Customer Solar Lease Financing

The customer solar lease is similar to the residential or commercial PPA in that a property owner hosts, but does not own, a solar PV system. To take advantage of federal tax incentives, a third-party lessor finances and owns the solar PV installation. However, distinct to a solar lease, the property owner (as lessee) pays to use the equipment instead of purchasing the generated power. Thus, the customer’s lease payment remains constant even if the system’s output fluctuates. If the system does not meet the customer’s entire energy needs, the customer purchases additional electricity from his/her utility. Any excess electricity generated by the system can be net metered, earning the customer cents/kWh credits on his/her electric utility bill.

Similar to a third-party PPA, the solar lease transfers the high up-front costs to the system owner/developer, who can take advantage of valuable federal tax incentives. Some of the cost savings might be passed down to the customer in the form of lower payments. In states with complementary incentives, lease payments can be less than or equal to monthly utility
There are challenges associated with the solar lease. For example, the leasing company may not have as strong an incentive to maintain the system as it would under a third-party PPA contract, because the customer’s payments are fixed regardless of the system’s output. However, some companies will monitor the system’s output and will provide maintenance promptly, or will include a performance guarantee that ensures a minimum kWh output (Kollins et al., forthcoming). Also, as with the third-party PPA, the solar lease may face regulatory challenges in some states (Kollins et al., forthcoming). In addition, the traditional solar lease may not be available to non-taxable entities such as state and local governments because of uncertainty about renewing contracts on a year-to-year basis. However, state and local governments may be able to use a tax-exempt lease where payments to the lessor are tax exempt (Bolinger 2009).