The Benefits of Third-Party Solar Ownership: PPAs vs. Solar Leases

With a lease, a provider installs and maintains solar panels on your property, then charges you a  flat monthly fee to use the panels and benefit from the generated electricity. The rate stays the same every month, even when the amount of energy consumed fluctuates. The lease provider claims the federal tax credit and then uses it to reduce the overall lease cost and monthly payments.

Here are the benefits of a lease:

• Predictable Costs: Homeowners pay a fixed monthly payment for the duration of the lease, regardless of how much energy they consume

• Affordable Access: Most providers offer leases with low or no upfront costs

• Maintenance Included: The solar provider handles any potential maintenance

• Lower Energy Bills: Generate your own power and reduce utility bills

• Flexible Terms: Choose lease duration and potentially buyout options at the end

As with a PPA, a solar lease gives limited control over the maintenance, repairs, and operation of the solar panels. Utility savings may not be as significant as owning a solar system outright, and you may encounter exit costs or rate increases over time.

With a power purchase agreement (PPA), a solar provider owns, operates, and maintains solar panels on your property. Then you pay a monthly rate that is based on the energy consumed (per kilowatt hour). This differs from the lease model since monthly payments are not fixed and vary depending on usage. Although a PPA doesn’t allow you to claim a federal tax credit directly, your PPA provider claims the credit and uses it to lower the pricing of your electricity — so you still get to enjoy its benefits.

Here are the benefits of a PPA:

• Usage-based Costs: Homeowners pay a monthly rate that’s based on energy consumed (per kilowatt hour)

• No Upfront Cost: Most providers allow you to start using solar energy without initial expenses

• Low Energy Rates: PPAs allow you to lock into electricity rates that are lower than the utility

• Maintenance is Covered: The solar provider handles potential maintenance for the duration of the PPA contract

• Limited Risk: PPA providers guarantee that your system will produce within a certain range of kilowatt-hours (kWh) of electric energy, ensuring you get the benefits of solar even if your panels are underperforming

• Flexible Options: Choose contract terms that suit your needs, including contract length and buyout options

Keep in mind that with a PPA, you don’t own or control the solar panels, meaning there are limitations if you need to expand or change the system configuration. Adding an electric car or hot tub and need more panels? You may be out of luck with a PPA. Also, if you exit the agreement before the term expires, you could be required to pay a fee. PPAs are also subject to potential rate increases over time.

PPAs also have implications if you decide to sell the home. In short, you have to transfer the solar PPA to the new buyer. This generally involves the buyer applying to assume the PPA and as such, they are subject to the same approval terms applied to the original contract owner. 

Finding The Right Fit for You

Both PPAs and solar leases offer homeowners the benefits of solar without many of the upfront costs typically associated with ownership costs, as well as the maintenance responsibility. Many of these third-party ownership options come with performance guarantees and minimal to no upfront expenses, making them an accessible way to enjoy clean, sustainable energy. 

Solar leases are an especially appealing option, thanks to their simple, predictable monthly payment plans and greater customization options. However, if you have a sizable tax liability, you may be better off with a traditional loan. This route allows you to benefit from the full 30% solar tax credit, which is off-limits with both PPAs and leases. It's also important to remember that options tend to vary by region, so it's best to consult a specialist to know what's available in your area. 

Ready to explore your solar financing options? Find out how much you can save today by clicking the “Get a Quote” button at the top of this page. We’ll connect you with one of our local solar experts in your area for a no-obligation, fully-customized quote.

Sources: https://www.woodmac.com/news/opinion/us-residential-solar-finance/#:~:text=For%20the%20first%20time%20since,grow%20by%204%25%20in%202023.