RESIDENTIAL SOLAR POWER : Pros and Cons of Solar Lease Vs Purchase

By Fayyaz (SHAWN)

March 13, 2015

Analyzing the benefits of solar lease and purchasing are not that easy at the first glance. There are downsides to the lease and PPA programs that property owners should fully understand prior to making the decision.

California Solar Initiative offers cash back to install grid connected solar system on properties. California Solar Initiative established in 2006, started with a budget of $2.1 billion to provide incentives and to assist the property owners with the cost of solar installation in ten steps. The latest update on steps can be seen here.

There are three ways to finance the system:

Own
PPA
Lease

Each one has its benefits.

Pros and Cons of Financing Options

Acquired By	How It Works	Pros	Cons
Purchase	As the owner you are responsible for the system cost	Increase in property value Receive 30% tax credit plus available rebates No added lien on your property Special financing (PACE) may be available in your area	Arrange for loan or financing Owner monitors and maintains the system
PPA	You pay a pre-set rate for the electricity the system produces	Minimal or no upfront investment Investor owns and arranges for maintenance and monitoring Fixed lower rate than utility company	Investor liens the property for contract duration When selling home, buyer has to accept terms of your contract
Lease	You pay a fixed negotiated lease per month based on the size of your system	Minimal or no upfront investment Leasing company owns and arranges for maintenance and monitoring	Leasing Co. liens the property for contract duration When selling home, buyer has to accept lease terms

Acquired By

How It Works

Pros

Cons

Purchase

As the owner you are responsible for the system cost

Increase in property value
Receive 30% tax credit plus available rebates
No added lien on your property

Special financing (PACE) may be available in your area

Arrange for loan or financing
Owner monitors and maintains the system

PPA

You pay a pre-set rate for the electricity the system produces

Minimal or no upfront investment
Investor owns and arranges for maintenance and monitoring

Fixed lower rate than utility company

Investor liens the property for contract duration
When selling home, buyer has to accept terms of your contract

Lease

You pay a fixed negotiated lease per month based on the size of your system

Minimal or no upfront investment

Leasing company owns and arranges for maintenance and monitoring

Leasing Co. liens the property for contract duration

When selling home, buyer has to accept lease terms

Purchasing

Purchasing is the most beneficial approach. For owners, the most common means of purchasing has been with use of home equity line of credit. The owner will:

PPA (Power Purchase Agreement)

PPA option: the owner buys all of the electricity produced by the solar PV system at an agreed-upon rate for the power the system generates. The investor funds the installation of the solar system on the property. The PPA rates are typically lower than or competitive with the local electric utility rates. PPAs are usually longer-term contracts with terms of up to 20 years. There is an annual rate escalation, normally slightly lower than rate escalation by the local utility company.

Lease

Lease option: the owner pre-negotiates an agreement on lease payments to the solar leasing company. The leasing company owns and pays for the installation and maintenance of the solar system. The payment amount is not tied to the PV system’s actual output, but it is calculated to be competitive with the homeowner’s existing electric bill.

Info obtained from various websites.

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