A lease allows an organization to rent a solar system in return for a regular fixed payment. Leases generally offer lower cost of financing due to the assured payment obligation. Organizations with long-term procurement strategies can see higher savings with a lease than a PPA because of process efficiencies gained from standardized contracts and lower cost capital. The project operating risk resides with the host-lessee, but it can be mitigated through performance guarantees and O&M services.
The financial statement impact will depend on the type of lease used. A capital lease is on balance sheet and will be shown as an increase in liabilities and leverage. An operating lease is off balance sheet and will be reported in financial statements as rent expenses.
- Leasing often provides lower cost financing than a PPA.
- Minimal upfront costs reduce capital investment.
- The lessee may be able to take advantage of some incentives directly.
- Example: The 30% ITC can be passed-thru to the host-lessee.
- The lessor is allocated project tax benefits to reduce lease rental rate.