Thursday, October 6, 2022

Is It Better To Buy Or Lease Solar Equipment

Purchasing A Solar Panel System With Cash Or Financing A Purchase With A Solar Loan Is Your Best Option When You

Should you buy vs lease your solar panels?
  • Want to maximize the financial benefits of installing a solar panel system, rather than solely benefiting from the systems environmental benefits
  • Are eligible to reduce your federal and state tax liability through the federal investment tax credit
  • Are a business, and can realize tax benefits by treating the solar panel system as a depreciable asset and/or
  • Want to increase the market value of your home by installing a solar panel system.

States That Allow Solar Ppas And Leases In 2021

A power purchase agreement or lease is known as third-party ownership, and itâs a financing model allowed in only about half the states in the US. This is a list of states that permit this in 2021:

  • Arizona
  • Vermont
  • Virginia

Some states do not allow third-party ownership because of regulatory obstacles preventing solar companies from selling electricity into the grid – the argument is that these companies have a widely distributed set of small solar power plants and are effectively acting as utilities. There may also be political opposition from entrenched interests who would prefer to not have distributed solar competing with existing power generation.

This is a volatile topic, so watch this blog for future updates.

Should I Buy Or Lease My Solar Panels Or System

When making the decision to switch over to solar energy many home and business owners are left with one big question: Should I buy or lease my solar panels? We know that its not a decision made lightly, so we wanted to walk through both options. While each option has different cases where each would be beneficial, if you dig into the facts and figures behind each option the answer becomes clear:

Buying a solar system is more flexible, costs less in the long-term and provides more value to homeowners than leasing.

And well break down exactly how you can benefit from owning the solar system for your Long Island home or business.

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Start Your Solar Journey Today With Energysage

EnergySage is the nations leading online solar marketplace: when you sign up for a free account, we connect you with solar companies in your area, who compete for your business with custom solar quotes tailored to fit your needs. Over 10 million people come to EnergySage each year to learn about, shop for and invest in solar. .

Solar Panel Lease Calculator

Is it better to lease or buy solar panels? What you need to know ...
$450.00 $562.50

The initial costs of leasing are without a doubt attractive, but the above table shows just how costly it becomes over time. Solar is supposed to be a preferable option to using grid power not only because it emits zero emissions into the environment but also because it is significantly cheaper over time. Instead, leasing becomes more and more expensive over time.

This entirely defeats one of the main purposes of using solar technology in the first place. Solar power should realistically cost less once installed and after all the initial planning, permits, and labor costs have been covered because it relies on an endlessly sustainable energy source to produce the energy that you harness from it. Of course, that energy source is the sun.

Read Also: Will Solar Tax Credit Be Extended

Easier To Sell Your Home

When you own a solar panel system outright, its completely yours. That makes it easier to sell your home – often for more money than if you didnt have solar panels. Thats a reason many homeowners prefer buying vs leasing a solar system.

While you can still sell your home if you sign a solar lease or PPA, your contract with the solar company can make the process more difficult. Since the solar installer technically owns the panels on your home, they have to be involved in any conversations over the transfer of ownership. You have two primary options for negotiating the terms of your deal:

  • Pay off the remainder of your lease/PPA so you own the panels outright
  • Convince the potential new owner of your home to take over the lease/PPA agreement

You should discuss the full details of both options with your solar company if you choose a lease or PPA, as the financing of your solar power will play a large part in the process you follow when selling your home.

How Much Do Solar Panels Cost

Make sure youre fully aware of the expense of installing solar panels before buying. On average, expect to spend at least $15,000 to $20,000 to buy and install solar panels. You will likely need to hire a professional to install them, and you also need to account for any repairs your roof may require beforehand.

Be prepared that while you will save money on your bills, it will take a long time to make back the initial expense. Many solar panel installers will provide a calculator to see how much you’ll save per month if you have solar panels.

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Selling A Home With A Solar Lease

If you have a solar lease and want to sell your home, things get tricky. Sometimes you may be able to transfer the contract to the buyer, but thats not always the case. In those scenarios, youll have to pay an early termination fee and return the panels to the owner. Unfortunately, youll lose out on the value the panels lent your home.

If you opt to keep your solar system, you can pay to have it moved to your new home. The house youre selling wont be worth as much, but youll continue to enjoy savings on your power bill when you move.

  • Owner is responsible for maintenance and upkeep

No Tax Credits And Incentives

Should You Buy or Lease Your Solar Panel System?

The solar company gets the tax credits that typically go to the homeowner. Even if they use those tax credits to lower your payments and pass along some of the savings, theyre still going to keep some of it for themselves.

