What Are The Primary Solar Lease Disadvantages
Homeowners who may be on the fence about the true benefits of solar or who are concerned about the initial investment cost often consider a solar panel lease.
You may be swayed by the idea that solar panel maintenance costs are often negligible with a solar lease. The reality is, however, that maintenance costs incurred when you install a solar energy system are negligible. Whats more, a reliable solar energy company will provide maintenance services and long-term warranties to ensure no-hassle performance.
Despite the advantages of a solar lease, such as no upfront cost, buying is still typically the best option, for several reasons.
If you lease your homes solar energy system, you will not qualify for any tax credits or incentives. Instead, the third party owner will receive all rebates associated with your solar energy system.
A solar panel lease can also be limiting if you decide to sell your home. Buyers will have to take on the existing solar lease, which may require a high credit score, or buy the lease outright. Both options are typically unattractive to would-be home buyers.
If you have ultimately decided that a lease is the best choice for you, make sure to do your research. Find a reputable solar company that can work with you throughout the leasing process, and be sure to read the clauses so that you fully understand the lease terms.
Which Solar Financing Option Is Best For You: Leases Or Loans
No matter which solar financing approach you use, 2 things are guaranteed:
So you canât really lose either way.
However, leasing means you can go solar with $0 upfront. And this approach is a very attractive option for many â especially those on a tight budget. Leasing also appeals to homeowners who are wary about taking on debt.
But when you lease, you never truly âbreak even.â Youâre simply buying electricity from a cheaper source.
By contrast, purchasing your solar panels means that you actually own the system. And as such, your solar installation becomes an investment that pays for itself.
True solar ownership also means that:
- All relevant incentives and tax breaks come to you â the system owner. These lucrative subsidies can help speed up the payback period of your installation.
- The property value of your home can increase since future buyers will gladly pay a premium to acquire a solar-enabled residence.
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Frequently Asked Questions: Solar Leasing
What is a solar lease?
A solar lease is a long-term contract that allows a company to install a solar system on your roof without you purchasing the system. You pay monthly installments and annual price surges in exchange for the energy produced by these panels.
Is a solar lease worth it?
A solar lease may be worth it for people who do not wish to take up the hassle of maintaining solar panels or who tend to move every five to 10 years. Solar leasing may also sound beneficial to customers who cannot pay a huge amount upfront. However, there are significant financial downsides, including not being eligible for the 26% federal solar tax credit.
Why is leasing solar a bad idea?
The monthly payments you make toward a solar lease will typically increase year over year due to a price escalator that accounts for inflation. Because of this, it’s likely you will end up paying an equivalent or greater amount than you would have paid if you were buying solar panels outright. Leased solar panels don’t add value to your property, and contract cancellations can be a hassle if you are trying to sell your house before your lease is up. Further, because you are not the owner of the panels, you are not entitled to any financial incentives or tax rebates.
What happens after a solar lease is up?
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Are Solar Panels Worth The Trouble
Lets get to the bottom line and help you decide whether solar panels are really right for you. In order to figure that out, you have to consider installation costs, average energy savings and sales price.
According to the National Renewable Energy Laboratory, the average cost of a solar installation is about $3.09 per watt for a 5.2-kilowatt setup. If you do the math, that comes out to $16,068 in installation costs. The cost could be quite a bit lower if your state or local energy company offers incentives for installation.
If youre worried about the maintenance costs that come with having solar equipment, you shouldnt fear. If you purchased or are making loan payments to the system, you own it, which means youre fully responsible for maintaining it. But luckily, solar equipment is known for its durability and has warranties, so you wont have to worry too much about maintenance. Leasing solar equipment has even less maintenance on your part because the company that owns the system is responsible for maintaining it. However, there are many apps you can use to track the performance and maintenance of your solar panel systems.
The good news is that adding solar panels could likely boost your home value. According to a government-sponsored study from the Lawrence Berkeley National Laboratory, the average sales boost from the average solar panel installation is about $15,000. That means that your solar panels would more or less pay for themselves upon the sale of your home.
Solar Power Purchase Agreement Vs Lease
How does a solar power purchase agreement differ from a solar lease? If you’re not familiar with the ins and outs of the solar industry, the two options might seem interchangeable â in reality, a PPA and a lease vary in important ways:
- Lease: In a solar lease, the homeowner signs a contract to borrow solar equipment for a set number of years. During that time, the homeowner’s relationship with their utility company is the same as it would be if the homeowner purchased the solar system. In other words, the homeowner can take advantage of net metering policies and similar utility programs. The homeowner pays a set monthly fee to the solar company for the duration of the lease.
