Home»Financing» So Many Ways to Go Green: Solar System Purchase vs. Lease
So Many Ways to Go Green: Solar System Purchase vs. Lease
Posted on Jul 12, 2012
Hello solar droppers! It’s time to wrap up this comparative series where we’ve been clarifying the defining features of the most prevalent ways of going solar. We’ve talked about how Solar Power Purchase Agreements work, how SPPAs differ from system purchases, as well as how SPPAs differ from solar lease agreements. This article will focus on purchasing your own system in comparison to leasing a system from a third party. We’re going to keep it relatively short since both of these options have been separately described in detail in those aforementioned articles. This article is purely for comparative purposes for those of you that are weighing your options between purchasing and leasing solar panels.
Let’s start with leasing panels. Here’s how it works: solar leases are typically contracted for 15 years or more and require little or no upfront cost associated with upgrading to solar electricity. The price of installation is partially or entirely offset by state rebates (where available), but the leasing company that owns the panels receives the Federal Tax Incentive (which pays back 30% of the cost of the system) as well as any Renewable Energy Credits (RECs) that are associated with the system’s production. Homeowners just make monthly payments (which can escalate annually) for the hardware, not for the electricity itself. Solar leases aren’t standardized from company to company, so it’s important to know if the lease includes a system buy-out or prepay option, as well as maintenance, monitoring and insurance which may or may not be included in the terms of service.
Before we get into the comparison between these two options, let’s review of the basics of buying your own solar system . You’ve determined how much electricity you use annually and sized a system accordingly based off your usage and how much of your roof space is viable for photovoltaic production. After you’ve determined all of the hardware that you need for installation, it’s time to pay for your system! If you don’t have the capital to pay for everything up front, there are many financing options (which will be the topic of future articles) for your consideration. After the proper permits are pulled, the system is installed. Self-installation can save some money if you know what you’re doing, but most homeowners will have the job done by a professional installer, which will add to the upfront cost. However, some states offer rebates that offset all or part of the cost of installation. After installation your utility bill should be greatly reduced or eliminated (if there was enough viable roof space to replace all of your usage with solar energy), and all you have to do is keep the panels clean and watch your investment pay itself off over time.
The first major point of comparison between these options is the cost of each over a 15-20 year interval. Leasing a system will cost more in the long run, however no upfront cost enables homeowners to reserve their capital for other investments. As mentioned previously, a lease defers ownership from the homeowner to the leasing company, so the homeowner misses out on the 30% tax credit from the federal government. Additionally, Renewable Energy Credits are generated for every 1 megawatt-hour (1 MWh or 1000 kilowatt-hours) of electricity that is produced through solar, and these credits can be sold to other companies, making solar even more profitable for the owner of the panels. In a lease situation the leasing company benefits from these credits, whereas a homeowner that purchased their system outright could look forward to additional revenue from the RECs.
At the end of a 15-20 year lease, the leasing company still owns the panels (some companies offer buy-out or prepay options). Those who financed their system start generating free electricity the second the bank is paid off or their personal investment is recovered.
Maintenance, monitoring and insurance are the responsibility of whoever owns the system, however many leases require that the lessee assume those responsibilities. Most leases will pay for the inverter to be replaced roughly every 12 years, but for homeowners that have to do it out of pocket, the cost of the inverter is negligible in comparison to the price of the system and installation.
Probably the most important comparison between purchasing a solar system and leasing is what happens when selling your solar home. With a lease, the new owner must pass the same credit check that you did in order to assume the lease. If for whatever reason the buyer does not want to or is unable to assume the lease, then you are obligated to the contract and cannot break the agreement without financial consequences (which usually means the system must be purchased in order to break the contract). When you purchase a solar system, you may take it with you to another address after selling your home (some leases may have this option as well). More importantly, the price of the system is included in the market value of your home, which will sell for a premium compared to homes without solar. Studies show that homes that list solar as a feature sell faster as well.
So, the question: is it better to buy or lease a solar system? The answer: it depends on your personal situation and preferences. Put simply, the lease makes sense for homeowners that want the benefits of solar (clean energy, cheaper-than-grid rates, etc.) without the upfront cost or the hassles of ownership. Purchasing a system yields greater long-term benefits, whereas a lease is a short-term solution for those that don’t want to wait until they can afford the investment.
GoGreenSolar.com has the best of both worlds by offering both a lease option as well as the ability to purchase parts for a variety of system sizes. Best of all, by calling their customer service line (866.798.4435 ext. 1), you can get help tailoring your system and all the parts to your home and personal preferences, pulling permits as well as filing for tax incentives and rebates. If you’re still wondering whether to lease or buy, give us a call and we’ll help find a solution that suits your needs.