Have you ever wondered if owning solar panels is really the best way to go solar?
When people hear about solar PPAs (Power Purchase Agreements), they often start asking questions like, “Is owning solar panels the only way to go?” They might search for “solar PPA vs ownership” and come across articles that only scratch the surface.
These articles are often from websites that focus more on capturing leads than giving you the full story.
While owning solar panels outright can offer the biggest long-term savings, it doesn’t mean that solar PPAs are a bad option.
I’m here to clear up some of the confusion and show you why you don’t always need to own your solar panels to benefit from solar energy.
In this article, I aim to offer a more nuanced understanding of solar PPAs. I also aim to debunk some of the most common misconceptions discussed by popular lead-capturing blogs.
Here’s what you’ll learn:
- Why solar PPA’s are a viable option
- When a solar PPA would not be right for you
- Side by side comparison of Solar Ownership vs. Solar PPA
- Solar Ownership vs Solar PPA Pros and Cons
- Common solar PPA misconceptions
Why solar PPA’s are a viable option despite popular belief
In the most purest form, solar PPA’s are a viable option because they allow a homeowner to receive the benefits of transitioning to solar energy without having to spend any NEW money. As a pure financial standpoint, it offers the most immediate savings. Let me explain:
What I mean by “without having to spend any NEW money” is that if you decide to purchase your solar system outright with cash, you are essentially cutting a check and parting with your money.
There is nothing inherently wrong with this, you just have to be in some sort of significant cash position since solar systems start at around $20,000 before incentives. As a return on investment stand point, it is one of the best financial decisions you can ever do for your home.
When you go solar via a lease or PPA, the money that you are using to pay for the solar system is money that you are already spending. It’s money you are already giving to your utility company to keep your lights and A/C on.
Let’s look at a typical solar lease/PPA example:
Your current electric bill: $150 / month
Energy offset from solar = 75%
New (left over electric bill) = $37.50 / month
Monthly solar payment = $85 / month
Total new cost of electricity = $122.50 (solar + left over electric bill) / month
Cost of installation = $0 (if homeowner passes credit)
Monthly savings = $27.50 / month (year one)
The example above is quite common and actually pretty conservative.
As you can see, no new money was spent to acquire this solar system. This is not only true for solar PPA’s and leases but also when you finance solar. It’s quite literally pure savings. As utility companies continue to increase their customers electric bills, your yearly savings continues to increase, resulting in tens of thousands of dollars of savings over the long term.
Ultimately, whether you decide to cash purchase your solar, lease, PPA, or finance it, it all depends on your goals. But either option should, and in 99% of call cases, would be better then your current arrangement with your utility provider.
The question shouldn’t be whether or not you should go solar, it’s HOW you should go solar. And that will depend on your personal goals and personal finances.
When a solar PPA would not be right for you
Because a solar PPA offers very flexible terms, there really aren’t too many scenarios in which a PPA or lease wouldn’t make sense for almost anybody.
The way most PPA’s and leases are structured removes a lot of the perceived roadblocks that would prevent someone from going solar. We will discuss those perceived roadblocks or common misconceptions later in this article.
However, with that said, here is what I believe are the scenarios that would prevent a solar PPA or lease to be the best option for you:
- You have enough cash to invest in a solar system (consult your financial advisor first).
- The solar PPA option has an annual escalator above 4.5%.
- Your utility’s electric rates are lower than the available solar PPA rate.
If you meet or are facing anyone of these scenarios, then it would be best to explore a cash purchase or a solar loan (finance). For more information on exactly how a solar PPA works, please visit our article on that here: What Is a Solar PPA? Pros, Cons, and an Honest Opinion
Now let’s look at a side by side comparison outlining both the benefits, features and drawbacks between a solar ownership vs. solar PPA.
