Solar: Lease vs. Power Purchase Agreement
Both structures mean a third party owns the system and you never take on the upfront cost, but they bill differently: a lease charges a fixed monthly payment regardless of production, while a PPA charges you per kWh the system actually generates.
At your inputs, the PPA costs $2,000 less over 10 years.
| Lease (fixed monthly payment for the system) total cost over the horizon | $21,000 |
|---|---|
| Power purchase agreement (pay per kWh produced) total cost over the horizon | $19,000 |
Breakeven: The higher upfront cost is offset by year 0.0, after which the PPA stays cheaper.
- This uses planning estimates you entered, not a contractor quote or guaranteed savings.
- A lower calculated cost does not measure contract terms, escalation clauses, or transfer-on-sale complexity; read your actual contract closely.
What this also tells you: Even if your annual costs are 20% higher or lower than entered, the same option stays cheaper, with the advantage ranging from $1,600 to $2,400.
This is a planning estimate based on your entries. It does not size equipment, determine electrical or building-code compliance, verify incentive eligibility, or replace a contractor quote or professional energy audit.
Why this decision comes up
A homeowner drawn to solar without an upfront cost still faces a real choice between two different billing structures, each with its own production-risk tradeoff.
How this is calculated
Both paths are compared as total cost over your ownership horizon: net cost plus annual cost carried forward.
A worked example
With the defaults (lease: $0 upfront, $2,100/year; PPA: $0 upfront, $1,900/year; 10-year horizon), the PPA totals $19,000 against $21,000 for the lease, a $2,000 advantage for the PPA at these defaults, assuming production stays close to estimate.
Common mistakes
A common mistake is assuming a PPA is always cheaper without checking its escalation clause, which can raise your effective rate over the contract term.
Limitations
This does not model a PPA's escalation clause or a specific production shortfall scenario. Read your actual contract terms closely before committing.
Common questions
Which one is riskier if my production is lower than expected?
With a lease, you pay the same fixed amount regardless of actual production, so underperformance is entirely your risk. With a PPA, you pay only for what the system produces, which shifts some of that risk to the PPA provider.
Does a PPA rate ever increase over time?
Many PPA contracts include an annual escalation clause for the per-kWh rate. Read your specific contract, and compare a rising PPA rate against your own utility rate over time.
Can either be bought out early?
Many lease and PPA contracts include a buyout option at specific points, letting you convert to ownership later. Check your specific contract's terms.
Do I get any tax benefit with either a lease or PPA?
Generally no, since the third-party owner, not you, typically claims available tax credits under both structures. That is one of the tradeoffs against ownership via cash or a loan.
Does either option include a performance guarantee?
Many lease and PPA contracts include a minimum production guarantee with a true-up payment if the system underperforms. Check your specific contract for these terms, since they reduce your production risk relative to ownership.