As a writer in the solar energy space, I spend a significant amount of time reading and researching things related to the industry. As a result, my email accounts and my iPad are blowing up with ads such as:
- “Zero Down Solar Panels “
- “Install Your Solar System for Free – No Upfront Costs”
- “Arizona Will Pay You to Go Solar”
Intriguing statements, with the allure of a free solar system. But beware, these ads are typically lead capture bait. Open the ad, and your information may be sold to solar leasing companies.
We’ve prepared this article to shed light on some deceptive practices you may encounter if you’re considering renewable energy from solar. We will define and contrast solar leases and PPAs (Power Purchase Agreements). We’ll alert you to the potential pitfalls and fine print in a lease agreement or PPA, identify issues related to selling a home with a solar lease and detail the benefits of owning your solar system versus leasing. Perhaps most importantly, we will help you to identify the tactics some companies employ.
At PEP Solar, we believe an informed consumer makes our best customer. Hopefully, we will impart some knowledge to aid you in your due diligence process as you research solar for your home.
The Solar Lease and PPAs – How They Work
In a solar lease or PPA, you do not own your solar system; you are, in effect, renting your system from a solar leasing company. The terms are defined by a financial agreement with the developer who arranges for the system design, permitting, and installation of the solar energy system on your property at little to no up-front cost. In return, you receive the system’s benefits, the energy produced, for the term of the agreement.
Although a solar lease and PPA are similar, there are specific differences. In a lease situation, you lease the equipment and agree to pay a fixed monthly lease payment, predicated on the ‘estimated’ amount of electricity the system will produce. In a PPA, you neither own nor lease the system. The PPA company installs its system and sells you the energy it produces at an agreed-upon amount. In both instances, the term of the agreement is 20-25 years.
Solar Lease and PPA Agreement Terms
A solar lease or PPA Agreement is a bit more complicated than a solar loan or cash purchase. Some of the terms include:
The duration of the agreement, usually 20 – 25 years
- Maintenance, the responsibility of the leasing company; however, solar panels are low maintenance.
- Monitoring the system to ensure it is operating correctly is the leasing company’s responsibility – most leasing companies will also provide tracking data to the homeowner.
- When selling your home with a leased system, your options are to purchase the system outright or transfer the lease to the buyer.
- Buying the system, you can purchase the leasing company’s system at a price defined in your contract.
Lease termination, at the end of the term, you have options:
- Buy the system
- Renegotiate new lease terms
- Have the panels removed
Solar and PPA Terms – The Devil is in the Details
None of the above sounds particularly onerous; however, the devil is in the details, and this segment is designed to highlight those things you should be aware of before signing an agreement.
A common practice in the solar leasing space is to be sold an agreement by the leasing company, which outsources the installation to yet another company, while a third company owns the panels and equipment. We are not suggesting you are being misled or sold a sub-par system; however, as you might imagine, this scenario can lead to complications in the future.
Escalator clauses – zero upfront cost and lower initial energy expenses are enticing. Who doesn’t want to save money every month without any initial output? Lease and PPA agreements include what is known as escalator clauses – year over year increases in your rental fees based on inflated future increases from your local utility company. Leases and PPAs often have great prices in the early years of the agreement, but you could reach a point where you would be paying more than staying on your local grid over the term of your lease.
Rebates, federal and state tax incentives, and other rebates accrue to the system owner, and remember, in a lease or PPA, you do not own the system. Understand what you are giving up in a lease scenario.
Loss of control – the developer is responsible for system design – on your roof. Further, some leasing companies will place a lien or other encumbrance on your home to ensure compliance with the agreement’s terms.
Terminating a lease or PPA agreement is not a viable option. You will be expected to pay the system’s full price (without the benefit of tax breaks), as indicated in the agreement or the value of the balance of the contract.
Selling your home with a leased solar system can be challenging. Some buyers are reluctant to engage when a lease is involved. Your options are 1. Purchase the system before putting your house on the market, 2. Buy-out the balance of the lease and have the system removed, 3. Transfer the lease to the new homeowner.
Solar and PPA Sales Techniques – How to Spot a Less than Favorable Situation
We all know to beware when a sales pitch simply sounds too good to be true. Below are some “tells” that indicate you should proceed with caution:
- Whenever your point of contact emphasizes “free solar.” Even with the dramatic reduction in the cost of solar over the past ten years and federal and state rebates, the average price of a 6-kW solar panel system in Arizona is $14,811 – $16,498. Obviously, someone is paying for that installation – and solar leasing companies are not non-profit organizations.
- When your point of contact avoids your questions related to your installation cost on a dollar per watt basis.
- When your point of contact is always closing – attempting to rush your decision.
- When you hear that one solar panel is the same as the next, or your contact is evasive when you ask questions about panel and inverter brands.
Solar and PPA Agreements – Pertinent Questions to Ask
Regardless of the payment method you choose, cash purchase, solar loan, or lease/PPA, renewable energy is an investment. As part of your lease/PPA due diligence, several pertinent questions should be asked:
- What brand solar panels and inverter does your installer intend to use on your system?
- What is the proposed rate of any escalator clause? How does that rate compare to historical trends?
- Have all rebates, tax exemptions, incentives been calculated in the cost of your system?
- What is the cost of the installation per watt? In the example above of a typical Arizona installation, the cost per watt is between $2.58 and $2.80. Anything significantly above this should be a red flag.
- What protections do you have if the leasing company should go out of business – a not uncommon occurrence in today’s solar environment.
Benefits of Owning Your Solar Energy System
People who lease their solar systems save far less than those who buy them outright or with a loan. Owning your system is the only way to access all the benefits of solar:
- Earn All Tax Breaks, Rebates, and Other Incentives
- Maximize Your Energy Savings
- Increase Your Home Equity – Even if your installation only reduces your monthly power bill by $80, that still translates to a $20,000 increase in your home’s resale price.
- Sell Your Home More Easily – Today’s shoppers expect renewable energy.
- Save the Maximum Amount of Money
Buying your solar PV system generates a significantly better lifetime return on investment, making it a wiser financial decision. If you contemplate selling your home in the future, the benefits of owning your system automatically accrue to the new owners, and they do not have to be qualified by a leasing company or make regular payments.
PEP Solar Since 1978
We hope this article has been informative and increases your consideration of solar energy. We are a full-service solar company and have been installing, servicing, inspecting, and repairing solar for homeowners and businesses in Arizona since 1978. Our mission is to provide complete solar power solutions that perform beyond your expectations for your system’s life.
And, if you’re still considering a lease or PPA to save on your electric bill, we offer one last bit of savvy advice … instead, consider buying a new high-efficiency HVAC system. Your savings will be more significant, and PEP Solar can even roll the cost of a new HVAC system into your solar loan.
At PEP Solar, we partner with the best in class solar manufacturers to deliver your best solar solution. Let us design and install your system using the best products and panels in the solar energy market.
We can help you become a “prosumer,” a homeowner who produces and consumes solar energy using the latest residential solar technologies.
For more expert information on all things solar, visit us online at pepsolar.com or contact us at: (623)806-8806 .
When you Own Your Solar, you obtain all the benefits.