For those who are considering going solar.
Have you decided to go solar? There are several financing options. The typical choices include buying, leasing, and Power Purchase Agreements (PPA). In this section, you can find out what these choices are, and how they compare.
When evaluating the cost of energy and considering if purchasing a system is right for you, use the cost of a kilowatt hour (kWh) as your basis for analysis and comparison. A solar system will reduce only the components of the bill that are priced per kWh.
Read all contracts carefully and completely. Each homeowner’s situation is different. Only you can discern which option is best for your circumstance
It is wise to speak with your tax advisor about the tax implications associated with the various purchase options before you enter into a solar contract.
1. Own, Loan, Refinance
When you purchase a solar system, the purchase of equipment and the installation is paid for up front and you own the equipment.
Ownership can come in a variety of ways – you may pay cash for the system, take out a loan, open a line of credit, refinance your home or enter into a HERO Program.
The US Department of Housing and Urban Development (HUD) offers FHA Title 1 Home and Property Improvement Loans and information on how to finance a home improvement.
You own the equipment and are responsible for the operation and maintenance. You may consider entering into a service agreement for maintenance and repairs.
When you lease a solar system you agree to pay a monthly rent (lease) payment in exchange for the right to use all of the power produced by the PV system. You do not own the equipment.
Leasing a solar system requires a contract, usually for 20 years. Typically there is no large upfront cost associated with a lease, easing the initial burden of ownership. The lease may include an annual price increase, called an escalation, on the monthly payment. Escalations are risky, and may exceed the rate the utility energy (kWh) rate is going up. Ask about pre-paid leases and how that may affect the contract and financial burden.
Most companies provide a guaranteed minimum annual energy (kWh) production for the solar system. Consider various size systems to meet your energy needs. Remember, your energy use changes month to month, and the solar system output varies month to month, but a lease payment is the same each month. Some months you will receive more energy production for your lease payment and other months you will receive less energy for your lease payment.
Talk with your provider about how maintenance and repairs are handled, and what happens if the solar system stops functioning. Before signing the dotted line make sure you understand the terms of the lease agreement and your obligations to ensure a safe and productive solar system installation.
Consider the consequences of the lease contract if you decide to sell your home. Will it be easier or harder to sell? Talk with your lease provider to investigate if the new buyers must qualify to assume your lease and what happens if they don’t qualify.
3. Power Purchase Agreement (PPA)
A PPA is similar to a lease, but the monthly payment is based on an agreed upon price per kilowatt hour (kwh) for each kilowatt hour produced by the solar system rather than a flat monthly charge. You do not own the equipment.
PPAs require a contract, usually for 20 years. Typically there is no large upfront cost associated with a PPA, easing the initial burden of ownership. Read the contract thoroughly. The PPA agreement may include an annual price increase, called an escalation, on the price you will pay for each kilowatt hour (kWh) generated by the solar system. Escalations are risky, and may exceed the rate the utility energy (kWh) rate is going up. Ask if purchase buy-out options are available and how that will affect the contract and financial burden.
Most companies provide a guaranteed minimum annual energy (kWh) production for the solar system. Each month your energy needs and the amount of energy produced by the solar system will change. Compare your monthly needs, and the system's monthly production, to ensure the system size fits your specific needs.
Talk with your provider about how maintenance and repairs are handled. Before signing the dotted line make sure you understand the terms of the PPA agreement and your obligations to ensure a safe and productive solar system installation.
Consider the consequences of the PPA contract if you decide to sell your home. Will it be easier or harder to sell? Talk with your provider to investigate if the new buyers must qualify to assume your PPA agreement and what happens if they don’t qualify.
4. What is the difference between a lease and a power purchase agreement (PPA)?
A solar lease and solar PPA are similar in many ways, but have a few important differences.
Solar Lease vs. Solar PPA Agreement Differences
In a lease: the customer leases or “rents” the equipment and is entitled to the benefits of using the system. Some leasing companies will guarantee the minimum production of the system. If the system does not meet its production targets, the company may agree to compensate the property owner. Leases may be for a fixed price per month throughout the term of the lease, or may contain an “escalation schedule” where the monthly payment increases each year.
In a PPA: the customer agrees to buy the power generated by the system at a set price per kWh. This price may be fixed over the length of the PPA agreement or may include an “escalation schedule” where the price per kWh generated by the solar system increases at an agreed upon rate each year. The solar company estimates the production of the system installed at the residence, but only bills for the actual kilowatt hours (kWh) the system produces to offset your energy use.
5. Tax Credits
Qualifying installations may be eligible for tax credits to help offset the initial cost of solar system ownership
Federal Tax Credit: The federal tax credit is available, to the system owner, for the purchase and installation of eligible solar systems. For more information on the federal tax credit, please refer to the Go Solar California Tax Credit webpage or consult a tax professional.