Solar Lease vs Power Purchase Agreement

What's the Real Difference?

Let's cut through the jargon. When comparing solar lease and power purchase agreements, it's kind of like renting an apartment versus paying for takeout every night. One gives you temporary access, the other delivers immediate benefits without ownership. But wait, no—that analogy doesn't quite capture the 20-year commitment these contracts demand.

In reality, a solar lease means you're paying fixed monthly rates to use equipment owned by someone else. Meanwhile, a PPA (power purchase agreement) charges you per kilowatt-hour produced—picture paying for electricity at 12¢/kWh instead of your utility's 18¢ rate. Now here's the kicker: 63% of U.S. residential solar adopters chose one of these options last year, according to Wood Mackenzie data. Why? Because upfront cash costs for ownership averaged $15,000-$25,000.

Why California Homeowners Keep Choosing PPA

Take the Johnson family in San Diego. They signed a 25-year PPA in 2022, locking in 9.8¢/kWh rates. When SDG&E rates jumped 13% this January, their neighbors' bills ballooned while the Johnsons saved $112/month. But here's the rub—they can't claim the 30% federal tax credit because they don't own the panels. The solar company keeps that incentive, which partly funds their lower rates.

Compare that to a solar lease scenario. Maria Gonzales in Phoenix pays $149/month regardless of system performance. When monsoons hit last August, her panels underproduced by 40%, but she still paid the full lease amount. However, she sleeps easier knowing her contract includes free maintenance—a perk most PPAs don't offer.

The Tax Credit Trap Nobody Warns You About

You've probably heard the sales pitch: "Go solar with no money down!" What they don't mention? The IRS considers leased systems as third-party owned, making you ineligible for the Investment Tax Credit (ITC). This year's 30% credit could slash $7,500 off a $25,000 system—money that stays in your pocket only if you own the equipment outright or through a loan.

But here's the twist: Some states like Massachusetts allow virtual net metering for leased systems. Imagine your panels overproduce in summer, and the utility credits your winter gas bill. This hybrid approach might offset the ITC loss for certain users. Still, it's a gamble—utility rates and policies change faster than lease terms.

Will Your Deal Survive the 2025 Policy Shifts?

As we approach 2025, three big changes loom:

1. The federal ITC drops to 26% for owned systems
2. New FERC rules may alter net metering payouts
3. California's NEM 3.0 already slashed solar export credits by 75%

If you're considering a solar lease, ask about production guarantees. A good contract should cover underperformance penalties. For PPAs

Quick Answers

Q: Which option works better for someone with bad credit?
A: Leases often have lower credit score requirements (650+ vs 700+ for PPAs in most states).

Q: Can I remove panels if I sell my house?
A: With leases, you typically transfer the contract. PPAs? New buyers must qualify—a deal-breaker in 22% of home sales according to SolarReviews.

Q: Who handles hail damage repairs?
A: Lessors usually cover it. PPA providers might charge deductibles—read Section 8(b) of your contract.

Solar Lease vs Power Purchase Agreement [PDF]

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