This monetary benefit is one of the biggest reasons people go solar, as it can help lower the cost of going solar significantly.

Also Check: How Much Are Solar Panels In California

Why Loans Make More Sense Than Leases Or Ppas

Leasing solar panels for your home is not a good idea from a financial perspective. We simply do not recommend it. In most cases, youll save much more money in the long run by exploring other financing options like an FHA Title 1 loan or a traditional loan from your personal bank.

The graph below shows the average return on investment when you buy, finance, or lease your system. The difference between taking out a loan and buying a system with cash is fairly small, with leases and PPA lagging far behind.

What Does It Mean To Lease Solar Panels For Your Property

When you lease solar panels, the company providing the panels owns them. Your lease is generally for 20 to 25 years, and after your lease term is over, you can renew the lease or purchase the panels. While the initial costs of installing the panels are low, you will be charged a monthly cost for the panels.

Recommended Reading: How To Hook Up Multiple Solar Panels

When Buying Makes Sense

Buying your solar energy system makes the most sense when you have a long-term housing plan and want to save on energy costs over the next couple of decades.

Check out this section of our article on whether solar panels are worth it to see how long it typically takes to start seeing cost savings.

It also makes sense if you want to increase the value of your home for resale. Leasing solar panels tends to be problematic for selling your home due to the various issues with transferring leases, et cetera.

Simply put, buying makes sense for savings or resale value.

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Ownership With No Upfront Cost

Is it better for homeowners to lease or buy solar panels?

For those that dont want to pay the cost of full ownership upfront, you can finance your system purchase with low, fixed monthly payments and a competitive interest rate. Keep the tax credits, build equity in your home and begin saving money when you choose Sunruns BrightAdvantage plan.

Sunrun offers best-in-class equipment for all our plans and the highest quality workmanship, backed by 20 years of residential solar experience.

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Is It Better To Buy Or Lease Solar Panels Who Owns The Panels

You already know that if you purchase a solar panel system outright, then the solar panels that form the backbone of said system are unquestionably yours. It is the same in the long run at least when you take out a solar loan. Even though you might not be the immediate owner of the panels and overriding system, eventually, once your last payment is made, the entire solar panel system that is currently nestling comfortably on the roof of your house is going to be yours.

But what about when you take out a solar lease? When you are pumping all of your hard-earned money into the pockets of a solar company every month, especially when you are paying more over time due to an escalation clause, will you one day have something to show for it?

Unfortunately, you will not. One of the most negative aspects of solar leasing is the fact that when you finally get to the end of your 25-year lease term, the owners of the panels will simply come to your home and take your panels away. They can do this because they are the true owners of the panels.

As sad as that may seem, for all of the time that you have spent pumping money into the solar panel system that has sustained your home over the years, you are not actually going to have anything to show for it at the end of the lengthy 2025-year term. Sure, you might never have been able to access solar power without a lease, but this begs the question of questions. Why did you want to do it in the first place?

You Wont Qualify For The Federal Solar Tax Credit

Federal solar tax credits are being gradually phased out and will not be available for residential properties starting in 2024. But while they are still available, if you opt to lease your solar panels, the company you lease from will enjoy the financial rewards.

At this point in time , if you own your solar system, you can deduct 26 percent of the cost of the system from your taxes by getting a Federal Solar Tax Credit. That big discount is a great motivation to buy your solar system outright.

This 26% credit has been extended through the end of 2022, drops to 22% in 2023, and in 2024 it will decrease to 10 percent and will only be available for commercial/business properties.

This administration is very pro-renewables though, and I wouldnt be surprised if this was extended in the future as well, but well see.

So, take advantage of it while you can.

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How Does Leasing Solar Panels Work

Leasing solar panels allows you to access solar energy’s financial benefits without buying your own home solar system. A solar provider will install the equipment and charge you a fixed monthly fee.

A solar lease could save you money on your electricity expenses. Most solar lease contracts last for a couple of decades, during which time the provider will keep an eye on the system’s hardware and performance. At the end of your lease, you can choose to:

  • Renew your lease agreement
  • End your lease agreement

Trend Towards Customer Ownership

Leasing vs. Buying solar panels EXPLAINED!

Outright customer ownership of solar panels continues to grow in popularity.

This according to a report released earlier in the year by GTM Research. After peaking in 2014 at 72% of the market, less than 50% of homeowners using solar systems nowadays are renting them from a third party. Meanwhile, the share of customers choosing to own their solar systems outright sits at its highest point ever.

