Comparing A Solar Lease Vs Purchase Running The Numbers
The easiest way to decide between a lease and a loan all other non-financial considerations being equal is to compare the payments. There are several nuances to the payments that make a simple monthly payment comparison not an apples-to-apples view. Once we have a set of payments for the loans, we can run a net present value calculation to determine which option will generate the highest net present value of savings. These are the 3 factors you must consider when making your educated decision about leasing or purchasing solar.
- 1. Tax Credit Solar systems are eligible for a 30% federal tax credit, which reduces the cost of the system. When you buy a system with a loan, you receive the tax credit, but when you lease a system, the leasing company receives the benefit . For an equal comparison, we can reduce the amount of the loan by the tax credit and assume payments on the adjusted loan amount.
- 2. Term and Renewal Assumption Similar to the car loan vs. lease decision, with a solar loan, you own the system after payments are complete, so you retain the residual value whereas you do not with a solar lease. Most solar leases and solar loans last 20 years, but a solar system can last for 25 years . So we can assume a lease renewal and no payments on the loan for years 21-25.
- 3. Fixed vs. Increasing Payments Solar leases include escalators or an annual increase in the payment whereas a loan is a fixed amount for the life of the loan.
Businesses Should Definitely Buy
The benefits of buying a solar array big enough to power your business are nearly endless. If you are powering a big warehouse space, you will not just save hundreds of dollars a year, but potentially tens of thousands by installing solar, just in energy costs.
Then, there are also tax depreciation considerations. Depending on where your business is located, you can defray the cost of solar installation against your profit. Some districts will let you depreciate your solar panels over just one year, which is a huge boon to businesses that make a lot of money their first year.
Alternatively, you can depreciate your panels over five or ten years. That way, you spread out your tax advantage over a longer span of your businesss life.
As a business, you may have enough scale on an adjacent lot of land or the rooftop of your property to actually make money from your solar power.
Need to know how much solar you need to size? Read our guide on how much energy a solar panel produces.
Additionally, you can use our solar return on investment calculator to determine your return and payback from installing solar.
A Young Persons Guide To Solar Panel Ownership
If you are ruminating on leasing vs buying solar panels, consider this scenario: You are twenty-seven years old and making $30,000 at your first job out of college. It will take you twenty years to pay off the loan for your solar panels.
But you can pay back that loan, at least in part, with the money you would have to pay for lights, heat, and air-conditioning.
You may be making the final payment on the solar panels when you are forty-seven. Now, you can take all the money you would otherwise send to the utility company and use that to help your kids pay for college.
As you get older and more sensitive to heat and cold, you will need more energy, but your utility costs will remain stable. The cost of utilities will keep rising, possibly out of proportion to rising salaries, but you will be banking the money you would otherwise have thrown at a heartless corporation.
When you retire, you may have somewhat less money to live on than when you were working. The fact that you are not paying a fifth of your income to a power company will help you live well on a combination of social security and other retirement funds.
Admittedly, buying solar panels involves greater responsibility. You will want to consider how long you plan to live in your current home and the condition of your roof before buying. You will want some system of tracking the efficiency of your panels. Here is a guide to help you decide how to replace your roof with solar panels.
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Schedule A Free Consultation
Get a free consultation and a free quote when you decide to go solar with Sunpro Solar. Aside from the number of solar panels, we know youll have plenty of other questions about solar power. Sunpro Solar is happy to provide answers and make your switch to solar clear and painless.
Find out how much you can save with Sunpro Solar
Is Leasing Or Buying Solar Panels Right For You
Installing solar through a zero-down payment approach, like a solar lease, can be very tempting. It is important to keep in mind, however, that although you wont have to pay any upfront costs, you wont save as much money as you would if you had bought the solar panels.
On the flip side, there are some situations in which entering a solar lease makes perfect sense. A solar lease might be right for you if:
- You are not eligible for the federal tax credit
- You are not eligible for SRECs or other local solar rebates
- You do not qualify for a solar loan and you dont have cash to purchase a system outright
Regardless of whether its the best possible way to go about it, for many people wanting to switch to solar, leasing panels is the only way. In order to find the best solar financing options for your, you should get solar pricing quotes from multiple installers.
Find out how much you can save with solar
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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.
How Does A Solar Lease Work
A solar lease is where you essentially lease your roof or a portion of your land to a solar leasing company. Theyll then pay to have a solar energy system installed on your property. While this is a cost-free way to have a solar system installed, you dont own the system or the electricity it produces.
