Leasing vs. buying solar panels
What’s the right financing option for your solar installation?
You’ve probably heard your neighbors talk about how much they LOVE their solar, about all the savings they see every month and how great Rooftop Solar is (insert shameless plug here). They’re not wrong. Solar has been saving customers a lot of money over the last 10-20 years! But how are these people paying for solar? You’ve probably heard terms like the solar lease, PPA (power purchase agreement) and loan. We’ll help explain the background of the Lease/PPA and compare the difference between leasing solar panels and buying them outright.
We get a lot of questions from homeowners when it comes to financing their solar energy systems: “What does it mean to lease solar? Are solar loans better than leases? What are the pros and cons of owning vs leasing? How will a solar lease cover my bills, is it expensive? Will it affect my property value in today’s market?” All great questions, but first let’s start with the how it all started.
A background in the cost of solar
Ever since the first satellite launched into space in 1958 (Go USA!), solar has been all the rage. But for a long time the cost of solar was, like the satellite, out of this world. As the technology started to develop we started to see the potential. In short, the technology got to a place where solar could be mass-produced. The demand went up The supply started to exceed the demand. And the price started to drop. Today there aren’t many investments as affordable, reliable, and with such a stable return on investment… enter investors.
Leasing solar panels: The basics
When solar became accessible to the general public (not just NASA) it was cool, but still a little pricey. The government recognized the potential for the environment and the implications for this developing industry so they gave it a little boost. The government implemented tax credits to help stimulate this new industry. All of a sudden this pricey energy source became pretty affordable and if you were a business it became a great investment (ie: extra tax write-offs and depreciation)!
The only way to get these solar tax credits is to own solar panels. But a lot of people didn’t have the cash to pay for solar upfront so there was a gap. A few savvy investors realized if they bought the solar equipment for a homeowner they could take the tax credit and the homeowner could make payments on the solar installation. Suddenly, a homeowner could support the environment and investors could get a return on their investment.
Here’s how the solar lease works:
You own a house and want to go solar but don’t want to pay for it up front. A third party company agrees to buy the solar and install it on your roof. That company gets to take the tax credits which gives them an instant return on their investment and agree with you to sell you the this homegrown renewable energy at a cheaper price (hopefully) than what you are already paying the utility company. Pretty cool.
But before you decide to pull the trigger there are some things to consider:
- At first, solar panel lease costs seems cheaper with little or no money down.
- You unfortunately do not qualify for tax credits or incentives because you are not the owner of the system. They will go to the company that installed your solar panels.
- Also make sure you read your contract closely to determine if the rate are escalating or if your rates are locked in. Escalating rates means every year your solar prices could go up and in 15-20 years it may not look so appealing.
- You don’t own it, so you don’t have to take care of it. Just like leasing a car, the maintenance for a solar panel rental is completely the responsibility of the company that installed it.
- Depending on the company, there could be wait times associated with the issues needing to be resolved. If an inverter goes out it could take months to replace. Which leaves you double paying for your monthly solar payment and the utility payment you were trying to avoid. No bueno.
- On a brighter note, solar is REALLY reliable and expected to last a very long time. In other words, your system is probably going to work but if it breaks a solar lease can really suck.
- A solar lease can get tricky because typically contracts last for 20-25 years.
- If you don’t plan on staying in your house for that long, the new owners of the home will have to agree to take over the lease agreement or buy out the system. This can become very costly and complicated.
4. Return on Investment (ROI)
- When you lease a system, you are unable to receive the Federal Investment Tax Credit (learn more about tax credits here). In fact, that money goes to the company you choose to go solar through. Even though you aren’t paying anything upfront, just like renting a house, you’re not going to get that back when you sell the house. Solar is a great investment…for the owner of the equipment, whether that be you (purchase) or the leasing company.
5. When a Solar Lease Makes Sense
- One of the big financial benefits to going solar are the tax credits you receive. If you are retired or don’t pay taxes for some reason then a solar lease could make sense for you.
Purchasing solar panels: the basics
There’s a reason why solar leasing companies exist: because solar is a great investment! If big financial companies think it’s worth buying then they’re probably on to something. If you purchase your solar system then YOU get all the financial benefits instead of them. Whether you’re paying cash or using one of Rooftop Solar’s great solar loan options, purchasing your system is a great way to go! Here’s what you need to know about purchasing solar:
- The cost of a solar installation has dropped significantly over the last 15 years. Only in the last few years has the cost of solar started to bottom out. And even though the cost of solar has bottomed out there are still some really amazing tax credits available that lower your initial investment by almost 30%. The real questions are how much are you paying the electric company and do they keep raising their rates on you? Maybe it’s time to own your own energy.
- Upkeep is one of the biggest questions our customers have, and rightfully so! You are investing in a system that will be on your house producing energy for 30+ years! Luckily solar is very dependable. As an extra layer of security make sure your solar equipment and solar company is backed with strong warranties. (Like Rooftop Solar’s 30 year bumper-to-bumper warranty!)
- Many companies will try to sell you on a 25 year manufacturer warranty. Just remember that does not cover labor costs.
3. Return on Investment (ROI)
- When you go solar, the power companies pay you for the electricity you make and every month you get a return on your solar investment.
- You can save money instantly on electricity with a low loan monthly payment and a small, perhaps NEGATIVE, utility bill. You can learn more about loans here.
- When you pay cash you immediately enjoy the perks of having free energy produced for the lifetime of the system. When you get a solar loan you will make a reasonable payment (kind of like a mortgage) until the end of the loan term. Coupled with Rooftop Solar’s 30 year warranty and you are ensured peace of mind while you enjoy the long-term energy production.
- If you choose to sell your home, the increased value added with a solar system will allow you to ask a premium price for your home.
4. Purchasing solar is right for you if:
- You would like to maximize your ROI
- You prefer an easier transition if you were to sell your home
- You are eligible for the Solar Investment Tax Credit
- You want to increase the value of your home
In Summary: When should you purchase vs when should you solar lease?
If you are retired or can’t take advantage of a tax credit, then a solar lease might be worth looking into.
If you pay taxes every year… chances are you should take advantage of the solar tax credits rather than let someone else have them. Purchasing your system with a loan or cash is your best option.
Find out if solar makes sense for you
If you’d rather speak directly to one of our team members, get a free quote by calling (800) 786-7080.