Solar Loan Vs Lease Calculator
Compare buying, leasing, and PPA solar financing options over 25 years. Enter values for instant results with step-by-step formulas.
Formula
Net Savings = Total Electricity Savings - Total Financing Cost
Each financing option is evaluated by comparing the total electricity bill savings over 25 years against the total cost of that financing method. Electricity savings grow annually with utility rate increases, while loan payments are fixed and lease/PPA costs escalate at their respective rates.
Worked Examples
Example 1: Loan vs Lease: 25-Year Comparison
Problem: Compare buying ($28,000, 5.5% loan, 15yr) vs leasing ($120/mo, 2.9% escalator) for a system producing 1,000 kWh/mo at $0.16/kWh with 3.5% rate increases.
Solution: LOAN: Monthly payment: $229/mo, total paid: $41,191, tax credit: $8,400\nNet cost: $32,791. 25yr electricity savings: $67,764. Net benefit: $34,973.\nLEASE: Year 1 cost: $1,440, Year 25: $2,853. Total 25yr: $53,093.\n25yr electricity savings: $67,764. Net benefit: $14,671.\nDifference: Loan saves $20,302 more than lease over 25 years.
Result: Loan net: $34,973 | Lease net: $14,671 | Loan wins by $20,302 over 25 years
Example 2: PPA vs Utility Power
Problem: Compare a PPA at $0.12/kWh (2.9% escalator) vs utility at $0.16/kWh (3.5% increase) for 1,000 kWh/mo production.
Solution: PPA Year 1: 12,000 x $0.12 = $1,440\nUtility Year 1: 12,000 x $0.16 = $1,920\nYear 1 savings: $480\nPPA Year 25: 12,000 x $0.237 = $2,843\nUtility Year 25: 12,000 x $0.367 = $4,407\nYear 25 savings: $1,564\nTotal 25yr PPA cost: $28,152, Total utility: $67,764\nNet savings: $39,612
Result: PPA saves $39,612 over 25 years vs utility. Savings grow each year as utility rates outpace PPA escalator.
Frequently Asked Questions
What are the main differences between buying, leasing, and PPA for solar?
The three primary solar financing options differ in ownership, upfront cost, and long-term financial outcomes. Buying (with cash or loan) means you own the system, receive the tax credit, keep all energy savings, and benefit from increased home value. A solar lease means a third party owns the panels on your roof; you pay a fixed monthly amount that typically escalates 1-3% annually for 20-25 years. A Power Purchase Agreement (PPA) is similar to a lease but you pay per kilowatt-hour of electricity produced rather than a flat monthly fee. Ownership provides the highest total savings over 25 years but requires upfront investment or credit qualification. Leases and PPAs require no upfront cost but generate less total savings because the solar company retains the tax credit and a portion of the energy value.
How does a solar loan work and what are typical terms?
A solar loan finances the purchase of a solar system, making you the owner while spreading the cost over time. Typical solar loans have terms of 10-25 years with interest rates of 3-8% depending on credit score, loan term, and whether the loan is secured (using your home as collateral) or unsecured. Many homeowners use the 30% federal tax credit to make a lump-sum payment on the loan in year one, reducing the principal and lowering monthly payments or shortening the term. Some solar installers offer dealer-subsidized loans with artificially low rates (0-2.99%), but these often have higher system prices that offset the rate benefit. Home equity loans and HELOCs can also finance solar with tax-deductible interest, though this puts your home at risk if you default on payments.
What is a solar lease escalator and how does it affect long-term costs?
A lease escalator is the annual percentage increase in your monthly lease payment, typically ranging from 0% to 2.9% per year. Starting with a $120/month lease payment with a 2.9% escalator, your payment grows to $238/month by year 25. Over 25 years, total lease payments with a 2.9% escalator are about 40% higher than with no escalator. The key comparison is whether the escalator rate is lower than your utility electricity rate increase: if electricity rates rise faster than your lease payment, you continue saving money each year. If electricity rates rise slower, your savings shrink over time and could eventually turn negative. Always negotiate the lowest possible escalator, and some solar companies now offer zero-escalator leases, though the initial monthly payment is typically higher.
What is a Power Purchase Agreement (PPA) and how does it compare to a lease?
A Power Purchase Agreement (PPA) is a contract where a solar company installs panels on your roof at no cost, and you agree to buy the electricity they produce at a set per-kWh rate. The PPA rate starts below your utility rate (often 10-30% lower) and increases by an escalator (typically 1-3% annually). The key difference from a lease is that with a PPA, your payments directly correlate with energy production: if the system underproduces in cloudy weather, you pay less. With a lease, you pay the same amount regardless of production. PPAs are particularly common in states where lease structures are restricted. Both leases and PPAs typically include system monitoring and maintenance by the solar company, removing those responsibilities from the homeowner.
Which solar financing option provides the most savings over 25 years?
Buying the system (cash or loan) almost always provides the highest total savings over 25 years because you keep the federal tax credit, all energy savings, and any SREC income. A typical 8 kW system purchased for $28,000 with a 30% tax credit ($8,400) nets $40,000-$80,000 in savings over 25 years depending on electricity rates and rate increases. A lease on the same system might save $15,000-$35,000 because the lease payments consume a significant portion of the energy savings. A PPA typically falls between buying and leasing in total savings. However, the best option depends on individual circumstances: if you have low tax liability and cannot use the ITC, a lease or PPA may actually provide better returns. If you plan to move within 5-10 years, the transferability of each option matters significantly.
Can I transfer a solar lease or PPA if I sell my house?
Solar leases and PPAs can be transferred to the new homeowner when you sell your house, but this adds complexity to the sales process. The new buyer must qualify for the lease transfer (credit check and income verification) and agree to assume the remaining lease or PPA payments. Some buyers view an existing solar lease as a liability rather than a benefit, especially if the payments are high or the escalator is steep. Studies show homes with owned solar systems sell for 3-4% more than comparable homes, while homes with leased solar may not see the same premium. Some solar companies allow you to buy out the lease before selling (often at a reduced price in later years). When buying solar with a loan, the system is your property and transfers with the home, while the loan must be paid off at closing, similar to a mortgage.