Solar Lease vs. PPA: What's the Difference?

April 08 2021

Solar panels installed on a house through a prepaid solar lease

Since there aren’t many differences between a solar lease vs. PPA, many people mix up the two. Both arrangements allow homeowners to reap the benefits of solar power without owning the solar installation. However, these solar financing options are not the same.

Find a quick rundown of both types below. Learn the pros and cons of each and find out if a solar lease or power purchase agreement is a good fit for you.

Then, compare solar lease vs. PPA options from providers in your area.

Solar Lease

A solar lease allows homeowners to pay a fixed monthly fee to use a solar system they don’t own. Homeowners can use energy from the panels for the duration of the lease, which is typically 20 to 25 years.

When you sign a solar lease, you don’t actually own the panels. The system is owned by a third party. You pay to use the panels, rather than own them. On the bright side, this means you won’t have to worry about the high upfront cost of the panels. However, it also means you won’t get the benefits of ownership or the savings from solar tax incentives.

A solar lease is essentially like a rental. Homeowners who choose to lease a system will use it no differently than a purchased one. For example, net metering still works the same way.

Power Purchase Agreement

While a power purchase agreement has many similarities to a solar lease, there are key differences. Most notably, when a homeowner signs a power purchase agreement, they neither own nor lease the system. Instead, a PPA company installs the system on the homeowner’s roof and sells the homeowner electricity from that system at an agreed-upon price.

The homeowner can opt for a fixed power purchase agreement or one with a monthly rate that varies. Solar PPA rates are typically lower than the local utility’s retail rate. The user pays monthly over the duration of the contract, which is usually 20 to 25 years.

After a solar lease or power purchase agreement has ended, the homeowner can purchase the system at fair market value or have it removed from his or her roof. Keep in mind that solar systems typically last a maximum of 30 years.

Types of Solar Leases/PPAs

1. $0-Down

When you sign a $0-down lease or PPA, you don’t have to pay anything upfront. Once the panels are installed, you’ll simply pay a monthly lease fee (or fixed kilowatt-hour solar PPA rate) to the third-party owner. This fee will increase at a rate of 1-3% every year.

2. Custom Down-Payment

As the name implies, this type of solar lease/PPA requires a small down payment (typically $1,000 to $3,000) in exchange for a lower monthly payment or per kWh rate. These agreements typically do not have an annual increase. Instead, costs are fixed for the length of the contract.

3. Prepaid Solar Lease/PPA

A prepaid solar lease or PPA works similarly to purchasing a system. The homeowner pays the entire cost of the system upfront and does not pay anything else for the duration of the contract. Because of this, third-party providers have minimal liability and are generally willing to make adjustments and work with homeowners on contract details.

The benefit of a prepaid solar lease or PPA is that the total system price is usually 30-50% lower than it would’ve been if purchased. A prepaid solar lease will save you more money over time than the other two leasing options.

Home solar system installed through a power purchase agreement

Choosing Between Solar Lease vs. PPA

When choosing between a solar lease vs. PPA, consider options from different contractors. Both solar leases and PPAs can be good or bad. Certain agreements have hidden costs or unfavorable terms, while others are a great fit. Regardless of whether you choose a PPA or lease, you’ll only want to compare options from trustworthy solar companies.

Greenlife Solar can help. Enter some basic information about your home to receive free quotes from solar installers in your area. Speak with certified solar installation companies about your solar lease vs. PPA options. Compare solar lease and solar PPA rates before you decide.

Keep in mind that if neither option fits, you may want to consider purchasing or financing your system. These are both great options because they offer the benefits of ownership. For example, purchasing a system can increase your home’s value and save money in the long-run.

Find the perfect fit for your home today. Compare pricing on different options near you.

Get Free Quotes from Solar Installers in Your Area.