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So Many Ways to Go Green: Solar System Purchase vs. Lease

Hello solar droppers! It’s time to wrap up this comparative series where we’ve been clarifying the defining features of the most prevalent ways of going solar.  We’ve talked about how Solar Power Purchase Agreements work, how SPPAs differ from system purchases, as well as how SPPAs differ from solar lease agreements.  This article will focus on purchasing your own system in comparison to leasing a system from a third party.  We’re going to keep it relatively short since both of these options have been separately described in detail in those aforementioned articles.  This article is purely for comparative purposes for those of you that are weighing your options between purchasing and leasing solar panels. Let’s start with leasing panels.  Here’s how it works: solar leases are typically contracted for 15 years or more and require little or no upfront cost associated with upgrading to solar electricity.  The price of installation is partially or entirely offset by state rebates (where available), but the leasing company that owns the panels receives the Federal Tax Incentive (which pays back 30% of the cost of the system) as well as any Renewable Energy Credits (RECs) that are associated with the system’s production.  Homeowners just make monthly payments (which can escalate annually) for the hardware, not for the electricity itself.  Solar leases aren’t standardized from company to company, so it’s important to know if the lease includes a system buy-out or prepay option, as well as maintenance, monitoring and insurance which may or may not be included in the terms of service. Before we get into the comparison between these two options, let’s review of the basics of buying your own solar system .  You’ve determined how much electricity you use annually and sized a system accordingly based off your usage and how much of your roof space is viable for photovoltaic production.  After you’ve determined all of the hardware that you need for installation, it’s time to pay for your system!  If you don’t have the capital to pay for everything up front, there are many financing options (which will be the topic of future articles) for your consideration.  After the proper permits are pulled, the system is installed.  Self-installation can save some money if you know what you’re doing, but most homeowners will have the job done by a professional installer, which will add to the upfront cost.  However, some states offer rebates that offset all or part of the cost of installation.  After installation your utility bill should be greatly reduced or eliminated (if there was enough viable roof space to replace all of your usage with solar energy), and all...

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Nitty Gritty Details

What’s the Difference Between a Solar Lease and a Solar Power Purchase Agreement? For those of you who are comparing different options for going solar, your main choices are purchasing a system as an addition to your home, buying a new or upgraded home with solar already integrated as a feature, buying your electricity utility-style through a solar power purchase agreement (SPPA), or signing up for a solar lease.  The latter two choices are very similar and require a closer look to distinguish one from the other.  (For a comparison between purchase options and SPPAs check out this article.) Sleek solar tiles from Applied Solar. To start off, it’s important to cover the basics of how both financing models work.  The SPPA option has been described in detail in this article, but for now it’s best just to cover the practical details of how these agreements function: SPPA stands for “Solar Power Purchase Agreement.” The SPPA provides the benefits of solar with little to no upfront cost (usually between 0-$2000). The agreement is usually termed for 15-20 years, and is transferable to another owner or home. A solar services provider charges a set rate per kilowatt-hour. The electrical rate can remain flat, but is more commonly contracted with a fixed annual increase of around 3%. The solar utility maintains, monitors, and insures the system over the term of the agreement. The solar utility that purchased the panels benefits from the Federal Investment Tax Credit (ITC) and any Renewable Energy Credits (RECs) that are generated. The installer (sometimes separate from the solar services provider) receives any available money from state rebates (which means the homeowner didn’t have to pay part or all of the cost of installation). Most SPPAs have options to buy the system throughout the term of the agreement or to pre-pay for all of the remaining electricity at a discounted rate while deferring the responsibilities of ownership to the solar utility. The home is always tied to the grid, so any excess electricity used beyond what the panels produce is purchased from the grid utility. Homeowners that want to pursue this option must be properly qualified with a minimum amount of monthly electricity usage, proper sun exposure and roof orientation as well as excellent credit (usually FICO 680 or better). A handy illustration of how an SPPA integrates into the grid electricity system. Next up, the solar lease has become a popular option because, like the SPPAs, homeowners don’t have to buy a system.  They just make a monthly payment and receive the benefit of clean electricity. Here’s the skinny on leases: There is commonly no upfront cost....

