on the size of the system, but the cost is typically structured to mitigate utility electricity consumption.
Bottom line
Both solar PPAs and solar leases make it easy to add renewable energy to your home and save on monthly electricity costs in the long run. The choice between the two contracts depends in large part on what’s currently available in your area and your payment preferences, though speaking with representatives from multiple solar companies will help you find the option that will save you the most on your energy bills.
Either way, you can instantly minimize your carbon footprint with little to no upfront costs with these two options. And, when a solar panel installation isn’t viable on your property, you may be able to opt for a virtual lease or PPA so you can still go green at home.
Article sources
- EnergySage, “ Free Solar Panels: are they really free? ” Accessed May 31, 2022.
- U.S. Census Bureau, “ Analysis of Housing Square Footage Estimates .” Accessed June 1, 2022
- Solar Energy Industries Association (SEIA), “ Solar Power Purchase Agreements .” Accessed June 3, 2022.
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