Financing the Solar Dream: Page 3 of 4

Leases & Power Purchase Agreements

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Paul Bartlett with the SunRun-owned array on his roof.
Leased systems are becoming a popular option for consumers who want to minimize their up-front costs. Retired university professor Paul Bartlett is pictured with the SunRun-owned array on his roof.
SolarCity’s online calculator
SolarCity’s online calculator can quickly estimate PV system performance and savings.
A SolarCity-leased PV system
A SolarCity-leased PV system on a Phoenix, Arizona, home.
Paul Bartlett with the SunRun-owned array on his roof.
SolarCity’s online calculator
A SolarCity-leased PV system

SolarCity’s lease was just what John and Margaret Stubblebine needed. For years, the couple had been thinking about adding a solar-electric system to their home in Cupertino, California, but the cost kept them from following through with the idea. Then, they heard about the leasing program and figured it couldn’t hurt to get an evaluation.

“The assessment showed that we would be spending less for electricity after the solar installation than we would have without it,” John says. “With energy prices rising so quickly, the solar lease fixes our costs into the future. So, if—or more like when—electric rates rise steeply, our rate will be stable, and we will save much more money.”

Given the Stubblebines’ $158 electricity bill, SolarCity recommended a 30-module, 6 kW system that would offset up to 1,100 kWh per month and reduce their utility bill by about $116 per month. After factoring the reduced utility bill and a monthly lease payment of $107, the system delivers a net savings of $9 per month.

Other companies are following SolarCity’s lead. BEohana Solar Corp. and Power Solutions of San Jose are also offering solar leases at the urging of the city mayor.

Since the start of its solar lease program in February 2008, SolarCity has tripled its business in the first few months, largely due to an introductory (now expired) no-money-down lease in Arizona, California, and Oregon. Though preliminary numbers look good for leasing programs, not everyone can jump on this bandwagon. As with low-interest financing options for any consumer product, most solar leasing programs require good credit to qualify (typically a credit score of 720 or higher).

Beyond the West, the state of Connecticut rolled out a $39 million solar lease program funded by U.S. Bancorp. Through the Connecticut Clean Energy Fund, a combination of rebates and tax credits will lower the cost of residential solar leasing. This is the first time a ratepayer-funded program has partnered with private financial institutions to leverage federal tax credits, with the goal of making residential solar energy more affordable. The program’s aim is to install 1,000 systems for low- and medium-income households in the state.

Weighing the Options

Similarities between solar PPAs and leases are greater than the differences (see “Comparison” table). The key distinction is the cost over the system’s lifetime. If cash flow is an issue, the lease is the best way to go, since there can be no down payment. If you can afford to invest up front in part of the system cost, you’ll pay less as time goes on, and your savings can be greater at the end of the contract. In that case, a PPA may be more beneficial. However, representatives from both lease and PPA companies insist that the outcomes are not that different at the end of the contract.

“There’s no one way that is really cheaper than another,” says Mike Hall, president of Borrego Solar Systems, which offers PPAs through SunRun and commercial leases financed by Bank of America. “In the end, there’s a certain amount of money that the bank needs to make, and the consumer is going to pay that money. It’s just a matter of whether they’ll pay it at the beginning, middle, or end, so be aware of the fine print and promises.”

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