Solar Energy Companies’ Residential Financing Options

    To Own, Or Not to Own?

    If you are a homeowner wishing to invest in a solar electric system, you will find a variety of purchase and finance options available in the market.  You can pay cash or use traditional debt vehicles such as home equity loans and lines of credit, in which case, you retain ownership of the photovoltaic system.  Residential Power Purchase Agreements (PPAs) and leases are financing solutions that reduce the upfront capital costs of solar by essentially amortizing the cost over periods of 15 years or more.  That’s nice, but you don’t own the system.   The best purchase option for you depends on your financial situation and investment criteria.

    Below, we’ve provided a brief explanation of the pros and cons of PPAs and leases, which are provided by the various different solar energy companies out there.

    PPA

    In this type of arrangement, a PPA provider installs a PV system on your home, and you enter into a long-term contract to purchase solar electricity generated by the system from the PPA provider.  Under a PPA:

    Pros:

    • PPA offers a low (typically $0 to $1000), up-front cost.
    • PPA provider charges a fixed electricity rate, typically 10 to 15% less than your current average electricity rate, and the PPA rate increases by a set annual escalation rate
    • The agreement is transferable to a new owner or home
    • The PPA company takes care of maintenance and monitoring of the PV system
    • You usually have some kind of option to buy later or at the end of the agreement for a set price

    Cons:

    • You do not own the solar system
    • You do not benefit from property value appreciation since you don’t own the system.  Rather, the PPA creates an inherent liability
    • You’re locked into a 15 to 18-year power purchase agreement
    • Should you decide to move, the marketability of a PPA to potential homebuyers is questionable
    • You don’t get any tax benefits or State rebates or Renewable Energy Credits (RECs).
    • You must have an excellent credit rating to qualify

    Lease

    A lease is similar to a PPA in that the lease provider installs and owns a PV system on your home, and you enter into a long-term contract with the leasing company.  The main difference is that lease payments are fixed, whereas under a PPA, your monthly payments vary based on actual system production.  Under a lease:

    Pros

    • Lease offers a low (typically $0 to $1000), up-front cost.
    • Lease is transferable to a new owner or home
    • Leasing company charges a monthly payment that is usually less than or equal to your expected utility savings, and the lease payment increases by a set annual escalation rate
    • Most leasing companies take care of system maintenance and monitoring
    • Like PPA’s, you have an option to buy later or at the end of your term for a set residual price

    Cons

    • You do not own the solar system
    • You do not benefit from property value appreciation since you don’t own the system
    • You’re locked into a lease agreement for 10 years or more
    • You don’t get tax benefits or rebates or Renewable Energy Credits (RECs)
    • You must have excellent credit rating to qualify

    Cash Purchase

    Pros:

    Cons:

    • High initial capital outlay

    Purchase w/Traditional Debt Financing

    Pros:

    Cons:

    • You increase your personal debt load

    So, bottom line:

    You have several choices in deciding how to invest in solar power systems.  And each option has its pros and cons.  The final decision on how you will fund your solar investment really depends on your unique financial situation and goals.  Here at SunGreen, we can help you to sort through the various options and find the method best suited to your needs.