Solar PPAs are agreements where the
system owner sells power to the consumer at
PPA or lease company could cause your fu-
ture monthly payment to become larger than
please see the article at ongrid.net/papers/
PaybackOnSolarSERG.pdf.
agreed-upon terms. The sale is for kilowatt-
the future savings.
Solar makes economic sense for many,
hours (k Wh) of energy only, but not the sale
It is important to compare the solar
but only a hard look at the numbers will
of the system. Solar leases are rentals, where
investment to other investments on an even
tell if it makes sense for your property.
the consumer leases a solar system from
basis. For a fair assessment, critical analy-
The reader is encouraged to check it out.
the owner. In both cases, the parties owning
sis should look at compound annual rate
Run the numbers, get evaluations and pro-
the systems are underwritten by investors
of return, cash flow and resale value. For
posals from at least three solar providers,
who can use the tax benefits and pass along
much more detail on the variables that
and take them to a CPA. That way the smile
some of those savings in the form of re-
affect the results, the methods of financial
on your wallet can be as big as the smile on
duced per kilowatt-hour charges or reduced
analysis and example results for many states,
your face! GS
rental charges.
The third-party owners are taking the sys-
tem ownership and performance risk and the
consumer credit risk. They want to be paid
for these risks and the use of their money, so
typically, the homeowner will end up paying
more over the long term with a PPA or solar
lease than they would have if they paid cash
or took a loan. With third-party ownership,
the homeowner does not end up owning the
system, but usually has the opportunity (but
not the obligation) to purchase it at fair market value (FMV) at the end of the term of the
agreement. FMV will be somewhere between
what a new system would cost and scrap value. By IRS rules, FMV must be decided at the
end of the term and can’t be stated up-front.
Over the long haul, the cheapest way to
get a solar system is to pay cash, but that requires cash. The next cheapest way is to take
a home equity loan, but that depends on the
ability to borrow. The next cheapest after that
are the solar leases and PPAs, which eliminate
the cash or loan requirements and make solar
affordable to anyone with decent credit. The
most expensive way to get solar is to do noth-
ing now and wait, because utility rates and
bills will rise and incentives will go away.
Consumers should pay careful attention
in PPA, lease, loan or cash sales presentations
to the expectations of future electric rates or
rate of increase in rates. Nationwide, rates
have increased about 2 percent annually over
20 years since 1990. There’s good reason to
believe rates will rise faster in the future (
utilities switching away from cheap coal, carbon
emissions costs, replacement of nuclear generation, etc.), but there are also things that
may keep rate increases low (shale bed methane may keep gas prices low, which could
keep electricity prices down, and eventually wind and solar will become cheaper than
other sources, potentially curbing long-term
rates). Be cautious of high PPA or lease “
escalator” rates (anything over 3 percent). Over
time, rapid increases in your obligation to the
