By Nate Hausman, Project Manager, Clean Energy States Alliance
With New York additions by Max Joel, Jason Mangione,
and Lillie Ghobrial, New York State Energy and Research and
Development Authority (NYSERDA)
2016
New York State
Homeowner’s Guide to
Solar
Leases, Loans,
and Power Purchase
Agreements
New York State Homeowner’s Guide to Solar Leases, Loans, and Power Purchase Agreements | 1
Acknowledgments
Clean Energy States Alliance (CESA) prepared this guide through the New England Solar Cost-Reduction Partnership, a
project under the U.S. Department of Energy (DOE) SunShot Initiative Rooftop Solar Challenge II. The U.S. Department
of Energy SunShot Initiative is a collaborative national eort that aggressively drives innovation to make solar energy fully
cost-competitive with traditional energy sources before the end of the decade. Through SunShot, the DOE supports eorts
by private companies, universities, and national laboratories to drive down the cost of solar electricity to $0.06 per
kilowatt-hour. Visit energy.gov/sunshot to learn more.
The New York State Energy Research and Development Authority (NYSERDA) added New York-specific financing and
incentive programs for solar electric systems into CESA’s ‘Homeowner’s Guide to Solar Financing.
Special thanks to Lise Dondy for her help conceptualizing, preparing, and reviewing this guide. Thanks to the following individuals for their review of the guide:
Maria Blais Costello (Clean Energy States Alliance), Bryan Garcia (Connecticut Green Bank), Janet Joseph (NYSERDA), Max Joel (NYSERDA), Jason Mangione
(NYSERDA), Lillie Ghobrial, (NYSERDA), Elizabeth Kennedy (Massachusetts Clean Energy Center), Emma Krause (Massachusetts Department of Energy Resources),
Suzanne Korosec (California Energy Commission), Warren Leon (Clean Energy States Alliance), Jeremy Lewis (New Mexico Energy, Minerals & Natural Resources
Department), Le-Quyen Nguyen (California Energy Commission), Anthony Vargo (Clean Energy States Alliance), Marta Tomic (Maryland Energy Administration),
Selya Price (Connecticut Green Bank), and David Sandbank (NYSERDA).
U.S. Department of Energy Disclaimer
This material is based upon work supported by the U.S. Department of Energy under Award Number DE-EE0006305.
The information contained within is subject to change. It is intended to serve as guidance and should not be used as a substitute for a thorough analysis of
facts and the law. The document is not intended to provide legal or technical advice.
This report was prepared as an account of work sponsored by an agency of the United States Government. Neither the United States Government nor
any agency thereof, nor any of their employees, makes any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy,
completeness, or usefulness of any information, apparatus, product, or process disclosed, or represents that its use would not infringe privately owned rights.
Reference herein to any specific commercial product, process, or service by trade name, trademark, manufacturer, or otherwise does not necessarily constitute
or imply its endorsement, recommendation, or favoring by the United States Government or any agency thereof. The views and opinions of authors expressed
herein do not necessarily state or reflect those of the United States Government or any agency thereof.
NYSERDA Disclaimer
This document is for informational purposes only. The New York State Energy Research and Development Authority makes no warranties, expressed or implied,
and assumes no legal liability or responsibility for the accuracy, completeness, or usefulness of any information provided within this document. The views and
opinions expressed herein do not necessarily state or reflect those of the State of New York, any agency thereof, or any of the organizations and individuals
that have oered comments as this document was being drafted.
The website addresses provided in this document were accurate as of the date of publication. However, website addresses are subject to change by website
administrators. Therefore, some website addresses may become invalid over time.
New York State Homeowner’s Guide to Solar Leases, Loans, and Power Purchase Agreements | 2
Introduction
Are you thinking about installing a solar electric system on your house and
trying to figure out how to pay for it? Solar electric systems are also known
as solar photovoltaic or PV systems. Perhaps you are debating whether
to purchase the system outright or take advantage of a financing option.
Perhaps you are still learning about the financing options available to you.
If you own a home and are thinking about going solar, there is good news. The price of a solar electric system has
come down dramatically in recent years, and there are more ways to pay for it. But with so many solar financing
options now available, the marketplace for these products has become increasingly complex. It can be hard to
choose among the dierent packages and vendors. The dierences between them may not be readily apparent.
Some contracts are filled with confusing technical jargon, and key terms can be buried in the fine print of a
customer contract.
This guide is designed to help homeowners
make informed decisions about financing solar.
This guide is designed to help homeowners make informed decisions and select the best option for your needs
and finances. It describes three popular residential solar financing choices—leases, power purchase agreements or
PPAs, and loans—and explains the advantages and disadvantages of each, as well as how they compare to a direct
cash purchase. It attempts to clarify key solar financing terms and provides a list of questions you might consider
before deciding if and how to proceed with installing a solar electric system. Finally, it provides a list of other
resources to help you learn more about financing a solar electric system.
