The Truth About Solar Leases and Power Purchase Agreements (PPAs)
Overview
The promise of “free solar” through solar leases and Power Purchase Agreements (PPAs) can be tempting for homeowners. After all, who wouldn’t want to save on energy costs without any upfront payment? However, these options come with significant drawbacks that many homeowners don’t fully understand until it’s too late. From escalation ratesthat chip away at savings to missing out on valuable incentives, solar leases and PPAs are often not the best long-term solution.
In this article, we’ll explore the hidden downsides of solar leases and PPAs, including the challenges of transferring contracts when selling your home. We’ll also explain why owning a solar PV system offers better financial benefits, including state and federal tax incentives and earning income through Renewable Energy Certificates (RECs).
What Are Solar Leases and PPAs?
Solar Lease
A solar lease allows a solar company to install a solar energy system on your property, and you pay a fixed monthly fee to use the electricity generated by the system. You do not own the solar panels—the company retains ownership and is responsible for maintenance.
Power Purchase Agreement (PPA):
With a PPA, the homeowner agrees to purchase the power generated by the solar panels at a fixed price per kilowatt-hour (kWh), typically lower than what you would pay your utility company. However, as with a solar lease, the solar company owns the system and handles maintenance.
While both options might sound attractive due to their “no money down” appeal, they come with long-term financial and logistical complications.
The Hidden Drawbacks of Solar Leases and PPAs
Escalation Rates Can Erode Your Savings
Most solar leases and PPAs come with an escalation clause, meaning your payments will increase over time, often by around 3% annually. In the first year, you might see a 20% reduction in your electric bill, but over time, your payments increase, cutting into your savings. By year 10 or 15, you could be paying more for your solar energy than you would for traditional utility power.
You Don’t Own the System or Qualify for Incentives
When you lease a solar system or enter a PPA, the solar company retains ownership. This means you are not eligible for valuable solar incentives, including:
The Federal Solar Tax Credit (ITC), which allows you to deduct 30% of the cost of installing a solar PV system from your federal taxes.
The Massachusetts State Tax Credit, which offers 15% of the system cost (capped at $1,000).
By leasing, you lose out on these substantial tax benefits, which could significantly reduce the overall cost of going solar.
Complications When Selling Your Home
If you plan to sell your home during the term of a solar lease or PPA, you may face complications:
Transferring the agreement: You will need to transfer the lease or PPA to the new owner, which can be difficult if the buyer does not want to take on the contract.
Buyout Option: If the new buyer refuses the lease or PPA, you may have to buy out the contract yourself. This can be costly and significantly reduce the profit from selling your home.
These potential hurdles often lead to delays in selling your home and may even reduce buyer interest.
Why Owning a Solar PV System Is a Better Option
Maximize Your Savings Without Escalation Rates
When you own your solar system, there are no escalation rates. Your energy savings remain consistent over the 25-30 year lifespan of the system. By locking in your energy costs and avoiding annual price hikes, you’ll see predictable, long-term savings that far outweigh those from a lease or PPA.
Capture Federal and State Incentives
Owning your solar system allows you to benefit from substantial tax incentives, which can significantly lower the cost of installation:
The Federal Investment Tax Credit (ITC): This provides a 30% tax credit on the total cost of installing your solar system.
The Massachusetts State Tax Credit: You can claim 15% of the system cost (up to $1,000) on your Massachusetts state tax return.
These incentives make solar ownership a far more affordable option, often providing a quicker return on investment than leasing or entering a PPA.
Earn Income from the Renewable Energy Certificate (REC) Program
By owning your system, you also generate Renewable Energy Certificates (RECs). For every megawatt-hour (MWh)of electricity your solar system produces, you earn one REC, which can be sold to utility companies looking to meet renewable energy standards. This creates an additional stream of income, further enhancing the financial benefits of owning your solar system.
Increase the Value of Your Home
Owning a solar PV system can increase your home’s value by up to 4%. Homes with owned solar panels are more attractive to buyers because they offer immediate savings without the complications of a lease or PPA. In contrast, homes with leased solar systems can experience delays in selling and attract fewer potential buyers.
Worry-Free Ownership with Spectrum Energy
At Spectrum Energy, we provide world-class solar PV systems backed by comprehensive warranties. Our systems are independently tested and certified to outperform the competition, ensuring that you enjoy reliable, clean energy production for decades. We also offer worry-free solar ownership, with long-term protection that includes maintenance, repair, and system performance guarantees.
FAQ Section
Is there such a thing as “free solar”?
Answer: While solar leases and PPAs may offer no upfront cost, they aren’t truly “free.” Homeowners still pay for the energy they use, and over time, escalation rates can make these options more expensive than utility power.
Are solar leases or PPAs worth it?
Answer: In most cases, owning a solar PV system is a better investment. With a lease or PPA, you face rising costs, and you miss out on valuable incentives and the opportunity to increase your home’s value.
What happens if I sell my home with a leased solar system?
Answer: Selling a home with a leased solar system can complicate the sale. You’ll need to transfer the lease or PPA to the new owner or potentially buy out the agreement. This can delay the sale and make the property less appealing to buyers.
What are the benefits of owning a solar PV system?
Answer: Owning your solar system allows you to take advantage of federal and state tax credits, earn income from Renewable Energy Certificates (RECs), increase your home’s value, and avoid escalating lease payments. You’ll also have consistent, long-term energy savings.
Contact Spectrum Energy to Learn More About the Benefits of Solar Ownership
At Spectrum Energy, we believe in empowering homeowners with the benefits of solar ownership. Unlike solar leases or PPAs, owning your system ensures you get the maximum financial and environmental benefits. Whether you’re looking to cut energy costs or increase your home’s value, we’re here to help with reliable, high-performing solar PV solutions.
Contact Spectrum Energy today to learn more about the advantages of owning your own solar system and start your journey toward energy independence!
