See this recent article on Solar PPAs..
‘Solar leasing’ deals have been the main facilitator of residential solar panel uptake in the United States, with the majority of systems being installed under such arrangements. Although solar leasing schemes have been on offer in Australia for some time now, they have not proven to be an overwhelmingly popular option. Is a solar lease right for your home or business, or should you purchase your system system?
What is a solar lease / solar PPA?
The easiest way to understand a solar lease is to think of it like this: Right now, if you do not have a solar system (or other distributed energy generation system), you are purchasing all of your power from electric utilities. You get a monthly or quarterly bill for the power that they provide you, and – although you could look into reducing your electricity usage or by investing in energy efficiency measures – there’s little that can do to reduce the rate at which you are charged to use power.
These rates (‘retail tariffs’) are dictated by the electricity retailers or non-partisan government bodies such as NSW’s IPART or Queensland’s QCA, or set by the competitive market. (They can be compared on sites such as EnergyMadeEasy.gov.au.)
When you sign up for a solar leasing deal, you are effectively letting someone else build a mini power station a solar PV system – on the roof of your home or business, at no or little up-front cost to you. The company that has financed the construction of the system then sells you the power that it generates at a rate that is lower than your retail tariff.
Remember that with a solar lease or PPA, you do not own the system yourself – it is owned by the company that finances it. It may be possible to purchase the system for a discounted price at the end of your contract period, however.
The theoretical result is a net power bill that is lower than what you would ordinarily pay for power without having to pay for a system to be installed. Since the cost of solar power has come down so dramatically in the past few years, the financing company still makes a profit. It’s a win-win situation.
Solar leases vs Solar PPAs
Solar leases and PPAs are very similar, but there are some slight differences. Under a solar lease, you are paying a lease on the solar system itself. This amount will usually stay steady month-to-month, although your provider may have provisions for fluctuations in solar system output (e.g. less sunshine in winter). Under a Power Purchase Agreement (PPA), on the other hand, you pay only for the solar energy that the system produces on a per-unit basis. (Details may vary from provider to provider.) PPAs are more common than leases in Australia.
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What are the benefits of a solar lease / PPA?
There are a number of potential benefits to installing a solar PV system under a solar leasing deal. The main ones are:
- The system will cost you or your business very little or nothing to install, as installation and materials costs are covered by the financier.
- Insulation against rising electricity prices. Power prices have skyrocketed across Australia over the past few years, and it is highly unlikely that they will fall again anytime soon.
- Solar system maintenance is the responsibility of the financier – not you. Since you do not own the system, you do not have to pay for repairs–and the company will not charge you for down-time.
- Know where your power is coming from – and that it’s clean. Unless you purchase GreenPower, the power you purchase from the grid comes largely from coal and gas plants.
Will my home or business benefit from a solar leasing deal?
Since feed-in tariff incentives – which pay solar system owners a generous rate to export their power to the electricity grid – have been scaled back in most states, solar systems most benefit those homes and businesses who can consume their solar power as it is being generated (i.e. while the sun is shining).
The rule of thumb these days for both those who are considering buying a system as well as those considering a solar lease is this: If you do not use much electricity during the day, or cannot shift more of your usage to daylight hours, solar panels may not be a realistic money-saving option for you. In particular, solar leasing deals tend to save the most money for those who consume a higher-than-average amount of electricity and whose quarterly bills are around or above $1,000.
Solar leases & PPAs vs owning your own solar system
Solar leasing programs have proved incredibly popular in countries like the USA, but until recently have not been available in Australia, where outright purchase has to date been the norm for both homes and small businesses alike. Since Australians now have a choice about whether to own their solar system or to opt for a leasing scheme, it’s important to consider what the differences are. The table below outline some of these differences.
|Purchase/Own||Solar PPA / Lease|
|System cost||Capital expenditure or conventional financing is required to purchase the system||No up-front cost to install system|
|Maintenance||Outside of warranties, maintenance responsibilities are with the owner||Maintenance responsibilities remain with system financier for the duration of the leasing contract.|
|Contract conditions & duration||Contracts to watch out for are solar installation and product warranties. Solar panel output warranties are typically 25 years, but systems have anticipated lifespans of 30+ years. Inverters may need replacing every 5-12 years.||Under a solar leasing agreement, you will enter into a formal legal contract with a financing company. Acceptance is not automatic, and those who are interested will be required to undergo credit checks. Duration of contracts can vary from 5, 10, or 15+ years. Purchase of the system may sometimes be negotiated after the end of contracts.|
|Return on investment||Typical payback periods for a residential solar PV system are in the range of 3-7 years, after which point annual returns on investment can be up to or over 20%, depending on factors such as purchase price, cost of electricity, and feed-in tariff incentive available.||As no or little initial capital investment is required, power bill savings start happening immediately.|
|Home value||The addition of a purchased solar PV system to a home is almost always seen as a value-adding bonus, and solar PV systems retain much of their value.||If unwanted by potential homebuyers, an unfinished solar leasing contract can be considered a liability as opposed to an asset.|
|Cost of solar energy produced||Once the system is installed, all power generated is essentially ‘free’, as no fuel input is required. After the system saves the home or business enough money to pay for the initial cost, the power it generates is an ongoing benefit.||Price per unit of solar power is fixed under contract at a set rate that may escalate over time, depending on contract stipulations.|
|Going on holidays||In most states, solar system owners are now eligible to receive about 8c/kWh for solar power that they export to the electricity grid. When you go on holidays, your solar system will actually create credits on your power bill.||Under a solar leasing scheme, you may still be required to pay for the solar power that is being produced even if you do not use it while on holidays. This will be offset to some degree by the amount you are paid by your electricity retailer for exporting solar power, but may still be a net payment.|
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SOLAR SYSTEM AFTER DEATH
I have read your web page about comparing solar leasing with solar purchasing and found it very informative. First of all, I live in Puerto Rico and, after evaluating both alternatives, have decided to go for leasing. This due to the fact that I am 72 years old. The leasing agreement is for 25 years with a local energy supplier. My big question is if I die in ten years and my brother who inherits my property does not want the system…what happens then?…is anyone liable to continue paying for it or the solar panel company will just come in and pick up the equipment with no further action?
Thanks for your attention and advise on this matter.
What happens with the system would come down to the terms of the original contract signed. As far as we’re aware, in many instances the contract is likely to dissolve if the system owner passes away. I would suggest that you get in touch with your electricity supplier and review the contract that you signed with them.
But in the meantime, we’re wishing you a long life so that you live to see to the system at the end of those 25 years yourself!
I don’t live in Australia, but I’ve heard that things are going well there. With the EU ramping up anti-dumping efforts, it seems like Australia may be the benefactors of cheap Chinese solar cells to aid them in their transition to a more sustainable energy economy. Unless, of course, Australia jumps on the anti-dumping bandwagon. For downstream companies and homeowners, however, the time seems ripe to invest in solar.
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