The guide does not cover technical considerations related to solar electric system siting, installation, and
interconnection with the electricity grid, nor does it cover all of the particular local market considerations that
may impact financing a solar electric system.
New York State Homeowner’s Guide to Solar Leases, Loans, and Power Purchase Agreements | 3
Financing Options for Homeowners
The size of a residential solar electric system installation can vary dramatically but is generally between 2 and
20 kilowatts (kW) depending on a variety of factors, including the available roof space (or ground space if it is a
ground-mounted system); site conditions such as roof orientation, azimuth, and shading; the electricity usage of the
home; and available financing. To put these system sizes into context, a 7-kW system in New York State produces
enough electricity for an average New York household in a year.
A system’s size is also a key determinant of its cost. Although the price of systems varies considerably, a residential
solar electric system usually costs between $15,000 and $35,000, roughly the same as a new car. But just as buying
a car outright can be financially burdensome for many automobile customers, so too can paying upfront for a solar
electric system. That’s where solar financing comes into play.
Financing innovations have helped fuel the exponential
growth of the solar market in the United States.
Financing innovations have helped fuel the exponential growth of the solar market in the United States and fall into
two broad categories based on ownership of the solar electric system: third-party ownership and homeowner
ownership via a loan. A later section of this report explicitly compares the types of financing.
Some solar companies will arrange for the installation of a solar electric system and provide financing for it. These
companies are often called full-service solar developers. In other cases, the installer is a dierent entity than the
financial lender. A solar financing lender might be a bank, a solar company, a credit union, a public-private partnership,
a green bank, or a utility.
Third-party ownership of residential solar electric systems allows homeowners to avoid high, upfront system costs and
instead spread out their payments over time. It also often puts some or all of the responsibility for system operation
and maintenance on the third-party owner. Currently, approximately 65 percent of homeowners in New York State who
install solar take advantage of third-party ownership. The two most common third-party ownership arrangements are
solar leases and power purchase agreements (PPAs).
Under a solar lease arrangement, a homeowner enters into a service contract to pay scheduled, pre-determined payments
to a solar leasing company, which installs and owns the solar electric system on the homeowner’s property. The homeowner
consumes electricity produced by the leased solar electric system; however, if the system provides excess electricity to the
grid, the homeowner may get credit for that generation from the electrical utility. As with all types of solar financing options,
under a solar lease arrangement the homeowner pays the regular utility rate for any electricity consumed beyond what
credits the solar electric system generates through excess production sent onto the grid.
New York State Homeowner’s Guide to Solar Leases, Loans, and Power Purchase Agreements | 4
Solar leases can
be attractive to
homeowners
because of their
relative simplicity
compared to PPAs.
With a residential solar PPA, a homeowner contracts with a project developer who installs, owns, and operates a solar
electric system on the homeowner’s site. The developer agrees to provide all of the electricity produced by the system to the
homeowner at a fixed per-kilowatt-hour rate, typically competitive with the homeowner’s electric utility rate.
Loan financing is becoming another popular to way for homeowners to pay for solar. Similar to leases and PPAs, solar
loans allow customers to spread the system’s cost over time, but they enable customers to retain ownership of the system,
thereby repaying greater benefits over the lifetime of the system. Solar loans have the same basic structure as other kinds
of loans and are being oered by an increasing number of lending institutions—from banks and credit unions to utilities,
solar manufacturers, state green banks and financing programs, housing investment funds, and utilities. Unlike third-party
solar ownership, a solar loan arrangement enables a customer to own a solar electric system outright and benefit directly
from state and federal incentives. However, the customer also incurs the liabilities associated with ownership.
What You Need to Know
about Solar Leases, PPAs, and Loans
First, you should be aware that solar purchase agreements, solar leases, power
purchase agreements and solar loans are all legally binding documents. It is
recommended that you have any agreement reviewed by an attorney with
experience in the solar marketplace before you sign.
Solar Leases
A solar lease involves a scheduled payment, which is usually monthly. With a solar lease, a developer installs and
owns the solar electric system on the home. In return, the homeowner pays a series of scheduled lease payments
to the developer. A typical lease term is 15-20 years.
Because a lease agreement can deal with system maintenance in a variety of ways, it is important to clarify who is
responsible for maintenance costs as a solar electric system may require maintenance or replacement of parts during
the lease contract term. Most solar leases cover maintenance, but may not cover the cost of replacing equipment
such as the inverter. One common option for the homeowner is to make a single payment toward operations and
maintenance upfront. That approach could reduce the third-party owner’s incentive to provide good maintenance
service. The maintenance risk can be reduced if the solar lease contains a minimum performance guarantee or the
contract clearly states that operations and maintenance are covered by the third party. Such guarantees help ensure
that the third-party owner properly maintains the system.
