Solar Payment Options
As in any other type of investment, Solar PV customers also have different options to pay for the system depending on what's financially more advantageous for the particular project. The most common payment options in the Solar Industry are Cash Purchase, Power Purchase Agreement (PPA), Lease, and Loan.
Cash Purchase refers to the direct acquisition of the system and is paid upfront without any financing. The business or homeowner will be able to utilize the solar production and receive all incentives but will also be responsible for the maintenance of the system.
Power Purchase Agreement (PPA)
Under this payment option, an entity will purchase and coordinate a solar project installation on a customer's property. The entity will pay to install the system, receive the tax benefits and incentives of the project, and provide power to the customer at a negotiated cost per kWh. This negotiated rate (often with an annual escalator) is typically less than what the customer would pay the utility, so the customer benefits from a lower cost of electricity without providing the capital to install a solar project. Some PPA arrangements allow the customer to purchase the system at specific times throughout the PPA term. PPA's are very common among non-profit organizations or municipalities where the system's host can't keep incentives (the investor or third party will collect and retain all incentives).
Solar Leases allow a third-party entity to pay and coordinate a solar project installation on a customer's property. The customer then pays a negotiated monthly or annual payments to the entity in return for the electricity produced by the solar PV system. The third-party entity typically retains the tax breaks and incentives in these arrangements. There are two types of leases:
- A capital lease is treated as an asset on a company’s balance sheet. So, incentives could be collected on the system, driving the payback down.
- An operating lease is an expense that remains off the balance sheet to be written off as an expense in taxes—hence lower payback.
Under a loan, the home or business owner will finance the cost of the system through some third party like a bank. Loans provide a low or no up-front payment method to the customer, and the interest rate is applied to the loaned money (the financing institution or bank will determine this rate). The business or homeowner will be able to keep incentives but will be responsible for the maintenance of the system.
In HelioScope, you can model these and other Payment Options as a Financial Model and include them in your proposals.