Quick answer
Compare commercial solar offers by what you own, what you must pay, who handles failures, and how you exit—not monthly payments alone. Buying puts the equipment and its operating responsibilities with your organization. A loan finances that purchase. A third-party solar lease generally charges for using equipment; an onsite power purchase agreement, or PPA, charges for electricity generated. Contract terms determine the remaining obligations. (docs.nlr.gov)
This guide covers United States commercial and institutional onsite solar projects, not offsite virtual PPAs. Before selecting a structure, identify the state, utility territory, property owner and electricity-account holder. Third-party solar arrangements are not available on identical terms everywhere. (epa.gov)
1. Separate equipment ownership from the payment structure
Start with two questions: Who owns the solar system during the agreement, and what triggers your payments?
With a direct purchase, your organization owns the system and can contract out installation, operation and maintenance. Borrowing to fund that purchase does not itself outsource equipment management: the borrower must still arrange those services. (docs.nlr.gov)
Under a third-party solar equipment lease, the provider owns the system and the host makes scheduled lease payments. Under an onsite PPA, the provider owns and operates the system while the host purchases its electricity at the agreed price. Both structures can include annual payment escalation. (sam.nlr.gov)
| Issue | Cash purchase | Purchase with a loan | Third-party solar equipment lease | Onsite solar PPA |
|---|---|---|---|---|
| Equipment owner during term | Your organization | Your organization, subject to financing security | Lessor | Third-party system owner |
| Main payment basis | Purchase price | Principal, interest and fees | Scheduled equipment-use payments | Contract price multiplied by billable generation |
| Upfront commitment | Purchase and associated project costs | Down payment, fees and excluded costs, if required | Contract-specific; check deposits and prepayments | Usually avoids host-funded system capital cost; check exclusions |
| Operating responsibility | Yours; services can be outsourced | Yours; services can be outsourced | Must be allocated in the contract | Generally provider-operated and maintained |
| Output shortfall | Owner bears risk, subject to warranties or guarantees | Same operating risk, plus debt obligations | Check payment relief and performance provisions | Check metering, billing exceptions and remedies |
| Ownership afterward | Already yours | Already yours; settle outstanding security | Purchase, return or extension depends on terms | Purchase, extension or removal depends on terms |
These are starting distinctions, not substitutes for the documents. Financing collateral, maintenance allocation and end-of-term rights require separate review. (betterbuildingssolutioncenter.energy.gov)
Ask the bidder to distinguish an equipment lease from a roof or site lease. The latter grants access to property and may accompany a PPA; it is not necessarily how you pay for solar electricity. (docs.nlr.gov)
2. Request comparable proposals before comparing prices
Give bidders the same project brief. Request a preliminary design, modeled production, itemized costs, projected utility savings, construction schedule and complete proposed agreements. EPA’s solar proposal checklist explicitly calls for these materials, including template PPA documents where applicable. (epa.gov)
For your comparison spreadsheet, ask each bidder to identify:
- System capacity, clearly distinguishing DC panel capacity from AC equipment capacity.
- Modeled generation and the assumptions behind it.
- Construction, interconnection and site-work inclusions and exclusions.
- Upfront payments, recurring charges, escalation and financing fees.
- Maintenance, insurance and replacement-cost allocation.
- Buyout, termination and removal provisions.
Do not accept a savings number without its underlying utility calculation. EPA recommends investigating tariff components and comparing generation timing with the facility’s consumption profile—not just annual electricity totals. (epa.gov)
Keep project economics and financing cash flow separate. First compare the system’s costs and avoided utility charges. Then add the loan, lease or PPA obligations. This helps reveal whether an attractive payment schedule masks an expensive project.
For property tenants, make landlord approval and continued site access explicit approval conditions. Have counsel reconcile the solar agreement with your occupancy agreement before committing.
3. Calculate escalators and billing exposure over the full term
A low starting PPA price is not enough to judge the offer. EPA identifies several possible pricing approaches, including flat prices, annual escalation and prices linked to utility rates. It also recommends agreeing on how any buyout price will be determined. (epa.gov)
For a hypothetical PPA starting at $0.10/kWh with a 2% annual escalator:
Price in year n = $0.10 × 1.02^(n − 1)
The year-20 price is approximately $0.1457/kWh. That is arithmetic, not a forecast of utility prices.
Request the full annual price schedule and sample invoices. Your billing review should answer:
- Which meter determines billable electricity?
- Are you buying all production or only electricity consumed onsite?
- Who receives export credits?
- What happens during equipment failure or utility curtailment?
- Is any payment based on estimated or “deemed” generation?
- Are there minimum purchases or separate service charges?
Treat these as contract questions, not assumptions about every PPA. National-laboratory PPA guidance highlights the importance of generation commitments, utility arrangements and the risk of output exceeding the host’s needs. (docs.nlr.gov)
For a lease, request equivalent detail: the payment schedule, escalation dates and any performance-related credits. A scheduled lease payment and a payment linked to generation expose the customer to different cash-flow risks. (sam.nlr.gov)
4. Work through purchase, loan and PPA scenarios
The following is a hypothetical teaching example, not a quotation, benchmark or project forecast.