New York State Homeowner’s Guide to Solar Leases, Loans, and Power Purchase Agreements | 5
In New York, for
leases and PPAs,
any applicable
state personal tax
credits go to the
homeowner. However,
under a lease or
PPA arrangement
you would not own
the system, and any
applicable federal tax
credits would go to
the system owner.
The benefits of a solar lease include elimination of most or all of the upfront cost of a system and, if indicated in
the contract, transferring operations and maintenance responsibilities to a qualified third-party owner. Although
homeowners who enter into a lease pay a set price for the equipment (and sometimes maintenance), they do not know
for sure how much electricity the solar panels will produce, so cannot know exactly how much money they will save
on their electric bills. Ideally, monthly electric bill savings will be greater than the lease payments, making for a cash-
positive transaction. Many solar leases come with an escalating (meaning increasing) payment schedule, described
in more detail below. Homeowners should thoroughly scrutinize escalating payment schedules when assessing the
desirability of a particular lease.
The Solar Access to Public Capital (SAPC) working group, convened by the National Renewable Energy Laboratory,
has developed a standardized solar lease template (https://financere.nrel.gov/finance/solar_securitization_public_
capital_finance). This template can be modified to include dierent terms and has not been adopted by all solar
developers. You should closely examine a solar lease contract before executing it or consider having a lawyer read it
before you sign it because terms vary.
Solar Power Purchase Agreements (PPAs)
Under a residential solar PPA, a solar financing company buys, installs, and maintains a solar electric system
on a homeowner’s property. The homeowner purchases the energy generated by the system on a per-kilowatt-
hour basis through a long-term contract at rates competitive with the local retail electricity rate. This allows the
homeowner to use solar energy at a prescribed per-kilowatt-hour rate while avoiding the upfront cost of the solar
electric system and steering clear of system operations and maintenance responsibilities. Because the homeowner
knows how much the solar electricity will cost for the entire term of the PPA, the homeowner is insulated from
possible increases in utility electricity rates. However, it is also notable that if the electricity rates go down, the
homeowner may lose some of the savings.
Ideally, a homeowner’s PPA per-kilowatt-hour payments will be less than the retail electricity rate, making the
transaction cash-flow positive from day one. If you consider this option, you should look carefully at your electricity
bill to see how your current rate compares with the rate proposed by the company oering the PPA. You can ask your
contractor to calculate the projected per-kilowatt-hour rate and annual savings. For PPAs with an escalating rate, you
should consider how any increase in local electricity rates would change your payment.
Visit https://financere.nrel.gov/finance/solar_securitization_public_capital_finance for a SAPC working group
standardized PPA contract. As with all solar financing contracts, you should closely scrutinize a PPA contract before
executing it or have a lawyer read it before you sign it because terms vary.
New York State Homeowner’s Guide to Solar Leases, Loans, and Power Purchase Agreements | 6
Solar Loans
Solar loans allow customers to borrow money from a lender or solar developer to install a solar electric system.
With this approach, the homeowner owns the installed system. A wide variety of loan oerings are available with
dierent monthly payment amounts, interest rates, lengths, credit requirements, and security mechanisms. Some
solar loan products oer bundling of energy eciency improvements along with the solar electric installation or
allow for inclusion of roof replacement or energy-related improvements.
Some loans require an asset to serve as collateral to secure the loan. When the lender takes a security interest in the
solar customer’s home, it is called a home equity loan. Unsecured loans do not require an asset to collateralize the loan
other than perhaps the solar electric system itself.
With many solar loans, the solar electric system can start saving the homeowner money right away by structuring the
repayment terms so that the monthly loan payments are less than the resulting reduction in the amount on your home
electricity bill. Alternatively, paying o the loan sooner and over a shorter duration may delay immediate positive cash
flow, but will shorten the time needed to enter the post-loan period when monthly savings will be much greater.
Lenders for solar loans can be banks, credit unions, state programs, utilities, solar developers, or other private solar
financing companies. In New York State, NYSERDA’s Green Jobs – Green New York loan program oers both a Smart
Energy Loan and an On-Bill Recovery Loan. More information on the loans oered, as well as current interest rates, can
be found at http://www.nyserda.ny.gov/All-Programs/Programs/NY-Sun/Customers/Solar-Financing-Options. Private
loans that cover solar may also be available.
New York State Homeowner’s Guide to Solar Leases, Loans, and Power Purchase Agreements | 7
Common Terms in Solar Financing
It is important to scrutinize the contractual elements in a solar lease, PPA, or loan.
Here are explanations of some common contract terms.
Buyout Options:
Many third-party financing contracts allow the homeowner to buy out or
pay o the remainder of the payments in one lump sum at any time after a
designated period of time. Some contracts provide for an option to buy out
at the fair market value of the system. Look to see if there is a buyout option
in the contract, under what circumstances a homeowner can buy out of a
contract, and how the buyout price is calculated. Contracts may dier in how
they approach this issue, and methods of calculating buyout prices can vary.
