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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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