Loan, Lease or PPA? A Guide to Solar Financing Options
The idea of never having to pay electricity bills makes solar power a highly desirable option. So why are homeowners still reluctant to switch to solar or other forms of alternate energy?
Even though the installation cost for solar panels has dropped by 70% over the past decade, it still plays a significant role in homeowners’ decision to go solar. Despite the reduction, the cost of installing solar panels presents itself as a major hurdle for many. Not many can afford to pay the entire cost upfront.
In recent times, several solar financing programs have cropped up that make solar installation affordable. These financing options, including loans, leases and power purchase agreements (PPA) are especially beneficial for homeowners who find it hard to afford the cost of going solar.
In this blog, we will analyze each solar financing option so you can choose the one that is most suitable for you.
Solar Loan: why you should go for it
A loan to install a solar power system is similar to any other loan you would borrow to, say purchase a house or a car. Choosing a loan program that suits you means you will have full ownership of the solar panels and can start saving on your electricity bill right away.
You will also be entitled to tax credits offered by the government as well as local authorities and utility companies, as well as Solar Renewable Energy Credits (SRECs).
Installing a solar system that you own might also lead to an increase in your property value.
The Downside of Solar Loans
There are some drawbacks though. Since you own the system, you will be responsible for maintenance. Solar panels require little maintenance though, so the cost may not be too much to bear if they have been installed properly.
- Loans give owners full solar ownership
- User will be entitled to tax credits
- User will be entitled to SRECs
- User will be responsible for maintenance
Solar Lease: why you should go for it
Back when the cost of solar panels was unbearable for many, one solar financing option — lease — changed the game by making solar energy accessible to both the commercial and residential sectors. Even though the cost of solar panels has reduced considerably, leasing the system remains a popular and viable financing option.
Leasing is an effective choice if you want to cut down your electricity bills without going through the hassle of installation. It also saves you from paying a sizeable upfront cost. If you choose to go for a lease, you will not be the owner of the system and, therefore, will have to pay a fixed amount for the electricity produced by the panels to the company that owns them.
Since you don’t own the system, you don’t have to worry about maintenance costs.
Since the payable amount is fixed, the cost will remain the same even if the panels produce more electricity than expected. You can offset your monthly bill through net metering by exporting extra energy to the grid.
The Downside of Solar Lease
Since you don’t get ownership of the solar system if you opt for a lease, you will be exempt from rebates and tax benefits that you would have been eligible for as an owner. For example, the federal 26% tax credit offered by the government will be availed by the company that owns the solar panels, not the consumer.
Furthermore, you might not be able to save as much as you would like to in the long term as you will have to pay a fixed amount — albeit less than your electricity bill — for about 20-25 years or for as long as the agreement lasts. Depending on the agreement, the amount may increase every year.
- User will not be the owner of the system
- Will have to pay a fixed amount for the electricity
- Will be eligible for net metering
- Will not be eligible for tax credits and other incentives
- Will not be responsible for maintenance
Get to know more about solar financing.
PPA: why you should go for it
In a power purchase agreement (PPA), a third party owns the panels and sells you the electricity generated. The consumer has to pay for every kilowatt generated by the solar panels every hour. It is very similar to a lease with a few technical differences which will be explained below.
Choosing to enter a PPA is advised if you do not want to pay for installation or take responsibility for the maintenance of the solar panels. You will be able to save money as well since electricity bills will reduce. You will also be able to offset your bills through net metering.
The Downside of entering PPAs
Just like in the case of a solar lease, you will not be able to avail the federal government’s tax credits and other benefits offered by authorities if you enter a PPA since you don’t own the system. You would also not be eligible for SRECs.
- A third party owns the panels and sells the electricity to user
- User has to pay for every kilowatt produced per hour
- User will be eligible for net metering
- Will not be eligible for tax credit and other benefits
Solar lease vs PPA
So what is the difference between a solar lease and a power purchase agreement? It is the calculation of the payable amount.
When you lease a solar system, you have to pay a fixed amount every month regardless of the amount of energy produced. Whereas in a PPA, you have to pay for every kilowatt produced per hour, so the payable amount at the end of each month will depend on how much electricity the panels generate.
In either case, the rate will be lower than that of your utility company.Conclusion
Opting for a solar lease or entering a PPA might also adversely affect the value of your property. You might also have to encounter difficulties while selling property as the buyer may not want to pay for solar power, in which case you might have to pay a breakaway fee.
Going for a solar lease or PPA is recommended if you don’t have enough cash to buy panels upfront or you don’t qualify for a loan.
Since you cannot avail tax credits and other benefits, which you would be entitled to as the owner of the solar panels, it would be advisable to opt for a lease or PPA if you don’t have enough tax liabilities.
No matter which solar financing option you go for, Beyond Solar will guide you through the way. Contact us today to find out which option is best suited for you.