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To Buy or Not to Buy? Solar System Purchase Vs Power Purchase Agreement
Jun20

To Buy or Not to Buy? Solar System Purchase Vs Power Purchase Agreement

Solar System Purchase vs. Power Purchase Agreement  Long before there were any federal or state funds to help offset the initial investment of a residential solar system, installations were on the rise.  Solar adoption has increased significantly since the inception of the federal solar tax incentive in 2006, which rebates 30% of the purchase price of the system.  In 2007, the California Solar Initiative was implemented to offset all or part of the cost of installation in proportion to the system’s actual or projected performance.  With all of this support from the government, it’s no wonder that more people have gone solar in the last two years than the last twenty years combined!  A portion of these new systems were not purchased by homeowners however. Companies like Sun Run and Solar City offer the benefits of solar without the upfront cost of the system through the contracted sale of solar electricity in what is known as a solar power purchase agreement, or solar PPA.  A solar PPA brings a mini-power plant right to a home-owner’s roof, so there is no additional charge for delivery, which usually accounts for as much as 40% of an average electricity bill.  No delivery charges plus savings from federal and state rebates drive the cost down, making solar electricity rates cheaper than the majority of grid rates.  For more information on these agreements and how they work, see this informative article about SPPAs . Up until recently, homeowners have had no choice when it comes to buying power.   Customers sign up for an indefinite PPA with their local utility when they move in to a new residence and watch their electricity bills increase every year.  Now homeowners have the option to buy their own power plant and create electricity on-site or defer the ownership of the same system to a solar services provider, in which case they tack on another utility bill but potentially protect themselves from electricity rate hikes. So which option will work best for you?  That depends on several factors, including your own values in regards to ownership.  Put simply, for those who don’t have the up-front capital to invest in their own system, the SPPA may make more sense as long as the combination of their post-solar utility bill and the solar bill is less than what they were paying on the pre-solar utility bill.   If ownership is important to you, but funds are still a factor, there are financing options available which will result in a monthly payment towards the purchase of the system.   This purchase option ends up looking very similar to a system lease,...

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Solar Power Purchase Agreements

If you are looking for the benefits of solar electricity with little to no upfront cost, minimal risk, and no maintenance responsibilities, you may want to look into a Solar Power Purchase Agreement (SPPA).  The sections below begin with a short and simple summary under each heading, followed by a more in-depth explanation to aid in understanding this solar option. What is a normal Power Purchase Agreement (PPA)? A PPA is an agreement in which the customer agrees to buy electricity from a power source at a particular rate per kilowatt-hour (kWh). Everyone who buys electricity from a utility company such as PG&E or Southern California Edison enters into a PPA without much choice in the matter.  You agree to pay for the generation, transmission, and distribution of the electricity from their power plant in a tiered rate schedule per kWh for an indefinite amount of time.  Typically, these rates increase every year in proportion to the utility’s increasing costs. The Public Utilities Commission (PUC) sets a limit to how much profit these companies make every year, so their increasing costs are caused by anything from increasing salaries and pensions to making repairs caused by weather, accidents, or the aging infrastructure of the grid.  Whatever the cause of the increasing cost of electricity, homeowners have little choice but to continually pay more for what they use, or use less grid power.  The latter choice is where solar options (purchase, lease, or PPA) come in. What is a Solar Power Purchase Agreement (SPPA)? An SPPA is similar to a PPA, except that the source of power is located on the homeowner’s property, and the agreement often includes a contracted increase in rates as well as an amount of time the user agrees to purchase the power. An SPPA is an agreement in which a third-party owns, operates, and maintains the photovoltaic system, and a host customer agrees to have the system installed on their property. Homeowners simply purchase the electricity utility-style from the solar services provider for a predetermined period rather than purchasing the system itself.  This framework is referred to as the “solar services” model, and the developers who offer SPPAs are known as solar services providers.  There are several other players involved in this model. The utility company continues to provide part of the host customer’s electricity.  The equipment manufacturer provides the hardware for the system, which the installers implement and maintain.  Investors, such as US Bank, provide the capital for the equipment.  A seperate special purpose entity manages the solar electricity payments, tax benefits, depreciation, ownership and leasing between the solar services provider and investors. SPPAs enable...

