What is the Difference Between a Solar Lease and a PPA?

At first glance, solar leases and power purchase agreements (PPAs) appear almost identical. Both options allow homeowners to switch to solar without purchasing the system outright, have no upfront costs and both typically involve a third-party company owning the solar equipment.

The biggest difference is simple: a solar lease charges a set monthly payment, while a PPA charges for the electricity the system produces.

Understanding that difference can make it much easier to compare solar proposals and determine which payment structure makes more sense for your home.

How Do Solar Leases and PPAs Work?

• Solar Lease: A monthly fee grants you the use of a solar system owned by a third party. This payment remains tied strictly to the terms of your agreement, regardless of the exact amount of electricity the panels generate each month.
• Solar PPA: You agree to purchase the electricity produced by the system at a predetermined price per kilowatt-hour (kWh). For example, if your PPA starts at $0.14 per kWh and your system produces 10,000 kWh during its first year, you would pay $1,400 for that electricity.

That difference changes how your bill behaves. Lease payments are typically more predictable. PPA payments are tied to production, so your solar charge can be higher during high-production months and lower when the system produces less electricity.

Which is Cheaper?

Here is a simplified example showing how the two payment structures can look over a 25-year agreement.

For this example, the PPA produces 10,000 kWh annually, starts at $0.14 per kWh, and has a 3.5% annual escalator. The solar lease costs a fixed $182 per month with no escalator. Solar production is held constant to keep the comparison simple.

Over 25 years, the PPA would cost approximately $54,529.80, while the fixed lease would cost $54,600.

The totals are almost identical, but notice how differently you get there. The PPA starts at an average of only $116.67 per month, then gradually increases as the 3.5% escalator compounds. By Year 14, its average monthly cost passes the fixed $182 lease payment.

Should I Do a Solar Lease or PPA?

Neither option is automatically better.

• A solar lease may make more sense if you value predictable payments and want the solar portion of your budget to remain consistent.
• A solar PPA may be more attractive if you want your payment directly tied to how much electricity your system actually produces. If production decreases, you generally purchase fewer kilowatt-hours from the solar provider.

Before choosing either option, pay close attention to the starting rate, annual escalator, contract term, performance guarantees, maintenance responsibilities, transfer requirements, and buyout options.

Compare Your Solar Options With OC Solar

A solar lease and PPA can accomplish a similar goal, but the way you pay for solar is fundamentally different. A lease prioritizes a predetermined payment, while a PPA directly connects your cost to solar energy production.

Take the guesswork out of going solar. If you’re comparing solar payment options in Southern California, schedule a consultation with OC Solar. Our team can review your energy usage, explain how each agreement works, and show you what the numbers could look like over the full life of your solar system.