What is a solar lease or PPA?

Exploring Solar Leasing and Power-Purchase Agreements

Curious about solar leasing or a solar power-purchase agreement (PPA)? These financing options allow customers to spread the cost of their solar power system over several years rather than making an upfront payment. Many find that they can adopt solar with minimal or no initial expenses and start enjoying immediate energy savings.

In a power-purchase agreement, customers commit to purchasing all the energy generated by a solar system over a fixed period. On the other hand, a solar lease involves a customer entering into an agreement with an installer/developer, paying for the solar energy system over an extended period, ranging from years to decades.

Third-party financing in solar primarily revolves around two models: power purchase agreements (PPAs) and solar leases.

In the PPA model, an installer/developer constructs a solar energy system on the customer’s property at no upfront cost. This system offsets the customer’s electricity bill, and the developer sells the generated power to the customer at a fixed rate, typically lower than the local utility. At the PPA contract’s conclusion, property owners may choose to extend the contract and even acquire the solar energy system from the developer.

In the lease model, customers sign a contract with an installer/developer and make payments for the solar energy system over an extended period. This financing structure allows flexibility in terms of upfront costs – customers can opt for no initial expenses, cover a portion of the system cost, or even purchase the system before the lease term concludes. Similar leasing structures are commonplace in various industries, including automobiles and office equipment.”