Side by side comparison of Solar Ownership vs. Solar PPA
Solar Ownership vs. Solar PPA Comparison
| Criteria | Solar Ownership | Solar PPA |
|---|---|---|
| Initial Cost | High upfront cost | No upfront cost |
| Long-term Savings | More long-term savings | Less overall savings |
| System Ownership | You own the system when you pay cash | You have the option to buy at any time |
| Tax Credit | You get a 30% tax credit of the value of the solar project next tax year | You don’t get a 30% tax credit, but you get the benefit indirectly by receiving a solar system with no down payment |
| State Incentives | You have to facilitate state incentives yourself | Incentives are automatically applied and reflected in the monthly payment |
| Home Sale | You can sell the home; no extra steps | You can sell the home with one extra step for PPA agreement transfer |
| Warranty | 25-year production warranty | 25-year production warranty and money-back guarantee |
| Maintenance Responsibility | Fully responsible for maintenance | Maintenance is covered by the PPA provider |
| Monthly Payment | No monthly payment after purchase | There is a monthly payment |
| NEM Benefits | Both allow for Net Energy Metering (NEM) benefits, where excess power is stored as credits by your utility company | Both allow for Net Energy Metering (NEM) benefits, where excess power is stored as credits by your utility company |
| Power Ownership | You own all the power generated | You own all the power generated |
| Equipment | Both provide the same exact equipment and power | Both provide the same exact equipment and power |
| Financial Flexibility | Requires a large upfront investment | Keeps all your money in the bank |
| Best for | Those in a comfortable cash position to invest in a solar system | Those who do not want to spend any money upfront |
Solar Ownership vs. Solar PPA: Pros and Cons
Solar Ownership
Pros:
- Greater long-term savings
- You own the system outright
- Eligible for a 30% tax credit next tax year
- Higher resale value potential for your home
- No monthly payments after purchase
- 25-year production warranty
- You own all the power generated
- Eligible for NEM benefits
Cons:
- High upfront cost
- Responsible for maintenance
- Must facilitate state incentives yourself
- Requires substantial cash position
Solar PPA
Pros:
- No upfront cost
- Option to buy the system at any time
- Maintenance covered by PPA provider
- State incentives automatically reflected in monthly payments
- Keeps all your money in the bank
- 25-year production warranty and money-back guarantee
- You own all the power generated
- Eligible for NEM benefits
Cons:
- Less overall savings compared to ownership
- No direct 30% tax credit, but benefit indirectly through no down payment
- Monthly payments required
- Extra step needed when selling a home with a PPA agreement
Common solar PPA misconceptions
If you’ve gone this far into the article, at this point you would know that buying a solar system outright with cash can save you the most in the long run. However, this doesn’t mean that PPAs and leases should be dismissed simply because they don’t involve ownership.
Below are some commonly discussed solar PPA and lease drawbacks on popular blogs such as Marketwatch, SolarReviews, CNET, and EnergySage.
- “You will never own your system under a solar lease unless you buy out the contract.”
- “Since you do not own a leased system, you cannot claim certain solar incentives. For example, the company that owns the system will be able to claim the federal solar tax credit, but you cannot.”
- “Lease payments consume a large chunk of your monthly budget. In the long run, you can save a few thousand additional dollars with a cash purchase or a solar loan.”
- “Selling your home while you have an active solar lease is sometimes difficult because you must find a buyer willing to assume the remaining monthly payments.”
Leasing a solar system is actually the most popular way folks are going solar in the U.S. right now. So, why all the negative press on not owning your panels?
Let’s debunk each one of these common lease and PPA talking points and look at the actual facts of owing your solar vs. renting your solar.
1. “You won’t own your system with a solar lease unless you buy out the contract”
This is correct. You will never own your system unless you buy out the contract.
The question you have to ask yourself, and the question I have been asking myself and challenging for the near 10 years I’ve been in the industry, is, “what are the actual benefits of owing the panels?”
If you really think about this question, it is actually quite difficult to come up with an obvious answer that would make owning outright better than renting.
It is true that owning your solar system or purchasing outright, will save you more money rather than renting the solar equipment over the course of 25 years (warranty period).
