Solar Lease Vs PPA : Differences Explained

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Introduction

Solar leases and solar PPAs are said to be (power purchase agreements) are one of the points where there are two more options for average homeowners who want to install solar panels on their homes without spending any money upfront.

Your solar installer will install a system on your property and charge you a monthly payment or solar loans to consume the power it generates under solar leases and PPAs.

These contracts benefit homeowners to adopt solar with no money but at a substantially lower return on investment throughout the system’s lifetime.

While solar power adoption rates for commercial and industrial establishments are unquestionably increasing, firms can afford to purchase solar panel systems outright.

That is why solar loans exist in which you do not own the solar panel systems but have complete access to the solar electricity generated.

The comparison between a Solar lease vs PPA is discussed in this blog.

What is a Solar Power Purchase Agreement (PPA)?

The consumer and the PPA company enter into a solar financing options agreement known as a solar Power Purchase Agreement (PPA).

The PPA provider will design, develop, and install a commercial solar photovoltaic (PV) system on the customer’s land for little or no money.

The panels will be maintained by the PPA business as well. The PPA provider will then sell the energy generated by the solar PV system to the customer at a predetermined monthly payment or for the electricity they consume, depending on the terms of the agreement.

The fixed rate is frequently lower and less expensive than their existing utility energy bill. A PPA agreement might span anywhere from 20-25 years.

What is a solar lease?

A solar lease is a type of solar loan in which you don’t own the solar panels but instead pay a fixed monthly lease payment to the solar firm to utilize them.

The solar installer will be responsible for the installation and maintenance charges of the solar energy system under a prepaid lease.

The solar developers will also cover any necessary solar system maintenance costs. You’re simply exchanging your electricity bill for the lease contract fixed monthly payments. A typical lease term is 15-25 years.

Solar Lease Vs PPA?

Let’s start with an overview of how solar leases(prepaid Leases) and PPAs are constructed.

 The leasing company puts a system on your home, which they own, for both alternatives. This information is crucial because it allows the leasing business to claim the Federal solar investment Tax Credit of 26% of other local rebates and incentives for which the system’s owner is eligible.

 Once the panels are installed, you pay the solar leasing company a solar investment tax credit for the power provided by the panels.

The leasing company is usually responsible for the full maintenance and development of the system. Solar investment tax credit benefits may not accrue to the site host. Power Purchase Agreement (PPA) PPAs are relatively similar to solar lease options. 

How Do Solar Lease and Solar PPA Work?

Let’s start with an overview of how solar leases(prepaid Leases) and PPAs are constructed.

 The leasing company puts a system on your home, which they own, for both alternatives. This information is crucial because it allows the leasing business to claim the Federal solar investment Tax Credit of 26% of any other local rebates and incentives that the system’s owner is eligible for.

 Once the panels are installed, you pay the solar leasing company a solar investment tax credit for the power provided by the panels.

The leasing company is usually responsible for the maintenance and repair of the system. solar investment tax credit benefits may not accrue to the site host. Power Purchase Agreement (PPA) PPAs are relatively similar to solar lease options. 

What Is the Difference Between Solar Lease(Prepaid Lease) and Solar PPA?

A solar PPA and a solar lease are commonly mistaken since they are similar. Because you won’t be purchasing the solar quotations, you won’t have any upfront costs with solar PPAs or Prepaid solar leases.

The solar leasing company, in most situations, also owns the SRECs produced by the system, as well as the tax benefits associated with it.

 You won’t own the solar equipment or array; the solar financing companies you hire will be in charge of the design, construction, installation, permitting, and maintenance of the solar system on your property. In any instance, you may lock in your utility rate as part of your contract with the solar firm you choose.

The cost per kWh with your PPA will be less than the cost per kWh charged by your excess energy. If your utility rate increases by $0.15 per kWh, utility companies with a Contract Agreement PPA might charge $0.12 per kWh. The cost of a PPA will vary depending on the region, installer, and electricity pricing.

 A major distinction between the two is that with a solar PPA, you pay a third party for the renewable energy(solar electricity)generated, whereas, with a prepaid solar lease, you pay a third party for the solar system itself.

For example, if your monthly power expense is $150, your prepaid solar lease payment may be $80. The amount paid always depends on where you live, who you hire, and how big your system is.

 You pay the price per kilowatt-hour (kWh) of (clean energy) energy usage with a Contract Agreement PPA, much like you would with a utility bill. Your solar PPA bill will be affected by the amount of solar energy produced by the solar panels.

solar lease vs PPA

Source : solarreviews.com

Are Solar Leases and PPAs Worth It?

If you decide to go with a Contract Agreement PPA, Calculate how much actual lease payment will rise throughout the system’s life. Calculate your annual production of energy savings over the life of the solar contract using our guide on calculating solar ROI.

 Take out a personal or business loan if you need to. You will remain the owner of your system if you finance it with a personal loan. This protects you from future rate spikes, which can significantly reduce your investment return.

However, purchasing your system is far more cost-effective than leasing or taking out a PPA.

Solar lease vs Solar PPA

Source : sunrun.com

What is the best option for your facility?

As you can see from the lists above, leasing solar panels or entering into a solar Power Purchase Agreement are both great methods to avoid a significant upfront expenditure while still reaping the benefits of solar energy.

Commercial and industrial facilities benefit from solar leases and PPAs since the benefits of a fixed lower solar electricity tariff and not worrying about ownership of the solar PV system outweigh the disadvantages.

 Using a solar lease or PPA, on the other hand, ensures that the entire procedure will be swift and simple. You can sit back and watch it all come together since the solar company you work with will handle the full commercial solar installation. 

Conclusion:

Solar panels are an excellent method for property owners to save money on utility bills while lowering their carbon footprint.

Although many property owners choose to own solar systems, many do not have the necessary financial resources. In these cases, a solar lease or PPA is a wonderful method to continue to save money with a solar system by paying a predictable, low energy tariff for several years.

 FAQs:

1.What makes solar energy suitable for a home?

There are a few fundamental requirements, such as ownership of the property, access to the roof, and a monthly electricity bill of at least $80.If you answered yes to all of these questions, solar might be the way to go. For further information, you should contact a solar contractor.

2.What is a power purchase agreement, and how does it work?

A Power Purchase Agreement is a contract with a team where a PPA business installs a solar energy system on a homeowner’s roof. It is a fixed price for the electricity generated by the system. 

3.Is it better to lease or do a PPA? Why?

The differences between a PPA and a lease are minor, to the point that there is almost no difference from the homeowner’s point of view. Various solar contractors will provide various lease and PPA alternatives.

4.Why do you need an electric bill for your surplus power demands if you have a PPA?

The homeowner’s power company will give any surplus electricity requested by the homeowner that the PPA does not cover. When the sun sets and the solar panels don’t produce electricity, the residence will need electricity from the power provider.

5.Which of the options is the most beneficial to the client in the long run? Why?

If the homeowner does not have funds or finance, leasing or a PPA may be their only alternative. The lease and PPA schemes offered by solar contractors differ significantly.

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