What’s the Difference Between Solar Loans, Solar Leases and PPA's?

May 17, 2019
What’s the Difference Between Solar Loans, Solar Leases and PPA's?

There are many different ways to finance a solar photovoltaic (PV) installation. As a homeowner, you may feel overwhelmed by some of the confusing information out there. But because going solar is a substantial investment, it’s important that you understand how each financing option works. Doing so ensures that you receive the highest savings from your clean power investment.

The good news is that the most popular solar financing options share many similarities – whether you’re exploring solar loans or power purchase agreements (PPA’s). We’ll talk about solar leases later, which commonly get misconstrued with PPA’s.

In all 3 cases:

  • You pay little to nothing upfront when commissioning a new installation on your rooftop.
  • The solar electricity you receive is priced lower than utility power, meaning you save money every month.
  • To qualify for these financing options, you have to undergo credit and background checks.

Despite the similarities between solar leases, solar loans, and PPA’s, however, there are crucial differences between how these financing options work.


Let’s dive into a little more detail.

PPA’s (and Solar Leases) at a Glance

With a Power Purchase Agreement, you pay for the clean solar electricity your PV system generates – at a lower cost per kilowatt-hour (kWh). As such, you enjoy immediate utility bill savings every month.

Many in the industry use the terms “PPA’s” and “solar leases” interchangeably. But there are some crucial differences to how these 2 financing options work:

  • With a standard solar lease, you essentially “rent” the panels on your rooftop. And you pay roughly the same amount every month – no matter how much solar energy is generated.
  • We actually don’t prefer this method of financing and don’t even offer it as an option since we believe the PPA is a better option for our customers.
  • With a standard PPA, you only pay for the clean electricity you actually use and your solar panels come with a production guarantee.
  • We prefer solar PPA’s and this is a popular option for our customers.

Here’s an example of how the PPA’s work here at Bright Planet Consulting.

  • With our PPA’s (through sunrun), you pay $0 down, meaning it costs you nothing to get started. You may run into other PPA options that require an upfront cost.
  • You receive a production guarantee that includes repairs, monitoring, maintenance, and even insurance.

On average, homeowners who choose our PPA option enjoy about 40% savings. With this PPA, you have the option of either:

  • Starting with the lowest possible price per kWh with the understanding that you’ll pay an annual price escalator of 2.9% – to keep pace with inflation.
  • Locking in the current Tier-1 utility rate, but never having that price change throughout the duration of your 25-year PPA agreement.

Agreements typically last anywhere from 10 to 25 years. Once the contract ends, you have the option of either:

  • Extending the agreement a little longer
  • Buying the solar PV system outright
  • Having the panels removed (for free)

Solar Loans at a Glance

Unlike solar PPA’s, you do not face the potential of annual price escalators, and you’re able to receive the 30% Federal Tax credit.

  • To take full advantage of the 30% Federal ITC, you must install before January 1, 2020 as it will reduce to 26%. Read more about it here.

Solar loans are similar to other loans (cars, academic, etc.) With a loan, you:

  • Own the solar system on your roof
  • Receive any rebates associated with the installation and energy production
  • Will have a monthly loan payment
  • This payment will be lower than your electricity bill
  • As time goes on and the cost of electricity increases, so will your savings

A Solar Loan Example With Our Preferred Financier

To give you more insight into how solar loans work, we’ll use our preferred solar loan provider, Sunlight Financial, as an example.

With Sunlight Financial’s exclusive solar loans, you get:

  • 10, 12, 15, and 20-year options
  • Financing rates of 2.99% - 4.99%, depending on the term selected
  • You can qualify for up to $70,000 of financing with a credit score of 650+ or up to $100,000 with a credit score of 700+
  • Go solar for $0 down
  • No pre-payment penalties
  • Immediate savings

So, Which is Better?

Each of the options in this article:

  • Allow you to go solar for $0 down (or close to it)
  • Help you save money
  • Offer same carbon savings

But, for some solar installers, there exists an incentive to install more capacity than the customer really needs. So they may suggest one financing type over the other.

Why?

A larger system means more money – even if the end-user doesn’t need that many panels

At Bright Planet Consulting, we work with you one-on-one to ensure your system is the proper size for you now, and in the future. Not too big, and not too small.

At the end of the day, your solar financing decision should depend on your goals.

If you’d like to discuss which option would fit you best, please book a free, no obligation in-home consultation with us. We’ll discuss past energy usage as well as predictions for the future to determine which solution makes the most sense for you.

Click here to book your free consultation.

Added Bonus! Install Solar by July 1st, 2019 and Receive a $1,000 Pre-Paid Cash Card!


To compare solar financing options and see how much you can save, use our solar calculator below.

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Paul was the main sales contact for the SunRun solar power system. From the beginning, he was polite, helpful and diligent in answering my questions on the solar power concept.
Joe D.
,
Cupertino