However, once you purchase the solar equipment, you are no longer covered in the event that your system stopped working. You would be on the hook for any electric bills you’ve received from the utility company.
I’m not suggesting this happens often, but with a lease or PPA, you gain the peace of mind that if your system stops performing for any reason, the solar company is contractually obligated to cover any additional electric bills you incur. This reassurance is valuable to many homeowners who prefer not to own the panels themselves.
If you don’t have the funds for a $40,000 solar system upfront, a PPA or lease is an excellent option. You can enjoy all the benefits of solar energy without any initial investment. While long-term savings may not match those of owning a system outright, a lease or PPA immediately reduces your electricity costs each month.
Choosing to let the solar company handle the full responsibility of the system is appealing for those who prefer a hands-off approach. In such cases, owning the solar system may not be the most suitable choice.
2. “If you lease a system instead of owning it, you can’t claim certain solar incentives”
True. Somewhat. Claim the federal tax credit? No. Claim state incentives? Yes. Although with a lease or PPA, you don’t necessarily claim the state incentives, it is automatically applied to the monthly payment for you, making it another reason for the growing popularity of a lease.
Some states make the claiming of the incentives a bit challenging and cumbersome. With a lease or PPA, the state credits are automatically applied, lowering your monthly payment making that payment more attractive.
The federal tax credit is typically applied for by the solar company and is what they use to install the equipment for you at no cost out of pocket.
If the goal is to lessen your tax burden for the year, then cash would do that for you because you can claim the solar tax credit directly. But again, you would need to be in a substantial cash position to do so.
3. “Lease payments consume a large chunk of your monthly budget”
This argument doesn’t really make much sense. The reason is you already have a budget for electricity.
If you have a monthly electric bill, you already have an idea of what your monthly electricity budget is.
A solar lease or PPA would replace your current electric bill with a lower one. It is money you are already spending. So this is a pretty silly statement.
4. “Selling your home while you have an active solar lease is sometimes difficult because you must find a buyer willing to assume the remaining monthly payments”
This is sometimes true. Some buyers may prefer not to take on a solar payment. They might opt for a home without solar and accept higher electricity bills instead.
However, there are also buyers eager to benefit from lower, fixed electricity costs through a solar lease or PPA.
Typically, for every one person uninterested in a solar-equipped home, there are many others who are. Fortunately, current lease and PPA agreements often include the option to buy out the system when selling the home, which is straightforward and common practice.
This option effectively addresses concerns about selling a home with a solar lease. Additionally, the buyout cost after five years is usually half the cost of purchasing a new solar system outright. This represents a discount for homeowners.
We offer a calculator that determines the fair market value and buyout cost of your leased solar system from year five to twenty-five. This tool provides valuable insights. If you’re interested, feel free to schedule a virtual consultation with one of our energy consultants to explore this further
Why “solar review” sites fall short?
It’s no wonder that many of the so-called “trusted voices” on the internet often provide only partial insights and very surface level details on solar options.
Their main objective revolves around capturing leads from homeowners interested in receiving quotes, rather than delving into the nuanced realities of different solar solutions.
While these websites maintain credibility within their specific domain, it’s important to recognize that they primarily focus on lead generation platforms rather than comprehensive sources of solar expertise.
Conclusion:
Purchasing a solar system outright with cash offers significant benefits to homeowners, including a substantial reduction in tax liability for that year and greater long-term savings on electricity costs. Of course, this option requires having the necessary funds available.
If you don’t have the upfront cash, there are various programs designed to help homeowners access the advantages of solar energy through alternative means. It’s crucial for websites discussing these options to present them transparently and without bias.
Remember, whichever route you take, solar will always cost less than what you are currently spending on your utility bills.
Ultimately, the decision to own solar panels boils down to your specific needs and the advantages that matter most to you. For personalized clarity and guidance on finding the best fit, we encourage you to schedule a virtual consultation with one of our solar experts.
