The modern crystalline solar cell has been around for roughly 50 years. With advances in module and manufacturing efficiency, as well as, an ever increasing global demand, prices for solar equipment has dropped greatly; most significantly in the last 10 years. Even though solar electric systems are more affordable now than ever, the average American is used to purchasing their power monthly, and the idea of buying 25 years of electricity all at once can prove to be an intimidating concept (no matter how great the potential savings may be). Government incentives have helped a lot to relieve some of the upfront cost to invest in solar, but that still leaves about 30% – 70% of the total cost of the system.
As a way to create a no upfront cost solar option (much like people are used to with cars and other expensive purchases), several financing structures have been created over the past few years, mainly: Power Purchase Agreements (PPAs), solar equipment leases, and solar loan programs. While the three have many similarities, there are several details that set them apart in how they function.
The solar lease has become the most popular way for homeowners to get started with solar. Depending on what the local incentives are, and the local price for utility electricity, there are different pricing structures available. Generally, there is a zero-down offer, a small up-front, and a pre-paid lease option. The solar lease is built like any other lease: the leasing company owns the equipment, and the customer pays an agreed upon monthly fee to use it. The benefit of solar equipment, as compared to a car, is that it has a defined monetary value to the customer ( i.e. free energy). The goal of the solar lease is to pay less on your leasing fee, than you would have otherwise on your electricity. Depending on the leasing company, you can adjust the annual price escalator, or put down some or all, of the lease payments upfront, which will determine if you get more savings at the start of your lease or closer to the end. Most leases on the market today lock the customer into a 15 – 20 year agreement, and at the end of the contract the customer has three options: to purchase the system at fair market value, to renew the lease at renegotiated terms, or to have the system removed free of charge. The main attraction of the lease, is that since the property owner does not own the equipment, and is simply agreeing to purchase the power produced by it, it is the leasing company’s responsibility to maintain the equipment for the life of the lease, and make any repairs necessary, to ensure that they are getting the maximum output, and thus, maximum monthly fee.
The PPA is a similar concept, but instead of leasing the equipment, you are strictly purchasing the clean energy it produces. Again, the PPA provider owns and maintains the solar array for the life of the system. Upon signing an agreement, the customer agrees to purchase all energy produced by the array, at a determined price, which, depending on how it is arranged, will either remain the same or gradually increase over the term of the PPA. In both a PPA and a lease, the financing company usually takes all incentives as they become available, reducing that stress and burden from the customer, and passing the savings along as well. At the end of the PPA, the customer often has the same options as those at the end of a lease. For the most part, PPAs are offered to larger commercial or utility scale projects, whereas leases are the most popular financing option for residential projects.
Just as in the car world, where there are adamant car leasers vs. die-hard car owners, an ever increasing option for purchasing solar, is the tried and true bank loan. While few banks have come on-line to officially offer a solar loan program, those that are, are being met with increasing demand. The loan programs vary depending on the provider, but have key features that make them attractive alternatives. Just like in the lease and PPA, the solar loan is built so that the customer is left with a manageable and predictable monthly cost, as opposed to the volatile current state of electric prices. The clear difference of the loan is that the property owner is the direct owner of the solar equipment. After the loan is paid off, the system belongs to the property owner, and while solar panels are under warranty for 25 – 30 years, they often continue to operate for over 40 years. This means that all the energy that comes from the system after the loan is paid is all free (woohoo!), but also requires the owner to take responsibility for maintenance throughout the life of the system.
No matter how you choose to start using solar power, there is an option out there for you. If you are interested in getting started in the process of looking into solar for your home or business, contact us, and we will help to walk you through all the available options, and see what works best for you.