Understanding difference b/w Solar PPA & Solar Lease

Solar leases and solar PPA are financial setups wherein the homeowner does not own solar energy installation on their roof, it is owned by the lease or PPA company.

Let us look at the difference between the two to understand which is the best fit model for your personal needs.

Solar Lease:

In solar leasing someone else (developer) pays for the equipment, instead, you have to only pay a monthly rental. Unlike PPA where you have the upfront cost of installing the panels, in easing that upfront cost can be avoided and get started with little money invested. Figuring out if a solar lease is worthwhile is easy: if the monthly lease payment is less than what you’re currently paying per month for electricity, leasing probably makes economic sense for you. You’ll be able to start saving money from the first day your panels are installed, for little to no upfront investment.

It is important to note that the homeowner’s relationship with their utility and how they buy/sell electricity, such as Net Metering, is no different than someone who owns a solar panel system.

In India mainly you have 2 to 3 plans for solar leasing which again depends from the state –state policies.

For instance, Karnataka has come up with a solar leasing scheme, which involves renting of Residential Solar Roofs to the Developers. These solar developers will be allowed to install a Solar PV plant on the rented Residential rooftop and the developer will have the rights to sell the electricity to the grid.

In Monthly rental (EMI) plan the consumer pays a monthly rental for the utilization of solar-generated electricity. Another is a single payment plan where a large amount is paid in a lump sum instead of monthly rentals to lease out the PV system.

To explain briefly,

No upfront costs 

You don’t pay for the cost of the solar panels or installation as you are not the owner of the solar system on your roof.

Monthly payments 

You are required to make monthly payment for the energy produced by the solar panels.

So, you don’t own the panels, but you do get to use the energy they produce.

A solar lease or PPA monthly payment will typically be less than what your monthly utility bill would be without solar.

Price escalator

The amount that you pay for your solar lease or solar PPA payment will increase each year. The amount in which your payment will increase by will be defined in your solar contract.The price escalators for solar leases and PPAs are usually between 3% and 5%.

Long-term contract 

A long-term contract will be signed with the solar company. Solar PPA contracts usually have terms between 20 to 25 years. However, solar leases may have shorter periods, between 10 and 25 years.

At the end of your contract, you can choose to purchase the solar panels or have them removed. 

No maintenance

The solar company will be responsible for the maintenance and monitoring of the system. Therefore, maintenance and monitoring costs do not fall upon you.

Uncertainty with selling your home 

If you want to sell your home, solar leases and PPAs can be passed onto the home’s next owner.

In the case that new homeowners don’t want to continue with the solar lease or PPA, you might have to pay a break fee to end the contract.

How is a Solar PPA different?

With solar leasing,  if your utility bill would be  a month, your solar lease payment might be $80 a month.

The lease payments vary depending on location, installer, and system size.

A solar PPA works more like your utility bill, except you pay for each kilowatt hour (kWh) of solar energy that is being used and this will fluctuate depending on how much energy the solar panels produce. 

The price you pay per kWh with your PPA will be lower than the price your utility charges you per kWh. So, if your utility charges you Rs 2.5 per kWh, a solar company might charge you $0.12 per kWh with a PPA.

The actual PPA cost will again vary depending on location, installer, and the price of electricity.

Certain aspects that are different from a solar lease are as following:

1. Ownership transfer

At the end of the PPA agreement, providers can transfer ownership of the solar system to the owner. This can be a good deal because panels generally come with 25-year warranties, so at the end of a 10-year agreement, you’ll have 15 more years to enjoy ‘free’ solar energy. However, you may be required to  replace inverters which have shorter warranties, but it’s often not a bad deal.

3. Fixed price

Thought, some PPAs will increase the price per kWh over the life of the agreement to allow for inflation. some also offer a fixed price that will not change for the term of the agreement.

4.Flexible terms

Each system design is based on the unique requirements of each customer. This involves installing the right number of panels with the right tilting to deliver the right amount of energy that is needed.

It also means tailoring the agreement – for example, it can range from 10 years to 25 years or more. As mentioned, sometimes longer agreements are attractive because the price per kWh is generally lower, it’s locked in for longer.

5. Monitoring & maintenance

With each installation, we include a smart meter which helps us with faster billing but also with alerts for dips in power delivery. This also allows you to better schedule future maintenance.