If a clear buyout option is not included in the oer, the homeowner can
always try to request one.
Contract Term:
Contract term, duration, and payback period all refer to the period of time
under which a homeowner’s solar financing agreement is operative. Most
residential financing contracts last for between 5 and 20 years, and some
last even longer. By way of comparison, solar panels typically come with
a 20- to 25-year warranty and their productive lifespan can exceed that
period. Inverters have separate warranties, which are typically 5-10 years,
though some are longer. At the end of a solar lease or PPA term, the
homeowner will often have several options: 1) renew the contract and
continue the monthly payments, 2) purchase the system at a designated price
or the fair market value of the system, which may or may not be negligible
after the term of a contract, or 3) have the third-party lender arrange for
system removal. In the case of a solar loan, the homeowner will continue to
own the system after the contract term concludes and the loan is fully paid o.
Credit Requirement:
As a prerequisite to entering into most third-party financing contracts, third-party
lenders require a credit (or FICO) score. Many third-party financing arrangements
are only available to homeowners who have a credit score of 680 or higher. Some
financing arrangements may be available to homeowners with credit scores lower
than 680, but they may come with higher interest rates. Knowing a credit score
at the outset can be a useful way to determine eligibility for third-party financing.
A credit score below 650 will preclude most homeowners from most third-party
financing options. Some states have developed special loan programs for lower
income or lower FICO score customers. Solar loan programs and other state solar
incentive programs can be found on the DSIRE website at www.dsireusa.org, or
by checking with NYSERDA.
Down Payment:
Many third-party lenders oer options for initial customer down payments.
Generally, initial down payments range from zero dollars to $3,000. By putting
some money down upfront toward the cost of a solar electric system, the
homeowner will likely receive a lower monthly payment, a shorter duration
contract term (in the case of a solar lease or loan), or get a lower per-kilowatt-
hour rate (in the case of a PPA). With a down payment, some third-party
lenders will waive or reduce the escalation clause.
Escalation Clause:
Many third-party financing options contain a clause that increases a
homeowner’s monthly payment on an annual basis to account for inflation and
projected annual increases in electricity rates. This concept is often referred to
as an annual “escalation clause,” “escalator clause,” or simply an “escalator.”
In many solar lease and PPA contracts, payments escalate at an annual rate
between 1-3 percent. Escalation clauses are not problematic per se—keep in
mind that the average annual increase in U.S. residential electricity rates over
the past decades was over 3 percent and the average annual rate of inflation
was 2.4 percent —but they should be understood and closely examined for
reasonableness. The escalator is a compounding rate, meaning that it applies
not just to the initial payment rate but to the increases added after each year
due to the escalation charges. For example, if the payment rate for a PPA is
12 cents per kilowatt hour in the first year, with an annual escalator of 3 percent,
the customer will be paying 18.2 cents per kilowatt hour in year 15. But if the
escalator is only 1 percent, the customer will only be paying 13.8 cents in
year 15. It is good to calculate or ask for a table of what each year’s payment
rate will be.
New York State Homeowner’s Guide to Solar Leases, Loans, and Power Purchase Agreements | 8
Homeownership Transfer Provisions:
It is important to look for contract terms that clarify the allocation of obligations
in the case of a transfer of home ownership. Under a third-party ownership
model, the homeowner can usually transfer the solar lease or PPA to the next
home owner for the remainder of the contract term, provided the new owner
is approved (usually a credit score qualifying a person for a mortgage also
meets the criteria to take over the third-party lending agreement obligations).
Solar panels can add significant value to a home, but third-party solar
ownership can also be a complicating factor during the sale of a home. Some
homebuyers may be wary of purchasing a house with a solar electric system.
If a solar electric system is third-party owned, a seller may have to buy the
system outright before transferring the home, so the system can be removed
upon transfer. With a relatively scant history of solar home sales data, it can be
dicult to calculate the value of a residential solar electric system during the
home sales process, especially when a system is third-party owned and the
buyer would like to assume the remaining lease or PPA payments. Examine
the provisions of a contract that relate to ownership transfer to determine
what the options would be if the home is sold before the end of the contract
term, and have a clear understanding of those conditions with the installer.
Minimum Production Guarantees:
Many lease and PPA arrangements oer solar production or output
guarantees, usually in terms of a certain number of kilowatt-hours of electricity
produced per year. With such a guarantee, if an installed system fails to
meet the minimum level of production output guaranteed, the third-party
owner will compensate the homeowner on a per-kilowatt-hour basis for the
electricity production shortfall. Prospective solar lease or PPA homeowners
should check to see if a minimum production guarantee is included in the
terms of their contact and what accommodations are provided in the case
of a production shortfall, including whether compensation is based on a
wholesale or retail per-kilowatt-hour price. When a homeowner directly owns
a solar electric system, production shortfall risks are incurred by the owner. In
this case, no production guarantees are provided unless oered by a panel
manufacturer or installer.
