by R. Sail Van Nostrand
We often hear, ‘I’d rather lease because it’s Zero out-of-pocket.’ That’s a bit of a misnomer, so we’d like to set the story straight.
ZERO OUT-OF-POCKET can be achieved in one of several ways:
A PPA (Power Purchase Agreement) is a contract in which someone else owns the equipment and you agree to pay them for the energy delivered at a preset cost intended to be lower than your current cost of electricity. PPAs come in both fixed rates or escalating rates, each for 20 years. Federal Tax Credits are taken by the owner of the equipment and the New York Tax Credit is taken by the homeowner. This model can result in savings but does not yield a fixed payment schedule and often payments will escalate over the 20 years. Often annual energy output is not guaranteed.
A lease is a contract in which someone else owns the equipment and you agree to pay a fixed monthly fee for the use of the equipment. The energy is yours to use to offset your utility bill. The equipment owner (the leasing company) gets the Federal Tax Credit and the homeowner gets the New York State Tax Credit. The monthly lease payment is the same regardless of how much energy is produced each month. Annual production guarantees are the sign of a ‘good lease’. Some leases start with a lower monthly cost, but have annual escalation; other leases have a fixed monthly payment, each have a 20 year term.
Often times purchasing a solar electric system yields the largest savings. Financing is readily available for homeowner for zero out-of-pocket. Monthly payments are typically similar to the monthly payments of a lease with loan terms between 10 and 15 years (lease term is typically 20 years). A well-designed purchase solution should yield immediate monthly savings (like a lease) with payments lasting only 10 to 15 years, resulting in much larger overall savings than the lease. All Tax Credits come back to the homeowner and can be financed at no interest and no payments for a year to allow the customer ample time to file their tax return and receive their tax credit money. Some purchases with financing options can be found with system performance guarantees as well.
For the customer with the ability to purchase a solar electric system outright with their own funds, zero interest and zero payment bridge loans are available for the tax credits, and these projects yield the highest savings as they have no finance interest involved and return on investment often approaches 10%.
Typical costs associated with each form of solar electric acquisition are:
PSEG: 19₵ per kilowatt hour (kwh) currently
PPA: 14₵ – 15₵ per kwh plus escalators (usually 2.99% yearly escalation)
LEASE: 16₵ – 17₵ per kwh fixed
FINANCED: 9₵ – 10₵ per kwh fixed
PURCHASE: 8₵ – 9₵ per kwh fixed