What is a solar lease or power purchase agreement?

Third-party financing of solar energy primarily occurs through two models: power purchase agreements (PPAs) and solar leases.

In a solar lease or solar power purchase agreement (also known as a "PPA"), rather than paying up front, a customer pays for the solar power system over a period of years. Often customers can purchase solar for little or no money down, and often realize energy savings immediately. In a power-purchase agreement, a customer agrees to purchase all the energy from a solar system over a fixed period of time. For instance, In the PPA model, an installer/developer builds a solar energy system on a customer’s property at no cost. The solar energy system offsets the customer’s electric utility bill, and the developer sells the power generated to the customer at a fixed rate, typically lower than the local utility. At the end of the PPA contract term, property owners can extend the contract and even buy the solar energy system from the developer. In the lease model, a customer will sign a contract with an installer/developer and pay for the solar energy system over a period of years or decades, rather than paying for the power produced. Solar leases can be structured so customers pay no up-front costs, some of the system cost, or purchase the system before the end of the lease term. Similar leasing structures are commonly used in many other industries, including automobiles and office equipment.