Net Metering:
Net metering, sometimes referred to as “net energy metering,” enables solar
electric system owners to use their solar electricity generation to oset their
electricity consumption. Simply put, the customer’s meter runs backward
for the amount of solar electricity produced by the solar electric system and
added to the grid. In some cases, homeowners can receive a credit on their
electric bills from the utility for the excess electricity they produce and add to
the grid over the course of a certain billing period. It is important to note that
a residential, grid-tied solar electric system will not function in the case of an
electricity outage unless the home has an accompanying electricity storage
system and the ability to “island” (disconnect from the grid). The reason is
that stand-alone solar electric systems are designed to shut down when the
grid goes down, to prevent the system from feeding power back into the
grid and causing injury to utility employees working on the power lines. Visit
nyserda.ny.gov/Cleantech-and-Innovation/Power-Generation/Net-Metering-
Interconnection for more information on net metering.
Shared Solar:
A shared solar project, also known as community distributed generation
(CDG), allows multiple residences and/or businesses to jointly benefit from
one solar electric installation. Shared solar oers an alternative for people
who cannot install solar on their property. A shared solar project is hosted
by a sponsor with a suitable roof or parcel of land, who is responsible for the
installation and operation of the system. Participants, also known as members
or subscribers, purchase the electricity generated in the form of net metering
credits which are assigned to their utility bill, osetting their electricity usage.
If you chose to participate in a shared solar project, you would enter into an
agreement with the system owner and would pay the system owner for the
net metering credits received. Similar to a PPA for rooftop solar, the price you
pay for the net metering credits should be lower than the price you pay per
kwh to your utility. Visit nyserda.ny.gov/All-Programs/Programs/NY-Sun/
Communities/Shared-Solar for more information about shared solar in New
York State.
Operations and Maintenance:
If the homeowner chooses a lease or PPA model, the third-party owner owns
the solar electric system and will likely cover operations and maintenance over
the course of the contract term. It is important to check your contract because
some lease contracts may divvy up responsibilities dierently. Under most
third-party ownership arrangements, the third-party owner also incurs accidental
risks associated with panel ownership, including unforeseen destructive
events or panel malfunction. Under the solar loan model, the homeowner owns
the system directly and therefore incurs the liabilities associated with such
ownership. A homeowner who owns a solar electric system outright or finances
through a loan may be responsible for insuring the solar electric system, which
could be added to homeowner’s insurance or an existing property policy.
New York State Homeowner’s Guide to Solar Leases, Loans, and Power Purchase Agreements | 9
Because large, third-party financing entities have established relationships
with insurance companies, they often receive more favorable rates than do
residential customers looking for solar property insurance. In some case,
solar leases or PPAs may require homeowners to increase their homeowner’s
insurance to cover risks associated with the system.
Another way to mitigate risk is to purchase an extended warranty. Solar panels
may come with a manufacturer’s production warranty guaranteeing at least
80 percent system performance for 20-25 years. However, homeowners who
directly purchase or finance their system through a loan may want to seek
additional protection. Although panel manufacturers usually oer extended
performance guarantees, other system components such as disconnects,
inverters, racking, and wires may come with relatively short warranties or no
warranties at all. Homeowners may want to purchase an extended warranty
to cover replacement or repair of these components, system installation
workmanship defects, or the risk that a panel manufacturer will have undergone
bankruptcy by the time a homeowner pursues a manufacturer’s warranty claim.
Pre-Payment:
A pre-payment option can be similar to a buyout option and allows
homeowners to pay some or all of the payments for a solar electric system
before the payments become due. Pre-payment can range from zero to full
pre-payment. Full, upfront pre-payment can allow a homeowner to reap some
of the benefits of third-party ownership, such as maintenance coverage, while
avoiding ongoing interest payments.
Production Estimates:
Residential solar electric systems usually come with electricity production
or output estimates. System underperformance of a production estimate
can be costly for a solar homeowner. Under the lease model, system
underperformance can be particularly problematic because a homeowner
owes the solar developer a fixed payment regardless of the amount of
electricity produced by the leased system. On the other hand, the homeowner
gains if the leased solar electric system overproduces. Under a PPA model,
the homeowner only pays for the amount of electricity actually produced by
the solar electric system. Thus, when actual system output falls below the
production estimate, homeowners leasing their solar electric system may be
economically disadvantaged compared to PPA customers.
Solar Incentives:
The federal government provides a 30 percent federal investment tax credit
(ITC) for the purchase of residential solar electric systems. States, too, often
oer incentives for going solar. In New York State, a 25 percent state personal
tax credit is available in addition to the federal investment tax credit. New York
City has a Real Property Tax Abatement Program through the NYC Department
of Buildings. Visit www.nyc.gov/html/gbee/html/incentives/solar.shtml to find
the instructions and forms. NYSERDA also provides direct financial incentives
for the installation of a solar electric system by an approved contractor Visit
nyserda.ny.gov/All-Programs/Programs/NY-Sun/Customers/Available-
Incentives for information on how to find a contractor and current incentives.
