Question 1

What is the main financial difference between buying and leasing solar?

Accepted Answer

The single most consequential difference is incentive capture. When you buy a solar system (cash or loan), you own it — and you capture all available incentives: state income tax credits, SREC revenue, property tax exemptions, and sales tax exemptions. When you lease a solar system or sign a PPA, the installer retains ownership of the panels and captures all incentives, including any applicable tax credits. You receive only the contractual payment terms you negotiated. Per Vikram Aggarwal, EnergySage CEO (EnergySage Solar Marketplace Report 2024): 'solar shoppers who compare multiple quotes save an average of 20% on installation costs' — that savings applies primarily to purchase options, not leases where the installer controls pricing. Beyond incentives, the ownership paths diverge on economics: a cash buyer has fixed, known costs from day one and all avoided utility bill savings flow directly to them; a loan buyer has a fixed payment schedule but captures all incentives; a lessee has a monthly payment (possibly with an annual escalation clause of 0-2.9%) and zero incentive capture; a PPA customer pays per kWh produced at a contracted rate typically 10-30% below retail, with no incentive capture. The 25-year NPV comparison — which this calculator computes — typically shows cash purchase as the highest-NPV option, followed by a low-rate solar loan, followed by HELOC, followed by lease/PPA which often produces the lowest long-run NPV despite zero upfront cost.

Question 2

What is a PPA and how is it different from a lease?

Accepted Answer

A power purchase agreement (PPA) and a solar lease are both third-party ownership structures in which the installer owns the panels installed on your roof, but they differ in the payment structure and production risk allocation. Under a solar lease, you pay a fixed monthly amount regardless of how much electricity your panels actually produce. The installer bears the production risk — if the panels underperform, you still pay the same lease payment. Lease payments typically escalate 0-2.9% per year per contract terms, compounding the payment over the 20-25 year term. Under a PPA, you pay a per-kWh rate for the electricity your panels produce. If production is lower than expected (due to weather, shading, or equipment issues), your PPA payment is lower — you bear no production shortfall cost. However, if production is higher, you pay more. PPA rates are typically set 10-30% below current retail utility rates and also have annual escalation clauses. For decision-making: the lease is simpler and more predictable; the PPA aligns incentives between installer and homeowner on production quality. Neither structure lets you capture state incentives — those go to the installer. Both create title encumbrances on your home that can complicate sale. Neither is typically the highest-NPV option compared to ownership; the correct choice between lease and PPA is usually the one with the lower effective per-kWh cost over the full contract term, which this calculator computes for both.

Question 3

How does the 2.8%/yr utility rate escalation assumption affect the ROI comparison?

Accepted Answer

The utility rate escalation assumption is one of the most sensitive variables in any solar ROI model, and it affects buy-side options more than lease/PPA options. Per the EIA Form EIA-861 data (U.S. Energy Information Administration): residential electricity prices rose an average of 2.8% per year from 2015 through 2024. A 2.8%/yr escalation applied forward over 25 years compounds to a total rate increase of approximately 100% — meaning electricity that costs $0.14/kWh today would cost $0.28/kWh in 2050 under this assumption. The practical impact on solar ROI: avoided utility bills grow larger each year because your fixed solar output is being credited against an increasing retail rate. At a 2.8%/yr escalation, the 25-year NPV of avoided utility bills is approximately 40% higher than a static-rate assumption using today's price. For lease/PPA comparison: the lease payment escalation clause (typically 0-2.9%) determines how your payment grows relative to the utility rate growth. If your lease escalates at 2.9%/yr and the utility rate escalates at 2.8%/yr, you effectively have no escalation benefit — the lease payment pace matches utility rate growth. If your lease has 0% escalation, the fixed payment becomes increasingly valuable as utility rates rise. This calculator lets you set your own utility rate escalation assumption (default: 2.8% per EIA historical) and compare it directly against any lease/PPA escalation terms you've been quoted.

Question 4

What happens to a solar lease or PPA when I sell my home?

Accepted Answer

A solar lease or PPA is a contract tied to the property and the system installed on it — it does not automatically terminate when you sell. This creates a home sale complication that cash/loan buyers do not face. You have three options when selling a home with a leased or PPA solar system: (1) Transfer the lease or PPA to the buyer. The buyer must qualify under the installer's credit requirements, agree to assume the contract, and be willing to take on the remaining payment obligations. Many buyers refuse — market research suggests 20-40% of solar-home transactions are complicated by buyer reluctance to assume third-party solar contracts. (2) Buy out the lease. Early termination fees vary by installer and remaining contract term, but commonly range from $1,000 to $5,000 or more. Some contracts calculate buyout as the net present value of remaining payments, which can be $5,000-20,000+ with 15+ years remaining. (3) Remove the panels at your cost. The installer removes the equipment; you pay removal and roof repair costs (typically $1,500-3,500). The presence of a third-party solar contract in a home's title chain is now a disclosed material fact in most states and must be reported to potential buyers. For cash and loan solar owners, there is no lease encumbrance — the panels are fixtures of the home and typically add value (Zillow research estimates $4-6/watt of added home value, though NEM 3.0 has reduced this in California). This calculator includes a home sale impact module comparing the three exit paths.

Question 5

Why do cash buyers get the best 25-year NPV?