- PPA: A PPA works differently. The homeowner does not own or lease the solar equipment. Instead, the PPA company owns the equipment. They sell the homeowner the electricity it produces at a set rate per kilowatt-hour or a fixed amount per month.
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Whats Wrong With Leasing Or Ppa
Many companies around Long Island will boast about their solar leasing deals like they were the greatest thing since electricity was discovered. Youve probably seen or heard advertisements offering to install a free solar system if you lease with that particular company. But ask yourself: how can I lease something that is free?
The real draw to solar leasing is that you dont pay any upfront costs to have your house equipped with solar panels and a solar system. What some dont realize is that these exact benefits can come from a financing plan with a loan thats super easy to qualify for. By showing the lender that the loan payments will come from offset energy bill fees, you still pay no money out of pocket, are able to pay the balance over time and as a benefit, youll get to own your system at the end of the term. So with the similar terms on each option, whats different between the two?
A huge difference between leasing and buying is the flexibility of the two options. A solar lease is a binding agreement between you and the leasing company that you cannot get out of easily. Most leasing terms are 20 years, so even if you do not want to continue with the deal earlier than the term, youre already committed and locked in. When buying your solar power system, you will have a guaranteed lower monthly payment and have a guaranteed 5 years shorter term than that of a lease.
Lets Break Leasing Down:
First, you forfeit your rebates.
Free? We dont think so.
Is It Better To Buy Or Lease Solar Panels The Pros And Cons Of Buying Solar
Before we conclude our guide today, we want to take a moment to remind you of the pros and cons of buying solar compared to leasing once more. This quick nutshell overview is crucial to help those who might be tempted to lease because it effectively proves that those amazing deals being offered by solar salesmen are actually just an illusion.
Here are the positive aspects of buying solar panels outright.
- You are the sole owner of the panels. Therefore, you are not associated with a solar company, nor do you have to answer to one.
- Should you wish to relocate, you can simply sell your panels or dispose of them however you wish if your prospective buyers do not want to keep them.
- Once your system and its installation have been paid for in full, you will not have to worry about any further financial outlay save for maintenance or servicing costs, which you can actually bring down to virtually zero with a little DIY work.
- You will be able to claim every penny of the tax rebates and other state-specific incentives being offered by the government for yourself.
- After roughly 10 years , you will have made back the money you initially spent on your panels.
On almost every level, buying solar outright is absolutely the way to go for those who can afford to handle the substantial costs of owning a solar panel system.
Of course, there are cons associated with doing this too.
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Why Leasing Isnt A Good Idea
When you lease solar panels, youre missing out on federal tax benefits and incentives, which reduce your overall expense. With a lease, youll be saving less compared to buying. Of course, leasing solar panels is tempting, because there isnt upfront money needed. But thats going to bite in the long run.
Even though buying solar panels seems very costly in the beginning, most states and local governments offer incentives that can cut up to 50 percent of your overall expense.
Worse, most solar power leases contain escalator classes, which can increase your annual payments by 3 percent. For example, if your lease payments are at 25 cents per KWh a year, a 3 percent escalator means youll be paying 37 cents per KWh after 15 years. Thats a yearly incremental of 3 percent.
If you own a home, and youll want to sell it in the future, leasing solar panels isnt a great idea. Leasing solar panels tend to scare off home buyers. No one wants to be stuck paying off leasing agencies without ever owning the solar panels.
The leading buyouts are always expensive. And thats only if the leasing agencies allow it. Some of them dont.
When you lease solar panels, you lose control of your roof. Since the panels belong to the leasing company, theyll be installing them in such a way that other neighbors can see so as to advertise their products. The installation will disregard your homes appearance.
Major Difference Between Leasing Or Buying Solar Panels
The primary difference between buying or leasing a solar PV system is around ownership. Ownership is significant because you can take advantage of the federal tax credit, and an increase in equity to your home. A lease allows you to take advantage of immediate savings with $0 upfront costs. You also dont have to worry about the hassles that can come with owning a system since someone else is guaranteeing that your panels are running efficiently.
Therefore, the primary question comes down to, are you looking to maximize your ROI , or would an additional $30/mo in your pocket make a difference? If youre looking to maximize your ROI, owning the system is the way to go. It now depends on whether you want to purchase it outright or purchase it through financing. If you are looking to capture immediate savings, getting a PPA / Lease allows you to pay $0 down and immediately start saving 30 50% per month on your electricity bill.
Quick Tip: If you buy a solar energy system, either outright or after repaying your solar loan, the most crucial difference is that you own the solar energy system. If you lease the solar energy system or sign a power purchase agreement , a third party owns the solar panel system.