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LA Solar Incentive Program and Feed-in Tariff Program

For those of you who may not know, the Los Angeles Department of Water and Power has developed a Solar Incentive Program (SIP) to support solar energy in Los Angeles. This Solar Incentive Program can help you with the cost of installing a new solar system.  The Solar Feed-in Tariff Program, which allows owners of large-scale on-grid solar systems to sell back unused energy, is currently in the works. This Solar Incentive Program was created to help meet the aim of Senate Bill 1, which is essentially an extension of the California Solar Initiative (CSI) and the Energy Commission’s New Solar Homes Partnership (NSHP).  Basically, the goal of this program is to promote solar for LADWP customers to help California reach its energy goals.  By providing a financial incentive to homeowners who install on-grid photovoltaic systems, LADWP hopes to encourage homeowners to invest in solar energy.   LADWP customers who have photovoltaic systems installed can receive a lump sum payment upfront based on the anticipated performance of their new system. To calculate an estimate of the Expected Performance Based Buydown (EPBB), LADWP’s website has an online calculator. This provides an idea of the energy production, annual kWh, CEC-AC rating, Design Factor, CSI rating, and incentive amount.  With this information, LADWP is able to figure out how much money to pay the customer upfront. There are benefits that go beyond this one-time payment.  According to the LADWP website: “Customers who qualify and complete an installation are provided with a ‘net meter’.  When a customer’s solar system produces more energy than they use, the excess energy is calculated as a credit on their bill, and their meter will run backwards.” This means that when an LADWP customer’s solar system is producing excess energy, it goes back into the grid.  The meter runs backwards and LADWP is then able to credit their customers with energy towards their electricity bill.  Conversely, LADWP is presently developing another system to promote the use of solar technology through the Solar Feed-in Tariff Program, also known as the CLEAN LA Program.  Though Solar Incentive Program customers are not qualified for the CLEAN LA Program, this particular program is designed primarily for larger-scale commercial use.  Through this Feed-in Tariff system, customers who produce 30kW and higher, can enter a contract to sell 100% of the energy produced at their facility to LADWP at a fixed rate for up to twenty years. Here’s a brief run-down of how the preliminary stages function: application process: To qualify for this program, applicants must go through a six-week application process.  Applicants provide the base price for the energy, proof of site control, and complete facility and one-line diagrams.  They...

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economic recovery act of 2009 helps you buy solar

The American Recovery and Reinvestment Act of 2009 passed earlier this year resulted in historic events for the solar power industry. But I noticed that many people out there are still not aware of the benefits. Today I want to highlight the key benefits this legislation has brought to people and organizations who choose to invest in solar panels. tax paying corporations now qualify for a 30% federal tax grant in lieu of a tax credit. A “tax grant” works similar to a rebate in which the U.S. Treasury Department will send a corporation 30% cash payment based off the final cost of the system. This is a limited time offer, only solar electric systems which commence installation before the end of 2010 will qualify. 50% bonus depreciation has been extended for corporations who install solar panels by the end of 2009 $2,000 tax credit cap has been eliminated for solar hot water systems, now solar thermal panels can qualify for the full 30% tax credit. There are many more provisions in the law that helps develop renewable energy technology, SEIA (solar energy industry association) has put together an executive summary that’s really helpful, check it out...

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