Why Leasing Isn’t A Bright Idea
The steep up-front costs for a residential solar system can make a leasing companys sales pitch sound pretty appealing: Pay little or nothing and save hundreds of dollars per year on average. Leasing can also look seductively simple compared with buying: Theres no need to shop separately for an installer and financing you just sign on the dotted line. So its not surprising that 72 percent of the people who installed residential solar systems in 2014 did so through leasing or another type of third-party arrangement. But the reality is not quite so sunny.
Your Savings Will Be ModestPeople who lease their solar systems save far less than those who buy them outright or with a loan . Many leases contain an escalator clause that can further reduce savings by increasing payments 3 percent per year. So if youre paying 12 cents per kilowatt-hour in year one, with a 3 percent escalator, youll be paying 18.2 cents in year 15. That means that if the cost of energy doesnt rise as quickly as the contracted lease payments increase, your savings could evaporate.
You Lose Control of Your RoofLeasing companies want to maximize their profit, so theres a chance you could wind up with more panels than you want and that they could be installed in highly visible placessuch as facing the streetwithout any regard to appearance. To avoid that, check the final system design and placement before signing the lease. It could be different from the initial mock-up.
Explore The Different Types Of Solar
Solar energy covers all bases, whether youre after renewable electricity, or a green way to heat your home.
There are two types of solar energy that you can get for your home: solar thermal and solar PV. Solar PV panels absorb the suns heat and convert it into electricity, whereas solar thermal panels transform the suns energy into heat for household water.
Buying A House With Pace
PACE financing is attached to the property, and not the person who took out the loan since payments are made through property taxes. Therefore, the solar equipment payments become your responsibility when you purchase a home that has PACE financing. If youre thinking about taking on PACE financing payments with the purchase of a new home, you should review the financing terms before you make a purchase.
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Forget Leasing How About Financing Your System Instead
The revolutionary thing about solar leases was that they made it possible for virtually anyone with a roof to go solar. Solar leases were crucial in removing barriers to entry back when solar system prices were prohibitively high.
But times have changed! Solar prices have plummeted in the last 5 years. and financing options other than solar leases have become viable. The most important of these is the solar loan. With our SolarBase Program, we can provide homeowners with $99 down financing options with 5, 7, 10, 12, 15 and 20-year term options along with the benefits of system ownership.
So before you sign up for the first free solar panel deal that comes your way, make sure you understand what youre being offered and that youve considered our SolarBase Program.
Invest In Shared Solar
Thanks to the community solar business model, we can see the solar technology spreading wider and wider. This initiative allows multiple participants to invest in the solar panels deployment and benefit from the produced energy together. The participants of this initiative usually benefit from owning or leasing a part of the solar system.
Basically, its a budget way to get the solar energy and go green.
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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.
It May Make Selling Your Home More Difficult
The Washington Post article Why leasing solar panels may not be a good idea if youre planning a home sale says that potential buyers may be frightened by an existing solar lease on a home. They have to meet onerous credit requirements and make payments on the remainder of the lease term, often 10-20 years.
In contrast to owned panels that increase the value of a home, leased panels can scare off buyers or force you to buy out a lease in order to complete the home sale.
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Is It Better To Lease Or Buy Solar Panels What You Need To Know
Solar installations can come at a pretty high price. While buying solar panels gives you the best return on investment, not everyone has the cash on hand to cover the upfront costs of going solar.
Luckily, homeowners can take advantage of financing options, like solar leases and solar loans, to help them afford making the switch to solar.
But which solar financing option is the best for you? Were going to take a look at the financial benefits of leasing vs buying solar panels, to help you figure out how you should finance your solar power system.
Thinking About Switching To Solar This Guide Discusses The Pros And Cons Of Different Solar Panel Purchasing Options
If you’re thinking about investing in solar technology, you’ll find plenty of different ways to do so. Some homeowners choose to rent solar equipment from a solar company. Others choose to buy solar equipment, making fixed monthly payments for as long as necessary. Whether it’s better to own or lease solar panels depends on your unique situation. First, you’ll need to understand your options and how they differ.
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What Are Other Ways That I Should Pay For Solar Panels For My Home
If you want to get solar panels for your house, you basically have three ways to pay for them:
- Pay cash.
- Take out a loan, then pay cash.
- Get a solar lease or power purchase agreement.
The first two are pretty self-explanatory: the solar contractor installs solar panels on your roof or in your backyard, takes care of the permits, and connects your system to the grid. When theyâre done, you pay the invoice.
If you donât have the cash in your bank to cut a check, you can take out a loan. If youâre a homeowner, a home equity line of credit or a home equity loan are common ways to use the equity in your home to get a loan at a favorable rate. Itâs generally much, much cheaper than carrying a balance on your credit card.
Whether you take out a loan or not, by purchasing your system youâll almost always gain the highest financial benefit. One big reason is that, as the owner of the system, you keep any solar incentives. This includes at least the 26% federal tax credit, and many state and local rebates are also available across the country.
To help you figure all this out check out our article on paying for solar panels, which includes a simple cash purchase versus loan calculator.
Reasons To Stay In Your Solar Lease
1. Staying in your lease gives you more coverage if anything goes wrong. Under a lease, all of your equipment is covered. For example, if your inverter goes out while under a lease, you wont have to pay $2,000 – $3,000 for a new one. If you do buyout of your lease, the service and repair package included on your equipment will no longer cover you, but you will still have the manufacturer warranty. So if your inverter has a 10-year warranty and youre in year 7, youll still have 3 years left on that warranty before youd be on the hook for paying.