Instead, youll purchase the electricity that the solar system generates from the leasing company.
Before the system is installed, you and the solar leasing company will establish the period of the lease. Most leases last 15 to 25 years. Youll also establish the rate youll pay for the electricity generated by the solar system.
In theory, the rate you pay should be less than electricity from your utility company, reducing your monthly electricity bill. This rate will either be a fixed rate or a rate that increases from year to year.
The solar leasing company will be responsible for any maintenance the system requires. And theyll have the solar panels removed from your property at the end of the lease.
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A Quick Note About Third
Interested in a solar lease or PPA? Keep in mind that not all companies offer these types financing solutionsand in some cases, they cant provide those options even if they want to. Solar leases and PPAs are not legally permitted in some areas of the country. Confirm that your chosen provider offers the financing option that you want most!
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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No Maintenance Responsibility With A Solar Lease:
Another benefit of leasing a solar system is that you dont have to look after its maintenance requirements. The leasing company owns, operates, and maintains the system for you. If you are buying a system, you may need to pay someone to take care of the system’s maintenance.
However, solar systems have no moving parts, making them require very low maintenance. Additionally, buying solar panels from a reliable brand such as LG solar means you likely won’t have to worry about much maintenance, thanks to solidly built panels and an impressive 25-year limited warranty on product, performance and labor.
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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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.
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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Specific Benefits Of Owning
Quick Tip: For those looking to maximize their ROI
- Increase the market value of your home or commercial property by installing a solar panel system.
- Be eligible to reduce your federal and state tax liability through the federal investment tax credit.
Quick Tip: Could potentially further maximize their ROI by taking advantage of tax benefits by categorizing the solar panel system as a depreciable asset. We recommend that they always check with their professional tax consultant first to ensure they qualify and that it matches their goals.
Greater Total Savings In Buying Solar Panels:
The biggest difference between buying and leasing a solar system is the money saved over its lifetime. When you buy a system, the system gets paid off in a few years, freeing you from recurring lease payments of 20-25 years. Even with systems purchased with a loan, you can save significantly more than leased systems. Over the lifespan of the solar system, the amount spent by leasing might be spread out but is significantly higher than the total amount spent by buying.
In addition to that, you are only eligible for the solar incentives if you are the owner of the system. For a leased system, this means that even though the solar panels are mounted on your roof, it is the leasing company that will get the benefits such as tax incentives or direct rebates. This decreases a leased systems money-saving potential even further.
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You Add Value To A Home When Buying Solar Panels
When you buy your dream house and put the starter home on the market, you will learn that home buyers no longer look at solar panels as a strange new thing. Solar energy adds value to a house, especially if you show your buyers energy bills with a zero balance or even a credit.
In regions with high energy costs, like California, buyers will line up to buy a house with solar energy.
Worst-case scenario: You dont find a buyer who wants your house WITH the panels. You then move the panels to your dream house, rather than buying new ones.
Solar leases have been known to scare buyers off.
Buy Or Lease: Which One Is Right For You
Its clear that moving towards renewable energy sources like the sun is a must. But knowing whether buying or leasing solar panels is right for you is a different task altogether. With this article, we hope to have shed some light on that decision for you.
Be sure to check out the rest of the website for more home improvement advice!
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Why Buying Or Financing Solar Panels Is Good Investment
The overall expense compared to leasing is much, much cheaper. Also, youre always eligible for federal tax benefits, which means you can save up to 50 percent of the initial cost through cash rebates and any incentives offered by your local government for embracing solar energy and going green.
You dont have to worry about escalator clauses, which can eat into your savings by increasing annual payments by 3 percent. Remember that the leasing companies are looking to make profits with you. This means theyll include clauses guaranteeing their profits.
Also, even though we are never sure of future outcomes, we cant run away from inflation rates, which are always on the rise. Therefore, depending on the agreement with the leasing agency, you may end up incurring more costs in the future.
When financing a solar panel, you have to reach into your pocket to incur maintenance costs. I know thats a bummer! But that shouldnt be much of an issue.
You still have a warranty on the solar panels, most of which go up to 25 years. You just have to get the right solar panel seller whose warranty includes a few repairs and maintenance terms.
Whenever you want to sell your home, youll be attracting buyers. But thats mostly advantageous if youve already paid off your loan, or you bought the panels in cash.
The energy youve accumulated is sold to power companies, which are required by law to acquire some of their power from renewable sources of energy like solar.