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Let the Sun Shine In with Solar Leasing and Power Purchase Agreements

Posted on 02. Mar, 2011 by Kimberly Madrigal in Technology

Everyone would like to get their electricity from a clean energy source but cost can be a prohibitive factor, particularly for rental properties. Two ideas that may merit further investigation are power purchase agreements (PPAs) and leasing of solar photovoltaic (PV) equipment.

Leasing PV Systems

Pioneered in California, solar equipment leasing offers residential customers the opportunity to install solar equipment with little or no-money down, pursuant to the owner’s FICO score. In addition, the equipment is repaired and maintained by the company or their designated affiliate, a distinct advantage for rental properties. Plus, like an automobile lease, the panels may be purchased for fair market value at the end of the 15 – 20 year contract. Any federal, state or local tax incentives for leasing are retained by the solar company.

The property owner agrees to purchase all the power supplied by the panels at a fixed cost per month. This cost is usually lower than market rate; however, like utility rates that increase an average of six-percent per year, the contract will likely contain an escalation clause. While there is no guarantee that the homeowner’s rates will be lower than the rates set by utility companies, over the long run it is assumed the rates will generally be lower.

An important consideration for property managers and owners is the likelihood of a future sale of the property. In order for a new owner to take over the lease, they would have to meet the credit requirements of the leasing company. Other options include possibly paying off the lease and including the cost within the purchase price of the home or transferring the solar equipment assets to another residence.

Power Purchase Agreements

Another PV option with no or low up front costs is the power purchase agreement or PPA that requires the homeowner to purchase the power generated by the solar array at a fixed cost per kilowatt. Of course, the amount of power generated is dependent upon a number of factors, including the weather. Therefore, unlike the solar lease, the exact charges will vary on a monthly basis.

Any tax incentives and renewable energy credits are retained by the solar company or its designated affiliate, but, like the solar lease, the PPA has the advantage of a contract that makes all service and maintenance the responsibility of the solar company.

While leasing and power purchase agreements may seem like more trouble than they are worth on a rental property, bear in mind that the electricity costs of a PV system are expected to be less over time than the cost of purchasing electricity from the utility company. Also, if the properties you manage are in an area with a glut of rental homes, a solar array may help differentiate your assets from other, similar properties. In addition, it is important to remember that producing energy from renewable sources reduces both greenhouse gas emissions and our dependence upon foreign oil. PVs in particular can give your properties a leg up as consumers make the transition to electric vehicles.

As always property management professionals will want to do their homework, get several bids and check the references of prospective solar installers. These solar contracts run for many years and it is important to perform your due diligence with respect to the reputation and solvency of the companies involved.

One final word, solar leasing and power purchase agreements are currently available in about one-third of the states but programs are expanding rapidly. If you have any experience with solar leasing or power purchase agreements, we would love to hear from you about your experiences.

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Tags: Energy Efficient, environmentally conscious, Green Living, Landlord, Technology