2. Sometimes the buyout cost is more than the value it would add to your home. This is another case by case basis, but if the buy out cost doesnt make sense regarding what it would add to your homes value, staying in your lease might be the better financial option.Theres a lot to consider when youre presented with the option to buyout your lease. We hope some of these points of consideration help make your decision a little easier. If you would like more guidance on whats best for your solar situation, contact a solar savvy real estate agent, or one of our affiliates, Tara Rutkowski, a licensed real estate agent who specializes in solar homes at or 623-640-6546.
If you’re interested in adding solar to your home, we invite you to download our free solar guide, Is Solar Right For You? In it you’ll learn the critical factors that contribute to a solar purchase decision.
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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.
A Solar Lease Is Just One More Financial Tool That Is Complex Enough That You Cant Quite See What The Real Cost Of It Is
A lease contract is not easily transferable if you decide to sell the house. According to one large solar leasing company: If you sell your home before the end of the lease, you can transfer the lease to the new owners if they qualify with excellent credit, or you can prepay the lease and add it to your home asking price.Qualifying means a 700 or higher FICO score.
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Are The Panels Of High Quality
A little research goes a long way. Its best to make sure the solar panels are of the latest models, which will require minimal maintenance.
Whats the maintenance cost? Before taking a loan to buy solar panels, make sure the panels come with warranty and that the brand offers some form of maintenance. Also, opt for solar panels that come with an app for tracking the solar panels.
Leasing Versus No Solar At All
In California as of 2015, the cost of solar was 15.42 cents/kWh and it has historically increased by 2.5% annually.
If this homeowners energy needs were actually just the 6,016 kWh that his SolarCity system would have provided, than we can do some math to figure out what he would pay to his utility company over the same 20 year period.
Price per kWh: 15.42 cents
Monthly Payment: $77
Price per kWh: 17 cents
Monthly Payment: $85.33
Price per kWh: 18.77 cents
Monthly Payment: $94.07
Price per kWh: 21.23 cents
Monthly Payment: $106.47
Price per kWh: 24 cents
Monthly Payment: $120.42
As you can see, the price of standard electricity from a utility company rises at a slower rate than the price of a solar lease from SolarCity! Of course, this is not accounting for any potential factors that could drastically change the price of electricity from the grid in the future.
In the end, this same homeowner would be paying around $23,700 for energy from his electric company over the same 20 year period.
You read that right, its actually $300 LESS than he would have paid for his solar lease from SolarCity.
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What Are Solar Leases And Power Purchase Agreements
To learn more about solar leases, read our article on how to pay for solar panels.
But heres the short version. With a solar lease and the closely related power purchase agreement , its like leasing a car. You dont own a car you lease, and you dont own leased solar panels either.
Youll still get a utility bill, but the electricity usage on your bill will be lower because of the solar electricity the solar panels generate.
In exchange, you a separate bill from the solar company that is either a fixed monthly fee or a per-kilowatt hour charge in the case of a PPA.
The Bottom Line On Solar Leasing
Overall, solar leases present an enticing front with a lot of potential complications lurking in the background.
For homeowners who cant manage the upfront costs of a cash payment, dont qualify for a loan, or cant use the tax credits, it makes solar possible. But some warn that leases are best left as a reserve.
Owning your system produces the highest savings in the long run. If a loan isnt an option for you, a lease or a PPA may be the best option for you, Bouchy said.
If not carefully set up, a lease can leave customers trapped with a cumbersome system and with a real estate headache when its time to move on. In Guinns opinion, if homeowners are working, pay taxes, and have enough cash or good credit, the scales are in favor of buying.
Owned systems, either cash or financed, are the only way someone should consider solar on their home, he said.
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They Cost A Lot To Move
Like a trusty friend, your panels are here to stay. So, if youre considering installing solar panels onto your home, make sure youre set on living in that property for a substantial amount of time.
These panels are hefty pieces of equipment, and will be pricey to haul from place to place not to mention the cost of getting them reinstalled.
A Lease Is Personal Property And Not Real Estate
A lease is a personal property contract and doesnt apply to the home, which is regarded as real property. So, if you sell your home and dont want to take the solar panels with you, you will have to persuade the buyer to take over your contract.
While some buyers are willing to take over solar leases, there is no way of knowing in advance. Also, buyers will need to apply for credit before they take over a solar lease.
These factors can make a house more difficult to sell and might prolong the process.
8. A Solar Lease Can Make It Difficult to Sell Your Home.
Solar leases are seen as an obstacle by many real estate agents selling solar homes. We discovered that solar homes can sell 20 percent to more than 100 percent faster than those without solar. But if theres a solar lease in place, they tend to sell more slowly. This is primarily because they complicate the selling process.
In addition to my own stories above, here are a few examples of professionals who have found that a solar lease can make it more difficult to sell a home.
Janelle McGill, a Fort Collins real estate agent and consultant who offers free classes for agents, homeowners, solar installers, and utility companies, maintains that leased solar panels dont add any real value to homes. This is because buyers are sometimes unwilling to take over solar leases. If buyers do agree to a transfer and the process is delayed for any reason, it will delay and might even cancel a closing.
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The Pros And Cons Of Leasing Versus Buying Solar Panels
There are three common financing options for a home solar energy system: buy it, lease it, or buy the solar power through a Power Purchase Agreement . Leasing and PPAs offer similar financial benefit. All options will reduce your energy costs. However, some financial strategies may better fit your situation.
Below are the pros and cons of leasing versus buying.
- Lease: Essentially renting a solar system from a third party.
The following list sorts financing options in order of greatest savings.