It is important to note that the 30 percent ITC is only available to the owners or
purchasers of a solar electric system. In other words, if the homeowner agreed
to a solar lease or PPA with a third-party system owner, the homeowner will
be unable to take advantage of this tax credit. Instead, the third-party owner
will realize the tax benefits. However, the 25 percent New York State personal
tax credit is available for the homeowner and NYSERDA incentives for leases
or PPAs are required to be reflected in the lease or PPA agreement. Under
a loan arrangement where a solar customer owns the solar electric system,
the solar customer will be able to take direct ownership of most incentives.
Solar installers should be able to provide an estimate of the payback period
for a direct purchase, taking into account all of the available incentives. Make
sure they explain all of the payback calculation assumptions. Interest paid
on solar loans that are secured through a home equity loan may also be tax
deductible. It is important to consider the impact of the available incentives on
the economic benefits based on the homeowner’s tax bracket before deciding
whether third-party ownership (such as a solar lease or PPA) or direct ownership
(either through a loan arrangement or through outright purchasing) makes
more sense.
New York State Homeowner’s Guide to Solar Leases, Loans, and Power Purchase Agreements | 10
Weighing the Benefits
of Direct Home Ownership vs.
Third-Party Financing
A direct, upfront, cash purchase of a residential solar electric system is typically the least expensive option in terms of
total dollars spent, because no interest costs or finance fees are incurred. In many cases, however, a homeowner will
not have the cash available to pay for a system outright. And, even when a homeowner does have enough cash to pay
for a solar electric system, it may still be financially advantageous to finance the solar electric system and invest the
cash elsewhere.
It is important to note that with a lease, PPA, or loan, homeowners will have an additional monthly bill to pay beyond
their regular monthly electric utility bill. However, the utility electric bill should be greatly reduced.
A homeowner who is financing solar through a lease or PPA generally will
have fewer concerns about maintenance and operation of the system.
A homeowner who is financing solar through a lease or PPA generally will have fewer concerns about maintenance
and operation of the system. Maintenance, monitoring, insurance, and warranties are usually provided through a solar
lease or PPA arrangement. For example, the replacement of most system parts to maintain a solar electric system’s
production performance will be covered by the third-party developer over the term of the contract under a lease or PPA
arrangement. Some homeowners may feel more comfortable knowing that they do not bear these maintenance and
operation responsibilities. Others may prefer to control and manage a system sited on their property.
Solar electric systems generally require little maintenance. They should be inspected periodically and may need to be
cleaned for optimized performance. If a homeowner lives in an area where snow buildup occurs, the panels may need
to be cleared of snow from time to time. Other maintenance issues which can occur over the lifetime of a system may
include loose wiring connections, loss of inverter function, or breaking or cracking of the panels themselves.
When a homeowner directly owns the solar electric system, either through upfront cash purchase or a solar loan, and
the system is not covered under any other insurance policy or covered under a warranty, the homeowner will bear the
risk of system malfunctions, accidents or any other unforeseen circumstances that result in the loss or curtailment of the
solar electric system’s output. Under a solar lease or PPA arrangement, these risks are borne by the third-party owner
rather than the homeowner.
New York State Homeowner’s Guide to Solar Leases, Loans, and Power Purchase Agreements | 11
On the other hand, when a homeowner finances his or her solar purchase through a lease or PPA, the financing contract may limit the homeowner’s ability to alter
the property if doing so would negatively impact solar access or solar electric system performance. For example, construction of a chimney could pose a problem if it
would cast a shadow on the solar electric system. When homeowners directly own their solar electric system, they are not bound by a third-party owner’s restrictions.
As noted above, with a third-party ownership arrangement (lease or PPA), a homeowner will not be able to take advantage of federal incentives such as the
ITC and state incentives such as Solar Renewable Energy Certificates (SRECs), where available. However, the fact that the third-party company will receive
these valuable incentive credits should allow it to oer more favorable financing arrangements to the homeowner than would otherwise be the case. Under the
direct-ownership model, whether a system is financed through a loan or purchased outright, the homeowner will be able to realize these incentives directly.
Table 1 summarizes the similarities and dierences between the dierent arrangements.
Table 1.
Comparing Residential Solar PPAs, Solar Leases, and Solar Loans/Direct Purchases
Solar Leases Residential Solar PPAs Solar Loans/Direct Purchase
Who buys the system? Third-party developer Homeowner
Who owns the system? Third-party developer Homeowner
Who takes advantage of the
federal investment tax credit
for solar?
Third-party developer Homeowner
Who takes advantage of the
state personal tax credit?
