The journey towards renewable energy adoption is filled with crucial decisions, but perhaps none is more impactful than choosing how to pay for your solar installation. Solar leases and power purchase agreements (PPAs) are two popular options used to pay for rooftop solar energy systems. Both allow you to go solar without the upfront costs of purchasing a system outright. However, they differ in structure, benefits, and long-term implications.

What is a power purchase agreement (PPA)?

A power purchase agreement (PPA) is an agreement between a customer and a third-party company. This is also known as TPO (third-party ownership). The third party retains ownership of the solar panels and sells you the power that it produces. PPAs can either have fixed monthly payments that may or may not increase annually, or they can vary monthly based on the amount of power the system produces. 

A PPA operates similarly to a lease, where a homeowner enters into an agreement with a third-party company that owns the system. The third party then sells the power produced by that system to the homeowner by kilowatt-hour (kWh). PPAs may feature balanced monthly payments or fluctuate based on the system's actual energy production.

What is a solar lease?

A solar lease is a financial arrangement that allows homeowners to benefit from solar energy without buying the panels. Instead, they are rented from a third party.

What are the key differences between a solar PPA and a solar lease?

Ownership

In both leases and PPAs, your solar company owns the solar panels.

Payment structure

PPA: You pay for what the system produces. Either the provider will calculate a balanced or fixed billing structure based on the projected production of the system or it will be based on the power the system produces each month, which is called production or variable billing.

Lease: You pay a monthly payment for the usage of the solar equipment, offering stable and predictable payments throughout the lease term.

Maintenance and responsibility

Both PPAs and leases free the homeowner from the maintenance burden, as the third-party owner is responsible for repairs and upkeep. This aspect is particularly appealing for those who don’t want to deal with maintaining their system or repairing it if something happens to it.

End-of-term options

At the end of both PPAs and leases, homeowners can typically choose to extend the agreement, purchase the system, or request to have it removed.

Financial benefits

With both PPAs and leases, homeowners benefit from the lower cost of electricity produced by the solar system. Because homeowners do not receive tax credits, rebates, or incentives, as these are retained by the third-party company, PPAs and leases can be a good option for homeowners who are not eligible to claim these credits but still want to benefit from lower energy costs that solar can provide.

Is a solar lease or PPA right for me?

Deciding whether a solar lease or PPA suits your situation best depends on various factors, including your financial goals, energy consumption patterns, preferences regarding system ownership, and maintenance, and the specific terms in the agreement. If predictable monthly payments and freedom from maintenance obligations sound appealing, a solar lease or PPA with balanced billing might be your best bet. If that sounds appealing but you would rather pay only for what the system produces and are fine with seasonal variability, a PPA with production or variable billing might be right for you. 

Other ways to pay for solar

Both solar PPAs and leases offer compelling advantages for homeowners eager to embrace renewable energy without the steep initial expense of solar panel installation. The decision between solar PPA vs lease hinges on personal preferences, financial objectives, and long-term energy needs. Outside of solar power purchase agreements and solar leases, homeowners can also choose to take out a solar loan. By understanding the nuances of each option, you're better equipped to choose the path that aligns with your goals. Learn about the three ways to pay for the switch to solar. 

The bottom line

Each option has its unique benefits and financial implications. While both options eliminate upfront costs, leases and PPAs with balanced billing offer fixed monthly payments and simplicity, which is ideal for those seeking budget predictability. PPAs with production or variable billing have similar benefits, but for homeowners that want to pay power as it is produced, and don’t mind the seasonal variability of this option. Understanding these options empowers you to select the most suitable path to sustainable living.