What are the benefits of purchasing a solar system vs. leasing one? In this article we will take an unbiased look at both options and help you, the homeowner, to get a better sense of what`s the better choice in your particular situation.
It`s more than six years since SunRun introduced “zero-down” payment schemes for solar. Third-party ownership has turned out to be a complete game changer for the solar industry. The company recently announced a growth of 80% in California in only one year.[1] Another study revealed that more than 70% of Californians who go solar prefer third-party ownership.[2] Similar numbers can be found in other sunny states across the country as well.
You save more money by buying
There is more money to save (in the long run) if you purchase a solar system in cash. As the owner of the solar system, you receive all the rebates (in some areas up to $6,000 per kilowatt), the 30% tax credit and the additional SREC income that your new solar panels produce.
Loaning is usually wiser than leasing. Most homeowners finance their solar panels through a home equity loan or a second mortgage. Many solar installers offer long-term financing at very affordable rates. If you were financing through a loan that is equivalent to a typical solar lease, you would be paying somewhere between 8-20% in interests (usually tax deductible).
Solar panels will increase your home value
How much is the big question. Here`s a rough estimation to give you an idea of what quantities we`re talking about: A solar system that is producing $1,500 in annual savings with a prevailing fixed mortgage rate of 5% would increase your home value somewhere around $30,000 ($1,500/0.05).
A study conducted by National Renewable Energy Laboratory (NREL) concluded that homes with solar panels sell 20% faster and for 17% more money.[3]
A lease is not an investment
I often advice people to look at purchasing a solar system as a long-term investment. I want to emphasize that a solar lease is not an investment – you do not have ownership of the solar system itself (you have no assets). A solar lease is a long-term year commitment to 10-20 years of lease payments. When would you financially commit yourself to rent a home for 10-20 years?
Solar leases may reduce your home value
You will find leasing companies that advertise increased home value with their solar leases. In some cases this is true (homes with lower electricity bills tend to be worth more). However, a solar lease can also be a hindrance when you`re trying to sell your home. Finding a buyer that qualifies with excellent credit and agrees to assume your solar lease can be tough. Alternatively, paying yourself out of the lease can be very costly.
No one knows where the prices are headed
A lease can come with a fixed, escalating or de-escalating payment plan. You`re only saving money if the utility bill savings actually exceeds the lease payments. No one really knows where the electricity price is at ten years down the line. Likewise, no one knows what solar systems will cost in the future either.
Understand that the feasibility of a solar lease is based on predictions about the future.
Also worth mentioning is that the predicted future costs of electricity is dependent on where you live. SolarCity says, “utility rates increase 5% per year”, meanwhile, U.S. Energy Information Administration (EIA) predicts that electricity prices will slightly fall over the next decade due to a decline in natural gas prices.[4]
Solar leases make sense in some situations
Going solar with a $0 down approach can be very tempting, and in some situations they make perfect sense.
Here are some of the benefits of solar leases:
With a solar panel lease you can start saving money from day one.
Performance is guaranteed.
Maintenance, repairs and replacements are generally taken care of by the leasing company.
Inverters typically only come with a 10-year warranty and will eventually need replacement.
Solar leasing companies might be eligible for subsidies that homeowners do not have access to.
In what situations do these benefits outweigh a cut in long-term savings?
You want a solar system, but lack in cash or do not have access to a well-structured loan; solar leasing could be the way to go.
You do not have a high enough income, or you are a non-profit organization, and cannot take advantage of solar tax credits and deductions.
Regardless of whether it’s the best possible deal, for many people wanting to let the sunshine in, it’s the only deal.
References: [1] PVSolarReport, [2] PVSolarReport, [3] National Renewable Energy Laboratory (NREL), [4] U.S. Energy Information Administration (EIA).
