Solar leases vs. solar PPAs: What's the difference?

Both are third-party solar financing options, but we don't usually recommend either.

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Many solar installers advertise solar leases or power purchase agreements (PPAs) as an easy way to reduce your electricity bill. And they're not wrong; if you're interested in a simple, low-maintenance way to install a solar panel system for your home, leasing solar panels can be a good option.

But you'll save a lot less over time with these types of third-party ownership financing arrangements compared to a solar loan or paying upfront. Solar leases and PPAs are very similar, but with a solar lease, you will pay a fixed amount of money per month, while with a PPA, you'll pay per kilowatt-hour.

Here's what you should know about both.

Key takeaways

• Most solar lease and PPA options are $0-down, but some require a down payment or ask you to pay upfront.
• With a solar lease or PPA, you can typically expect 10-30% savings on utility bill costs.
• With both options, you don't own the solar equipment on your property.
• If you sign a solar lease or PPA, the tax credits and other financial incentives belong to the system's owner (not you).

What are solar leases and PPAs–and how do they work?

Do you lease your car or have friends that do? Solar leases and PPAs work similarly. With these financing options, instead of buying a solar panel system, you can lease it for 20-25 years and still receive the energy produced by the panels.

During this time, you pay the solar leasing company for the benefits of the solar panel system (i.e., the solar electricity powering your home). However, because the solar leasing company owns the equipment, they are responsible for maintenance. They are also entitled to all the rebates, tax breaks, and performance-based incentives available for solar in your area.

Can you rent solar panels?

We've established that you can lease solar panels like you would a car: But what about renting?

For a while, renting a solar panel system with a short-term contract was possible through Tesla's subscription model, launched in 2019. For a set monthly fee, Tesla would install and maintain the system and remove the panels if you decided solar wasn't for you. However, Tesla discontinued this program in 2021.

Solar leases and solar PPAs: What's the difference?

While you'll often see the terms "solar lease" and "solar PPA" used interchangeably, there's a key difference between the two.

With a solar lease, you agree to pay a fixed monthly lease (e.g., $150 a month). Your leasing company determines this amount based on the estimated annual production of your solar panel system.

However, with a solar PPA, you agree to purchase the power generated by the system at a set price per kilowatt-hour (kWh) (e.g., $0.15 per kWh) instead of paying a fixed monthly amount. Because solar panels typically produce more electricity during the summer than during the winter, most people with a PPA have higher solar bills in the summer (and more bill savings) during the summer months.

Between the two, savings are typically the same over the year. In other words, if you average out solar PPA payments over a year, that would equate to a monthly solar lease payment.

Here's how this might play out for a 7 kilowatt (kW) solar panel system in a state like Massachusetts over 12 months. Let's assume the system covers 100% of the household's electricity usage.