Solar Leases vs. PPAs: Understanding the Difference

Powering your home and saving money with clean solar energy can save you money and lower your bills. But if the cost to purchase and install home solar panels feels too high, it’s still possible to start with solar power at home. A solar lease or solar power purchase agreement may be the way to saving with clean power.

Before signing a long-term contract, it’s important to know the details and have all the answers you need. In this guide, we cover how to go solar with solar leases and solar power PPAs.

How Solar Leases Work

When you go solar with a solar lease, you don’t purchase the solar panels. Instead you make predictable monthly payments for the solar equipment installed at your home.

Solar leases are structured to deliver energy bill savings that exceed the cost of ongoing lease payments. As high-quality solar panels can generate power for two decades and more, a typical lease agreement is 25 years.

Solar leases typically include an annual escalator, which increases monthly payments by a fixed percentage each year. Throughout the operating lifetime of a solar lease, the system’s owner, not you, maintains responsibility for any upkeep or required maintenance and the system's eventual decommissioning.

Benefits of a solar lease

Drawbacks of a solar lease

How Solar PPAs Work

Like a lease, a solar power purchase agreement enables energy savings without requiring system ownership. While monthly lease payments are for the equipment, in a solar power PPA, you pay for the solar energy produced.

In a power purchase agreement, your monthly payment will reflect the kilowatt-hours (kWh) of solar energy your panels produce. The electricity rates you pay for the solar energy from your roof are designed to be lower than what you’d pay for the electricity from your utility. Some PPAs may look like leases with fixed monthly payments.

Like solar lease agreements, most PPAs are a 10 to 25-year commitment, and you should carefully weigh the pros and cons before proceeding with any project.

Benefits of solar PPAs

Drawbacks of solar PPAs

Comparing Solar Leases and PPAs

Both leases and PPAs can be worthwhile renewable energy projects for homeowners looking to save money on immediate and long-term electricity costs.

Head-to-head, here is how a power purchase agreement and a solar lease stack up against one another financially.

Upfront costs: None likely for either contract

Most solar PPAs and leases are signed with zero upfront costs, meaning the solar company will design and install your system without any out-of-pocket expenses.

In rare cases, you may be able to make a down payment on your solar lease or power purchase agreement to lock in even lower prices throughout your contract.

Ongoing expenses: Flat vs. variable payments

The key difference between a solar lease and a PPA is how your ongoing energy expenses will be calculated. With a lease, you pay a flat monthly rate for all of the power your panels produce, whereas with a PPA you pay for the exact quantity of solar electricity generated.

In both scenarios, you will likely pay slightly more for your solar power each consecutive year, with a fixed percentage increase every 12 months. This escalator is designed to remain below utility prices for the duration of your agreement as illustrated in the chart from the National Renewable Energy Laboratory.

Ongoing maintenance: Included in the best agreements

Although solar systems require very little ongoing maintenance, small bits of upkeep may pop up during the 20 years or more of a PPA or lease agreement. In both agreements, the solar company or a third-party developer will typically monitor your system's performance remotely and take action to remedy any damages, malfunctions, or losses in power.

Before signing your PPA or lease, it is essential to fully understand what will be covered when things go wrong. In the best-case scenario, your PPA or lease agreement will include every part replacement or labor required without any future out-of-pocket costs.

End of agreement processes: Varies by provider

Solar leases and PPAs have similar end-of-agreement processes, though terms and options vary by project owner. In some instances, you may be able to extend the terms of your agreement, buy the system outright, or simply let the contract run its course. At the end of most PPAs and leases, the developer will be on the hook to remove the system from your property without additional fees.

Property value and property taxes: Unchanged in both

Unlike when you buy a solar energy system, panels installed using a lease or PPA are less likely to increase your property value. While a purchased system would be considered an asset, panels associated with ongoing payments may not increase the value of your home for a sale or property tax assessment. The added value of a solar energy system is exempt from property taxes in 36 states.

Performance guarantees: Varies by project owner

Premium PPAs and solar leases (like the Palmetto LightReach Energy Program) often include performance guarantees to ensure your system's electric output delivers as advertised. With such a guarantee, you can be credited or compensated directly for any reduced savings from underperforming panels or broken system components.

LightReach customers are automatically enrolled in Palmetto Protect, which guarantees system performance up to 90% of expected annual power generation.

Making the Right Choice for Your Home

Your state might dictate whether a lease or PPA is available where you live. If you have decided third-party solar ownership is best for you, it’s wise to ask your installer some questions before moving ahead.

It’s also important to understand your home's energy use and expenses, both now and in the future. While electricity consumption is always variable, home additions, appliance upgrades, EV purchases, and changes in the number of residents can significantly change energy usage.

What to ask your future solar provider

Solar leases or PPAs are long-term agreements, and you want to understand the details and how your installer will handle them before entering into a contract. To help you make the best decision for your home, here are questions you can ask potential lessors or PPA project owners to guarantee your solar array is the real deal.

Ultimately, solar leases and solar PPAs are designed to do the same thing: save you money with renewable energy at home. Before signing a 10- to 25-year agreement, it is important to fully understand how your solar PPA or lease is going to work, including the financial implications.