Solar Lease vs. PPA: What's the Difference?

Solar lease vs. PPA: what's the difference?

A solar lease and a power purchase agreement (PPA) are the two ways to get solar on your roof without buying the system. In both, a solar company designs, installs, owns and maintains the panels. You get the power and a lower electric bill, usually with little or nothing up front.

The difference comes down to one line: with a lease you pay to use the equipment; with a PPA you pay for the electricity it makes. Everything else, from how your bill looks each month to who absorbs a cloudy year, follows from that.

If you're still deciding whether to own the system at all, start with is it better to buy or lease solar panels. This article picks up once you've narrowed it to the two company-owned options. Evergreen Solar offers both, plus prepaid versions, so you can see them priced on the same system.

The two share a lot. Neither needs a loan or a tax bill to benefit from the federal credit, neither leaves you responsible for repairs, and both let you start saving on your first bill. That's why the choice between them is usually about how you like to pay, not about the panels.

How do you pay with a solar lease vs. a PPA?

A lease sets a monthly payment when you sign. It's the same in July as in January, so it's easy to plan around. Some leases stay flat for the whole term; others rise by a set amount each year. Our page on solar panel leasing covers how a lease works day to day.

A PPA sets a rate per kilowatt-hour. Each month the company reads the system's production and bills you for it. Long summer days mean a higher solar bill and short winter days a lower one, and over a full year you pay for exactly what the panels delivered. Our guide to what a solar PPA is walks through the billing.

With either one, you keep your utility account. You draw from the grid at night, and net metering credits for extra power your panels send to the grid land on your utility bill. The goal is the same: your solar payment plus a much smaller utility bill should come in below what you paid the utility before.

The practical difference is who carries the production risk. With a lease, the company has priced in how much the system should make, and your payment doesn't move if it makes a little less. With a PPA, a cloudy year simply means a smaller solar bill.

Both can include an escalator, a set increase in the payment or rate each year. A flat agreement and one with an escalator can start at different prices, so compare them on the same footing: ask for the payment or rate in year one and in the final year, and the total over the full term. A lower starting price with a steeper increase can end up costing more than a flat one that starts a little higher.

How do a lease and a PPA compare side by side?

Here are the points homeowners ask about most, including the prepaid versions of each.

A prepaid version replaces the monthly bill with a single payment for the power the system is expected to make over the agreement. It suits homeowners who have the cash and want ownership-like savings without managing the equipment. Read more in how prepaid PPAs and leases work.

How does the federal credit help with a lease or a PPA?

Both options carry the value of the 30% federal clean electricity investment credit under section 48E of the tax code. You see that value as a discounted lease payment or a discounted PPA rate, which is often a better deal than buying the same system yourself. There is no form to file and no tax bill needed to benefit, because the company that owns the system handles the credit.

The discount can grow. A system in a federal energy community qualifies for 10 more percentage points, and one built with enough U.S.-made equipment can qualify for another 10. In Massachusetts, SMART 3.0 payments for the power the system produces also help lower your price. Ask how each incentive shows up in the payment or rate you're quoted.

What happens when you sell, buy out or reach the end of the term?

Leases and PPAs are more flexible than many homeowners expect, and they work much the same way here.

• Selling your home. A qualified buyer can take over either contract after the company approves their credit, or you can buy it out at closing. A lease's fixed payment is simple for a buyer to understand; for a PPA, share the production history and recent solar bills. Buyers can read buying a house with solar panels.
• Buyouts. Most contracts include a buyout schedule that lets you purchase the system partway through. Evergreen Solar's prepaid PPA includes an option to buy the system after five years.
• The end of the term. Both usually let you renew, buy the system or have it removed.

Planning to move someday? Here's what happens to a lease or PPA when you sell, and how buyers take one over.

Which is better, a solar lease or a PPA?

Neither is better for every home. Pick the one that matches what you care about most.

• Choose a lease if you want the same payment every month and the simplest budget, and you don't want to think about seasonal swings.
• Choose a PPA if you like paying only for the power you get, so a cloudy stretch costs you less.
• Choose a prepaid version if you have the cash and want no monthly solar bill at all.

Then compare offers on the same system: the starting payment or rate, whether it rises each year, the term, the production estimate, and the buyout schedule. Look at the total over the full term, not just the first bill.

Think about how long you plan to stay, too. Both agreements usually run 20 to 25 years, and both transfer to a buyer, so moving doesn't rule either one out. If a sale is likely in the next few years, a prepaid version or a clear buyout schedule makes the closing simplest. For the full set of options, including owning, see our guide to solar financing.

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