Accepted Answer

Cash buyers receive the best 25-year NPV for three compounding reasons: no interest cost, full incentive capture, and no escalation risk. First, eliminating financing cost is significant — on a $25,000 system over 20 years at even a competitive 5% solar loan rate, cumulative interest paid is approximately $14,000. A cash buyer avoids this entirely. Second, incentive capture: state income tax credits, SREC revenue, property tax exemption present value, and sales tax exemptions all flow to the owner. In a high-incentive state like Massachusetts or New York, the combined incentive stack can reduce the effective net cost to $1.50-2.00/watt — a cash buyer captures every dollar of this. Third, with no monthly payment obligation, 100% of the avoided utility bill savings accrue to the cash buyer from month one. Per Vikram Aggarwal, EnergySage CEO (EnergySage Solar Marketplace Report 2024): median cash payback is approximately 7.1 years in above-average solar states after available incentives. Over a 25-year system life, the 25-year NPV of a cash purchase in a high-incentive state is typically 2-3× the original install cost — the system pays for itself nearly three times over. The tradeoff is obvious: cash buyers require a lump-sum of $15,000-30,000 upfront, which is not accessible to all homeowners. The solar loan option is typically the next-best NPV if the interest rate is competitive (under 6%) and if all incentives are still captured by the owner.

Question 6

What is the solar loan interest rate impact on ROI?

Accepted Answer

Interest rate is the largest differentiator between solar loan options and directly determines whether buying-via-loan beats leasing on a 25-year NPV basis. On a $25,000 solar loan, the total interest paid over 20 years at different rates: at 4.99%, approximately $13,600 total interest; at 6.99%, approximately $19,700; at 9.99%, approximately $29,400. The difference between a 4.99% and 9.99% rate is approximately $15,800 in total interest on a $25,000 loan — a difference that can swing the 25-year NPV comparison enough to make a lease financially comparable to a high-rate loan. There are two primary types of solar loans: secured (home equity loan or HELOC, using your home as collateral) and unsecured (solar-specific loans from companies like GoodLeap, Mosaic, or Sunlight Financial). Secured loans typically carry rates 1-3% lower than unsecured options because of the collateral. HELOC interest may be deductible for qualified taxpayers under IRC §163(h)(3)(B) if the proceeds are used for capital improvements — consult a tax advisor. Unsecured solar loans often have 'dealer fees' paid by the installer to the lender (2-25% of the loan amount) that are embedded in your installed system price, not shown as an explicit fee. Per Jigar Shah, DOE Loan Programs Office (DOE 2025): 'State programs, falling hardware costs, and battery economics mean payback periods of 6-9 years in most markets even without the federal residential credit.' This calculator models both secured and unsecured loan options with their respective rate ranges.

Question 7

How does system degradation affect the lease-vs-buy comparison?

Accepted Answer

System degradation is a physics reality that affects all solar financing options but in different ways. Per David Feldman, NREL Senior Researcher (NREL Tracking the Sun 2024): the median residential system degradation rate is 0.5%/yr. At 0.5%/yr degradation, a system producing 10,000 kWh in Year 1 produces 9,500 kWh in Year 11 and 8,800 kWh in Year 26 — approximately 12% less output in the final year of a 25-year useful life. For cash and loan buyers: degradation reduces the avoided utility bill savings proportionally each year. The Year 25 savings are approximately 88% of Year 1 savings — this is accounted for in the NPV calculation. For lessees: some lease contracts include a 'production guarantee' — the installer guarantees a minimum annual kWh production and credits you for any shortfall below the guaranteed level. This effectively transfers degradation risk from the lessee to the installer. For PPA customers: you pay per kWh produced, so a degraded system means lower PPA bills — the production risk is shared between you and the installer. In practice, modern solar panels (monocrystalline PERC and TOPCon technology) often have warranted degradation rates below 0.5%/yr. Leading manufacturers warrant degradation at 0.25-0.30%/yr for premium panels. The 0.5%/yr figure from NREL represents a median across the full installed residential fleet including older crystalline silicon and thin-film technologies. This calculator uses the NREL median as the default and allows you to input a manufacturer-warranted rate for your specific panel selection.

Question 8

Does California NEM 3.0 change the lease-vs-buy calculation?

Accepted Answer

California NEM 3.0 dramatically changed the solar ROI calculation for new systems installed after April 2023 — and it specifically widened the gap between lease and buy economics in a counterintuitive way. Under NEM 2.0 (which still applies to grandfathered systems installed before April 2023), solar exports to the grid were credited at the full retail rate — approximately $0.25-0.32/kWh for PG&E customers. Under NEM 3.0, new systems receive credits at the 'avoided cost' rate — approximately $0.04-0.08/kWh depending on time of day and season. This reduces the value of grid-exported solar electricity by approximately 75% compared to NEM 2.0. The practical impact: NEM 3.0 reduced the 25-year cash NPV for a California cash buyer by approximately 25-30% compared to NEM 2.0 assumptions. Many older online calculators — and installer sales pitches — still use NEM 2.0 numbers. This calculator uses NEM 3.0 export rates for new California systems (it detects CA state selection and applies the correct rate structure). However, NEM 3.0 simultaneously increased the financial value of battery storage: the optimal strategy under NEM 3.0 is to store solar production in batteries during the day and discharge during peak hours (4-9 PM) when California retail rates hit $0.50-0.60/kWh or higher under Time-of-Use pricing. This makes California solar-plus-storage potentially more attractive than solar alone under NEM 3.0, even accounting for the reduced export credit. The Battery Storage ROI Calculator on this site models the CA storage economics in detail.

Solar Lease vs. Buy ROI Comparator

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