Assume a U.S. commercial property, with no particular state or utility selected:
| Input | Illustrative assumption |
|---|---|
| System | 100 kW DC / 80 kW AC; no battery |
| Annual generation | 150,000 kWh, held constant solely for this example |
| Electricity use | All generation consumed onsite |
| Avoided energy charge | $0.15/kWh, held constant |
| Purchase cost | $250,000 |
| Owner-paid annual costs | $3,000 combined maintenance and insurance allowance |
| Loan | Full $250,000 financed; 7% nominal annual interest; 120 monthly payments; no fees |
| PPA | 20 years; $0.10/kWh initially; 2% annual escalation |
| PPA services | Provider pays maintenance and system insurance in this example |
| Incentives and taxes | Excluded, along with depreciation and REC revenue |
| Other exclusions | Demand-charge savings, replacements, removal, residual value and discounting |
Annual avoided energy charges are:
150,000 kWh × $0.15 = $22,500
Cash purchase. Pay $250,000 upfront. Annual operating benefit before excluded costs is $22,500 − $3,000 = $19,500.
Loan-funded purchase. The stated loan requires approximately $2,903 monthly, or $34,833 annually. During the ten-year repayment period, annual cash flow is approximately:
$22,500 − $3,000 − $34,833 = −$15,333
After repayment, it becomes $19,500 annually under the unchanged assumptions.
PPA. Year-one electricity payments are 150,000 × $0.10 = $15,000, leaving a $7,500 energy-cost benefit. By year 20, payments are approximately $21,852, leaving about $648 under the flat avoided-rate assumption.
Over 20 years, undiscounted solar-related outlays are approximately:
| Structure | Illustrative 20-year outlay |
|---|---|
| Cash purchase plus annual owner costs | $310,000 |
| Loan repayments plus annual owner costs | $408,325 |
| Escalating PPA payments | $364,461 |
These totals do not establish a winner. They exclude the value of retained ownership, future repairs, tax treatment and the timing of payments. For an actual decision, build discounted cash flows using the same analysis period and test lower generation, different utility prices and exit costs. EPA recommends life-cycle cost and net-present-value analysis for self-generation projects. (epa.gov)
5. Assign maintenance, insurance and performance duties explicitly
Third-party ownership can shift operating work to the provider. EPA describes onsite PPA developers as responsible for installing, operating and maintaining the system. That does not eliminate the need to examine the promised service and your remaining duties. (epa.gov)
Use a responsibility schedule covering:
- Monitoring access and who investigates alarms.
- Inspection, preventive maintenance and corrective repairs.
- Equipment replacement, labor and warranty administration.
- Safe site access and coordination with facilities staff.
- Roof work and temporary system removal.
- Insurance, deductibles and damage claims.
For insurance, have your broker review both the provider’s coverage and your building policies. National-laboratory guidance identifies general liability, property insurance and utility interconnection insurance requirements as relevant checks. Do not assume the equipment owner’s insurance protects every host exposure. (docs.nlr.gov)
Separate a production forecast from an enforceable remedy. Ask for the guaranteed metric, measurement method, exclusions, claim procedure and compensation calculation. Also identify the legal entity that owes the remedy.
EPA’s purchasing guidance recommends specifying operational deadlines, interruption notices, timely repairs and default remedies in the agreement. (epa.gov)
6. Review property changes, buyouts and end-of-term costs
Before signing, test the agreement against three events: a building sale, a roof replacement and the end of the solar term.
Ask counsel to document who approves a transfer, what happens if a buyer will not assume the agreement, and whether termination is available. EPA specifically warns that termination charges can constrain future company decisions and recommends reviewing ownership-transfer provisions. (epa.gov)
For any buyout, request:
- Eligible purchase dates and notice periods.
- The complete pricing formula or schedule.
- The valuation process and dispute mechanism.
- Transfer of warranties, operating records and monitoring access.
- Treatment of outstanding claims and equipment security interests.
Do not assume paying off future invoices transfers title.
At term end, identify whether you may purchase, extend or require removal. These options are discussed in published solar-PV contract guidance, but the signed agreement must establish your rights. (19january2021snapshot.epa.gov)
Request specific answers on removal deadlines, roof restoration, costs and obligations that survive expiry. If an exit price is unknown, label it unpriced in the approval paper rather than entering zero.
Also check renewable energy certificates, or RECs. The PPA must identify who owns them; hosting panels does not automatically establish your right to claim renewable electricity use. (epa.gov)
7. Check C-PACE availability and obtain adviser sign-off
Commercial property-assessed clean energy financing, or C-PACE, adds property-linked financing obligations. Do not treat it as a nationally available substitute for a conventional loan.
Connecticut example: Connecticut Green Bank states that eligible property must be in Connecticut and in a municipality that has adopted C-PACE. Its financing uses a benefit-assessment lien, and existing property-secured lenders must consent. The assessment can transfer to a new owner. These are Connecticut program rules, not universal rules. (ctgreenbank.com)
Elsewhere, ask the relevant program administrator to confirm eligibility, assessment priority, lender consent, repayment, prepayment and property-sale treatment.
Before approval, obtain written answers from:
- Legal counsel: Are site rights, assignment, default, buyout and removal terms acceptable?
- Finance and accounting advisers: How do financing obligations, tax assumptions and accounting treatment affect the comparison?
- Facilities staff and the insurance broker: Are operating duties, roof access and coverage workable?
- The utility or relevant authority: Is the proposed arrangement permitted, and are tariff and interconnection assumptions verified?
The common mistake is approving the offer with the lowest first-year payment. A stronger decision combines a comparable technical scope, full-term cash flows, named responsibilities and priced exit obligations.