This trend towards customer ownership is expected only to continue. As the GTM report put it:

All signs point to the continued rise of customer ownership. Leasing was a necessary temporary solution that sparked the original growth of residential solar, but the future is cash and loans.

Still, the solar panel buy vs. lease debate varies from person to person, and financial considerations are just one piece of the puzzle. Here are some of the primary pros and cons associated with both options:

Also Check: How Much Is Solar Energy Cost

Most Lease Agreements Have Restrictions

It is common for leases to restrict certain activities or developments the property owner might want to carry out. For example, lessees may not be allowed to replace the roof or build any structure on the property that might cast shadows on the system.

Also, the leasing company will need access to your roof to be able to maintain the solar panels for the duration of the lease. This may not always be convenient for you, the homeowner.

According to Choose Energy, another factor is that leasing companies tend to design solar systems to fit their specifications rather than being guided by the number of panels homeowners want or where they want them to be placed.

When you buy the system outright, you have considerably more freedom determining the size of the system and how it is installed.

How Does A Solar Lease Work

Once the solar energy system is installed, you get to use all of the solar power the panels generate. Instead of using electricity from your utility, your home will power itself using the energy the solar panels produce.

Because you are using solar energy instead of taking electricity from the grid, your electric bill will be lower. If the solar panels generate enough electricity to cover all of your energy usage through net metering, you could completely eliminate your electric bill .

But, youll still have to pay your solar lease payment. Usually, the lease payment will be lower than what your utility bill was before installing solar. So, if your electric bill is $150 per month, and your lease payment is $100, youre saving $50 per month with a solar lease.

Keep in mind though, that the solar system might not always produce enough electricity to cover your whole electric bill. Maybe there werent that many sunny days in a month, or you used way more electricity than usual. In these situations, you could end up needing to take more electricity from the grid to meet your power needs. Then, youll have both an electric bill and a solar lease payment.

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A Real Life Story On Leasing Solar Panels

Ill actually start this out with a couple, potentially very scary stories/warnings.

As Ive gone to purchase homes both for myself and for the company to do our net-zero home renovations on, I sometimes run into properties with descriptions like this:

Beautiful small home nestled in the heart of XYZ city. Price is $220,000 with solar panels, $180,000 if you pay of the solar system.

Now, in the madness of the real estate market and trying to find a home in general, you have to figure this one out. What it means is that the sellers had signed a solar lease, and they cannot sell the house without paying off the system contract price to the solar company that owns this lease.

The realtor, in this case, had told me that the previous couple had made an emotional decision and signed, but now there was a lien on the house and the system has to be paid off by $40,000 before they can sell.

Since we design solar systems here and after taking a look at the roof, I knew the system only cost the installer a max of $15,000 or so, given the amount of panels and overall KW size.

This isnt to scare you off immediately here, but these are real stories. Be careful of what youre signing up for and read these contracts fully, and probably multiple times over.

Which Companies Offer Solar Leases And Ppas

Is it Better to Buy or Lease Solar Panels?

If you casually search the internet for solar installers, there are a few companies that come up almost no matter where in the US you live. These are the big national installers, and they take up a disproportionate share of the US home solar market: the top 10 companies handle more than 35% of home solar installations.

The remaining installation work is done by more than 5,000 smaller, local firms across the nation. Thats a hugely uneven market share. So why are the big 10 companies so popular?

Leases and PPAs are one of the big reasons. They market these no-money-down financing products as a win-win for the consumer: you can save the environment while saving money.

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Best Ways To Pay For Your Panels

CashBuying your solar electric system outright is best. It usually costs $15,000 to $20,000 after tax credits and can reduce your electricity bill by 70 to 100 percent, depending on the size and orientation of your roof and local regulations. Most systems pay for themselves in five to seven years.

Home Equity LoanIf you need to finance your solar panel purchase, the most cost-effective way to do it is to use a home equity loan or a home equity line of credit. Because your house serves as collateral, these options have low interest rates . The interest you pay is tax deductible. Equity loans range from 5 to 20 years and usually have fixed interest rates. Equity lines last 10 years and have variable rates .

Solar LoanThere are unsecured and secured solar loans. With an unsecured loan, your house doesnt act as collateral and the interest isnt tax deductible. Many solar installers work with lenders that offer solar loans, but youll probably find better rates by directly checking with banks, and credit unions. Watch out for high origination fees. Fannie Mae also offers consumers financing for solar system installations through its HomeStyle Energy Mortgage Program when they buy a new house or refinance.

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