Own, Lease or Power Purchase Agreement: Which is the Right Way for You to Go Solar?
Businesses have a wide range of options when it comes to solar energy procurement. Some companies may benefit from owning the system directly, while others may prefer a third-party owned system, such as a solar operating lease or a “Power Purchase Agreement.” Finding the right solution to match a business’s requirements can be complex. The first step is understanding what options are available.
An easy way to explain the different solar structure procurement options is with a car analogy.
Purchasing a solar project is like buying a car and having full ownership of the vehicle. Purchasing a car entitles the buyer to special deals, such as a Black Friday discount. Similarly, solar system ownership entitles businesses to take full advantage of all federal and state incentives. This option typically provides the “biggest bang for your buck” by allowing the owner to recoup 60% or more of the total project cost through federal and state incentives.
Another option that is attractive to businesses is to lease the solar system. Like a car lease with no capital outlay, the lessee receives full use of the car in exchange for a lease payment. Solar Operating Leases typically run 6 to 10 years, require no upfront capital and have buyout options at the end of the contract. The lessor (i.e. the system owner, typically a large bank) can profit from the tax benefits associated with the solar project in the first few years. At the end of the lease, the lessee may choose to purchase the solar system at a fraction of the cost and utilize the system for the rest of its operational lifespan.
Power Purchase Agreement (PPA)
Power Purchase Agreements allow businesses to enter into a long-term contract (15-25 years), where they purchase the clean, renewable energy from the solar system—most often at a discount to current electricity rates. There is no capital outlay or operational responsibilities with a PPA.
Signing a PPA is similar to signing a contract with a taxi driver. Perhaps you have found a taxi driver you liked so much that you negotiated a contract where you can be driven around at a fixed rate per mile. It is very important that you enter this arrangement with a trusted driver. In this case, your taxi driver would be an EnterSolar investment partner.
The factors to consider when choosing between these three primary options include tax liability, capital investment appetite, risk/return parameters and investment time horizon. All three primary options can provide businesses with the opportunity to use clean, renewable energy and offset electricity costs, thus also reducing ongoing electricity spending. Additionally, EnterSolar offers “hybrid” alternatives that incorporate various aspects of direct ownership, leases and PPAs, all driven by the specific objectives or constraints of our corporate clients. EnterSolar works with each customer on a case-by-case basis to fully evaluate all the advantages and disadvantages of each financial option and achieve the optimal scenario for the client.
If you are interested in learning more about the solar system options available, please reach out to [email protected] or 888-225-0270.