The decision about how to finance your solar power system depends on your particular financial goals, motivations and future business trajectory.
We are agnostic as to how our clients pay for our solutions but over the years we've seen the tangible benefits of lease-to-own agreements providing greater control and financial outcomes for businesses.
What is the difference between a solar PPA and lease-to-own?
A PPA (Power Purchase Agreement) is the agreement a business makes to buy power produced by solar panels placed on their roof and owned by the Solar PPA provider at a specific price.
Under this arrangement, the business never owns the solar system and continues to buy electricity from a company which owns the panels sitting on the roof over 20-25 years.
With solar lease-to-own, you are paying off an asset that you'll own entirely, eventually unlocking free energy for your business for the remaining lifetime of the system.
Upfront costs and ongoing costs
These days both PPA and lease-to-own agreements (through solar providers such as Choice Energy) ensure the switch to solar is financially achievable for businesses, with little to no upfront costs applicable.
With a lease-to-own model, you will continue paying off your system as a monthly instalment, regardless of performance. However, interest rates are very low and fixed and implied interest rates are much higher than a lease-to-own. Comparatively, with a PPA there is no monthly fixed payment.
Our favoured lender is a big four Australian bank backed organisation, that put Choice Energy through a rigorous credit and ACCC (Australian Competition and Consumer Commission) checks before approving us an accredited installer. Their reasoning is that if they are to lend hundreds of thousands of dollars to a client, they need to know the product will indeed be a money-saving tool that will work for up to 25 years.
We also aim to make your post-solar energy bills less than your pre-solar energy bills meaning you won't be paying anything more each bill cycle and you'll benefit from paying off an asset you'll own.
Some PPAs have an uplift in pricing each year so that the electricity you purchase from the solar panels on your roof actually goes up in price over time. However, usually, this escalation is at a lower percentage than the average annual increase in power prices charged by energy retailers.
Government rebates and tax benefits
As someone looking to solar to offset your costs - whether that be via a PPA or lease-to-own - you can benefit from the Federal Government’s rebates for solar. Read about them here.
Thanks to the Federal Government's revised Instant Asset Tax Write Off, solar lease-to-own is more attainable for your business than ever before, providing savvy businesses with some fairly astonishing tax benefits.
Speak to our team about the finance structures available to you.
Performance impact on payments
Under a PPA agreement you pay by kWh. If for some reason the panels are not working for a period, or are producing less power than quoted, your payments for the solar system fall accordingly.
It is a liability to pay a fixed price for power over a long term, but as it is a balance sheet obligation, as such, it does not increase the assets on the balance sheet and does have the advantage of not adding million dollar assets which could reduce the company's overall ROA or ROE.
With a pure lease-to-own, the monthly amount is due regardless of actual electricity production from the panels.
Choice Energy mitigates power production risk with our lease to own, with a power production guarantee (PPG) which locks in a minimum delivery of power, or we pay a top up fee at year end, if for any reason we underperform. Excess production is kept by the client. Choice Energy also offers 24-hour monitoring of its systems.
Ownership, Freedom and Flexibility
If flexibility and freedom is a consideration for your business, it's important you weigh up the pros of both options as both options provide vastly different outcomes.
With a solar PPA, generally the business never owns the asset. The provider is effectively leasing your roof space for a set contractual period of time, so they retain ownership of the system and the responsibility for any maintenance costs. The company that has financed the construction of the system sells you the power that it generates at a rate that is lower than your retail tariff.
Under a PPA the contracts are often between a business, the solar provider, and a group of investors who lend the capital and receive a return on their money. These are also very long term contracts and difficult to get out of if the client moves premises.
With a lease-to-own, the client is working to own the asset and we've had many cases where the client is doing this from day one.
Under lease-to-own there are more flexible payment terms.
Our final word
With a solar PPA, you may end up with higher short term savings but over the long term, you likely end up paying much more for the same amount of power than if you acquired the system via a lease-to-own agreement.
For us, solar lease-to-own provides the perfect middle ground between a solar PPA and buying a system outright, where you maintain control, acquire an asset and benefit from maximum return on investment.