Advertisements touting "Solar at NO COST", "Free Solar!", and "INSTALLATION WITH NO UPFRONT COST" have become more popular in the solar industry--there are dozens of billboards and salespeople touting these exact things here in Utah, not to mention the rest of the country.
Solar can be expensive, and getting it for free almost sounds to good to be true. Unfortunately, it almost always is: what these ads refer to are solar leases or Power Purchase Agreements (PPAs).
At Project Solar, we sell all our systems directly--no leases or PPAs. This article will explore why.
How Leases & PPAs Work
With both of these types of projects, the solar provider owns the solar equipment and charges the homeowner a monthly payment (hence, the low/no upfront cost that is commonly advertised).
However, the monthly payment is calculated differently depending on whether the system is part of a lease or a PPA.
Solar leases can be pretty similar to purchased systems--however, instead of paying a monthly loan payment or paying for the system outright, customers pay a monthly "rent" to use the solar system.
Power Purchase Agreements
Conversely, PPA customers will pay for the energy the system produces at a fixed price per kWh. This is why it's called a "Power Purchase Agreement": you're purchasing the produced power, rather than the system itself.
There are many negatives to leases and PPAs, particularly when you compare them to purchased systems:
- Tax Credit Eligibility
If you decide to go with a PPA/lease, you will not own your equipment or the power it produces--the solar company will. Since only the owner of the system can claim the 30% Solar Federal Tax Credit, the solar provider will receive this credit, not the customer.
This can similarly affect state and local incentive eligibility as well.
Project Solar does not offer tax advice, and we always recommend speaking with a tax professional for the full information on incentives. To learn more about the Federal Tax Credit, check out this article on the subject, or this page from the Office of Energy Efficiency & Renewable Energy's website.
- Multiple Utility Bills & Raised Rates
As outlined above, PPAs will require you to purchase your solar system's energy at a set price per kWh. In many cases, the solar provider will even charge you for the excess energy that the system produces and sent back into the grid.
Most PPAs offer solar energy at a price that is around 10-20% cheaper in comparison to pre-solar utility rates.
For context, a customer paying their utility $0.15 per kWh could save 1-3 cents per kWh. Assuming 10,000kWh are used yearly, this is a yearly savings of approximately $100-$300.
However, this only applies to the energy that you purchase from the solar provider (i.e., the energy that the system produces). You're also responsible for paying the utility company for any energy that you've used from the grid, which means that you'll essentially have two utility bills.
If you're using a lot of electricity in the evenings, you may still pay your power company a significant amount.
Because of these factors, both your PPA payment and your utility bill will depend on exactly how much money you use per month. This issue is compounded by the fact that many PPA agreements will have annual increases in the price per kWh.
By comparison, a solar loan payment is a more secure option, as the amount due won't change from month to month.
- Home Value
Studies have shown correlations between solar and increased home value. In particular, one study from Lawrence Berkeley National Laboratory found that adding solar to your home will increase its value by an average $15,000.
Unfortunately, this is not the same for leases/PPAs: since your solar company owns the system, it won't increase your home value.
These systems can even negatively affect your home's value and make it more difficult to sell.
If you're selling a home with a leased system or PPA attached to it, there are typically three courses of action one could take to handle the existing agreement (though none of them are ideal).
Most companies will recommend finding a buyer that is willing to assume the existing lease/PPA. This generally involves additional negotiations between the seller, the buyer, the real estate agent, and the solar company.
Some companies will allow you to pay off the system--an option that could be avoided by purchasing the system in the first place.
The last option would be to cancel the agreement and have the system removed. However, there are usually high fees associated with this, and it can leave your home damaged in some cases, which is why more customers end up simply paying the system off.
All of these issues combined mean a much lower overall return on investment (ROI).
Project Solar does not offer or recommend leases & Power Purchase Agreements.
Purchasing a solar system is much more cost effective than these types of projects, as you own your system and all the power it produces. This aligns with our ROI-centric values.
Purchased solar systems will pay themselves off within 5-10 years on average, while solar leases and PPAs require monthly payments for up to 25 years.
After the initial PPA or leasing agreement ends, most solar companies will suggest purchasing the solar system and present a price to the customer--however, by the time you pay this price and 20+ years of monthly payments, you've almost certainly spent more than you would by simply purchasing the solar system originally.
Not owning your solar has other consequences as well: PPAs and leases affect your ability to claim the 30% Federal Solar Investment Tax Credit, and they can make your home more difficult to sell.
If low upfront cost is a priority for you, we'd advise financing your project. This way, your system can pay itself off over time, and you still own your equipment.
Still, a lease or PPA may be your only option if you want to go solar but you are are not eligible for the 30% Federal Tax Credit, you are unable to purchase a system outright, and/or you are unable to secure financing for the project.
If this is the case for you, we'd recommend shopping around EnergySage for a reputable company. Be sure to read your agreement carefully, obtain multiple quotes, and compare policies.
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