Homeowner
Who takes advantage of
NYSERDA incentive?
Although the incentive goes
directly to contractor, the
homeowner may benefit
through reduced costs on the
lease agreement.
Although the incentive goes
directly to contractor, the
homeowner may benefit
through reduced costs on the
PPA agreement.
Homeowner
Who is responsible for operations
and maintenance of the solar
electric system?
Usually the third-party
developer
Third-party developer Homeowner, though some state incentive
programs require installers to provide a
workmanship warranty for a set period of time
such as five years, thereby reducing the risk of
immediate issues related to improper installation.
Who incurs the risk of damage
or destruction
Third-party developer Homeowner
What happens if the homeowner
sells the home where the solar
electric system is located?
Depends on the contract If the homeowner finances the system through a
loan, the homeowner remains responsible for loan
payments after the transfer unless negotiated with
the buyer.
New York State Homeowner’s Guide to Solar Leases, Loans, and Power Purchase Agreements | 12
Solar Leases Residential Solar PPAs Solar Loans/Direct Purchase
Are financing payments fixed? Yes, payments are pre-set but
may include an annual escalator,
increasing payments each year.
No. Payments to the third-
party developer/owner are
on a per kilowatt-hour basis
based on electricity generated
by the solar array. Per
kilowatt-hour payments may
include an annual escalator.
If the homeowner finances the system through
a loan, the loan payments will be fixed. If the
homeowner decides to purchase a system
outright, a contractor may sometimes oer several
payment installments instead of one lump sum.
What contract duration terms
are available?
Terms can vary. Terms can vary, but often in
the range of ~20 years.
If the homeowner finances the system through a
loan, the loan terms can vary.
Does this type of financing
arrangement require a down
payment?
Not necessarily; down payment requirements vary. If the homeowner finances the system through a
loan, down payment requirements can vary.
Do contracts provide minimum
production guarantees?
Yes, usually. Solar lease
providers commonly provide
minimum production
guarantees.
Yes, usually. PPA providers
commonly provide minimum
production guarantees.
A loan contract does not include production
guarantees. However, a solar panel manufacturer
or developer/installer may provide a production
guarantee.
Are there escalator clauses
in the contracts?
Sometimes. Check the contract for specific terms. If the homeowner finances the system through
a loan, interest rates may increase over time
depending upon the specific terms of the loan.
Is insurance coverage provided? Ye s No. Homeowners who directly own their solar
electric system and want to be covered will need
to find coverage either through a homeowner’s
existing insurance policy or through the purchase
of a new or expanded policy. Homeowners may
decide to forgo insurance coverage altogether
and bear the risks of solar electric system
ownership. Some state incentive programs require
installers to provide a workmanship warranty for
a set period of time such as five years, thereby
reducing the risk of immediate issues related to
improper installation.
New York State Homeowner’s Guide to Solar Leases, Loans, and Power Purchase Agreements | 13
Questions to Ask
As you go through the process of deciding whether to purchase or finance
solar panels, listed below are some questions to ask yourself and the
companies you are interviewing. Going solar is an exciting option and one that
can give you many years of satisfaction.
Questions Related to Making the Decision to Go Solar
• Have you received quotes from at least three solar installation companies?
• Will the solar developer install the system directly or will that be done by a sub-contracted installer?
• How long has the solar developer and/or installer been in business? What is the solar developer/installer’s
reputation and financial standing? Do you know anyone who has used this solar developer/installer before?
Have you received references?
• Does the solar installer have the proper state certifications and licenses, if required?
• Will an on-site visit be performed to assess whether your house is a viable site for a solar electric system?
• Will you be able to monitor the electrical production of your solar electric system once it is installed?
• Will the electricity produced by your system cover all of your electrical needs at home? On average, will your
system produce excess electricity? How much will you be compensated for excess electricity production
if your state has net metering in place?
Questions Related to Financing
• Have you asked the solar developer to calculate the payback and walk you through the contract and any assumptions?
• Given your personal tax situation, does it make more sense to own (through a loan or direct purchase) your solar
electric system to take advantage of all the federal and state tax incentives?
• What is the interest rate and duration (in years) of the financing agreement? Have you shopped around to compare
other financing packages?
• Will you have to make a down payment? Do you have the option to make a down payment to reduce monthly fixed
payments (lease) or kilowatt-hour rate (PPA)?
New York State Homeowner’s Guide to Solar Leases, Loans, and Power Purchase Agreements | 14
• Will your monthly loan payments be equal to or less than the savings on your electric bill? (You will want to factor in
how much of your electricity needs will be met by your solar electric system as that will impact the reduction of your
electric bill. If the system doesn’t cover a significant portion of your electricity needs, then your savings may not be
substantial enough to justify the payments for your solar electric system.)
• Is there an escalation clause included in the financing agreement? If so, what is the annual escalation rate?