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Lease Vs Own: Before Solar Installation Differences
Solar Purchase
- Provides a $1,000 deposit to the installer
- 80% of the balance is due on the day of the installation
- 100% balance payment is required before PTO
Solar Lease/PPA
- Customer applies for a credit check
- Receives approval from the solar company to purchase electricity from them
An Example Of A Solar Lease With An Escalator:
A solar lease usually has 20 years term.
12 cents / kWh
2.9% escalator
If you are obligated to pay 12 cents per kilowatt-hour, at the end of your contract, if you have a 2.9% escalator, you will be paying 22 cents per kWh.
You can do the math yourself, which is $0.12*103%^20
You can see that this is a huge increase and your savings might evaporate by the time your lease ends.
This might work in your favor only if your utility company increases its rates by over 2.9% of the escalator.
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Benefits Of Leasing Solar Panels
If you’re trying to decide whether you want to buy or lease solar equipment, it’s helpful to weigh the pros and cons of leasing. Here are some of the benefits of leasing solar panels rather than buying:
- Good for those with low tax liability: One of the main reasons to buy solar panels is that it allows you to claim the renewable energy investment tax credit . With that said, if you have a low tax liability, some or all of the ITC will go to waste. Those with minimal tax liability might see a greater financial benefit from leasing solar equipment.
- Accessible for those with credit issues: Those with less-than-perfect credit scores often opt for a solar lease or PPA. It’s much easier to qualify for borrowing solar equipment than buying it. In fact, credit score alone can be the deciding factor.
- Offers faster savings: Buying solar technology is a long-term investment, and savings might not occur right away. A lease or PPA program is more likely to offer you immediate savings per month, with no down payment or significant up-front costs. If you’re looking to decrease your monthly bills from the get-go, a lease may be the better option.
- Offers various payment plans: PPA plans might offer variable monthly costs based on how much energy your solar equipment produces. Depending on how much energy you use, a variable cost might save you more money than a fixed monthly cost. It’s a good idea to explore these options.
The Pros And Cons Of Leasing Solar Panels
Hopefully, weve given you have a better idea of how you can obtain solar panels for your home. Now, we want to compare and contrast these methods so you can make the right choice for your life. What works for your neighbor wont necessarily work for you, so its important you have all the details and nuances involved with this decision.8
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If It Looks Too Good To Be True Then You Havent Read The Fine Print
Lease payments are set to increase on an annual basis. An annual lease payment increase of 3.9% per year for 15 years is typical. If your electric bill does not exceed $110, this program makes absolutely no sense financially. If you do not already have good credit, youll pay more than the advertised price.
When Should You Buy And When Should You Lease
If you have a strong credit score, reasonably high tax liability and you’re looking for a long-term investment option, you may want to buy the solar equipment. If you have an imperfect credit score, low tax liability and you’re looking for immediate savings, you may want to lease instead. Once you’ve decided to lease solar equipment, think about whether you’d prefer to pay a set monthly amount or a variable amount depending on the energy you use. This will help you choose between a traditional lease or PPA plan.
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What Is A Solar Lease
The short answer? Its just like anything else you lease a home, a car, some land except that its specific to rooftop solar panels. You receive all the benefits of powering your home with solar energy without having to worry about the upfront costs or long-term maintenance. Lets examine this a bit further:
- You can lease solar panels and pay NO upfront costs.
- You dont have to pay to fix or repair the solar panels.
- You support renewable energy.
- The lease is typically 15-20 years.
- You can choose to buy your panels at any time.
You also have two different ways to obtain these solar panels for your roof: a solar lease and a solar Purchase Plan Agreement .6
The Impact Of Leasing Or Buying Solar When Selling Your Home
In addition to the flat-out benefits that buying has over leasing, there is one condition that homeowners often overlook: the impact that leasing or owning solar panels has on selling their home. Even if you arent remotely interested in selling your home anytime soon, it still is a consideration to make for ten or even twenty years down the road. Contrary to popular belief, there is a difference in the obstacles youll face depending on whether you lease or own and as you could have probably guessed owning is far better.
One piece of advice you may hear is that solar panels will make your home more appealing on the market. This is actually quite true if you own your solar panels. According to the U.S. Department of Energys Office of Energy Efficiency & Renewable Energy, a house with owned solar panels will sell twice as fast as a house without solar panels.
That being said it actually gets harder to find potential buyers if you are leasing your solar panels. The new buyers credit must qualify to take over the lease of the panels and will be required to take on any future payments that still need to be made. On top of the new mortgage for the house, moving costs and other renovations homebuyers are not usually thrilled about taking on another monthly expense, therefore this quality often makes a house harder to sell.
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