• If you are financing through a PPA, is the electricity rate you are being oered lower than what you are currently paying?
• If you are financing through a lease or PPA, is there a pre-payment option under which you can pay some or
all of your lease or PPA payments before they become due?
• If you are financing your system through a lease or PPA, what happens at the end of the contract term? Does the
contract require you to buy the system at the end of your term? If so, how is the buyout amount determined?
• Can you buy out your financing contract? Under what circumstances? At what rate? At what point? How is that rate
calculated?
• What happens if you sell your home before the end of your solar contract term? For instance, what happens if the
buyer does not qualify to assume your solar lease or PPA? What if the buyer does not want the solar electric system
included in the property sale?
• If you are financing your system through a lease or PPA, what happens if you need to replace the roof during the
contract term?
• Could the system be removed or repossessed if the lender goes out of business or gets into financial trouble?
• Can the lender sell the contract to a new entity? Will you be notified if that happens?
Questions Related to the Operations of the Solar Electric System
• Who will perform operations and maintenance on the system? If the third-party owner performs operation and
maintenance, who specifically would you contact if there is a problem? Are you obligated to notify someone within a
certain timeframe if there is a problem? How quickly will that person respond to your request for help? Will there be
any charges for parts and labor? What services does the operations and maintenance contract cover?
• Does the contract contain minimum production guarantees? If so, what accommodations are provided in the case of a
production shortfall? Will shortfall compensation be based on a wholesale or retail per-kilowatt-hour price?
• What are the insurance requirements? Who insures the system? Do you have to pay for any damage? Are there damage
reporting requirements? Is there a minimum insurance coverage requirement for the house in order to install a solar
electric system on it? What will your current home insurance policy cover with respect to your solar electric system?
• Who is responsible for warranting the system? If there is a warranty, is it with you or the solar company? Will you
receive a copy of the warranty agreement?
New York State Homeowner’s Guide to Solar Leases, Loans, and Power Purchase Agreements | 15
Solar Financing Resources for Homeowners
• Financing Options for NY-Sun Incentive Program:
http://www.nyserda.ny.gov/All-Programs/Programs/NY-Sun/Customers/Solar-Financing-Options
• Private Sector Lenders for Solar Projects:
http://www.nyserda.ny.gov/All-Programs/Programs/NY-Sun/Customers/Solar-Financing-Options/Residential-Lenders
• Financing Your Solar Electric System, EnergySage: www.energysage.com/solar/financing
EnergySage, an online marketplace that provides price quotes from multiple PV installers, has a webpage dedicated to solar financing.
This webpage provides information homeowners navigate their solar financing options.
• Homeowners Guide to Financing a Grid-Connected Solar Electric System U.S. Department of Energy (DOE) Guide:
www1.eere.energy.gov/solar/pdfs/48969.pdf
DOE’s Homeowners Guide to Financing a Grid-Connected Solar Electric System provides an overview of the financing options that may be
available to homeowners who are considering installing a solar electric system on their house. It explains the benefits of a solar electric system,
key terms, and various options for homeowners financing a solar electric system.
• Introduction to Solar Project Finance Solar Outreach Partnership Solar Training Video:
www.youtube.com/watch?v=fojwEO3zpH8
Under the U.S. Department of Energy’s SunShot Solar Outreach Partnership, the International City/County Management Association, and
Meister Consultants Group produced a video series for local government ocials covering many aspects of installing solar. One of the videos
covers the basics of solar project financing, which may be useful for homeowners interested in financing a residential solar electric system.
• Solar Leasing for Residential Photovoltaic Systems National Renewable Energy Laboratory (NREL) guide:
http://www.nrel.gov/docs/fy09osti/43572.pdf
NREL’s Solar Leasing for Residential Photovoltaic Systems guide examines the solar lease option for residential solar electric systems.
It also describes two lease programs: the Connecticut Solar Lease Program and SolarCity’s program.
• Solar Checklist, Interstate Renewable Energy Council (IREC):
http://www.irecusa.org/consumer-protection/consumer-checklist/
IREC provides a checklist for residential consumers considering solar energy, including preliminary questions and tips for yourself,
safety considerations to ask your contractor, and what to look for in a contract between you and your contractor.
• Additional solar information and resources, IREC:
http://www.irecusa.org/consumer-protection/consumer-resources/
New York State Energy Research and Development Authority (NYSERDA), a public benefit corporation, oers objective information and analysis, innovative programs,
technical expertise, and support to help New Yorkers increase energy eciency, save money, use renewable energy, and reduce reliance on fossil fuels. NYSERDA
professionals work to protect the environment and create clean energy jobs. NYSERDA has been developing partnerships to advance innovative energy solutions in
New York State since 1975. To learn more about NYSERDA’s programs, visit nyserda.ny.gov or follow us on Twitter, Facebook, YouTube, or Instagram.
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