How Do Escalation Clauses Affect Solar Leasing
Escalation clauses are designed in such a way that the initial monthly payments on your solar lease start low but increase progressively over time at a fixed rate per year for the duration of the lease.
The following chart shows the real-world impact of these increases over time.
Here are the main issues with an escalation clause.
- It can lead to your payments increasing at a faster rate than the value of your utilities in your area of residence, thus meaning that you end up paying more for your utilities than you would when using grid power over time.
- Escalation clauses can make it incredibly difficult to sell your home because prospective buyers know that they are purchasing a property that will progressively get more and more expensive as time goes on.
- In a worst-case scenario, you will not only be paying more for your utilities, but you will also decrease the value of your home and potentially even trap yourself at your current location until you can either buy out of your solar lease or it reaches the end of its term.
In comparison, when you buy your system, these advantages are present.
- The upfront costs are the only costs you will pay other than for cleaning and maintenance that you might be able to perform yourself.
- The value of utilities in your area has no impact on you financially, whether they rise or decrease .
Should I Buy Or Lease Solar Panels
The decision over whether to purchase or lease solar often comes down to your current financial situation and long-term housing plans. Buying vs leasing solar panels are both ideal options in different situations, so you should thoroughly examine the pros and cons of leasing vs buying solar panels to determine which is right for your needs.
- Solar leasing might be perfect for homeowners who can budget for a flat monthly fee, but they dont have the money on hand to buy the system outright, or cant secure the loan.
- For other homeowners, buying a solar energy system outright or through a solar loan may be more suitable, especially if youre looking to enhance the long-term value of your home for a future sale.
Specific Benefits Of Leasing
Quick Tip: For those looking for immediate savings with no upfront costs.
- Go solar with nothing out-of-pocket, typically $0 down!
- See immediate savings by reducing your electricity costs by 30% 50%
- PPA and most leases are guaranteed to be fully transferrable
- Only a 2.9% annual increase in electricity costs vs. 4-6% from your utility company
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At Smart Wave Solar, we decided not to offer leasing options since it tends to be such a bad deal for the customer. When it comes to leasing vs. buying solar panels, buying is the clear choice. While there are upfront costs, youll realize more cost savings over time. Plus, you own your own equipment, which is attractive if you ever want to sell your home.
To learn more about the benefits of buying vs. leasing solar panels or to get a quote, contact Smart Wave Solar today.
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Solar Lease Rate Increases
A common reason people go solar in the first place is to insulate themselves from utility rate hikeswhen you buy your system, youre essentially locking in your electricity rate. But this isnt the case when you lease.
Many lease terms include an annual rate increase. In fact, Consumer Reports spells it out this way: Say you have a solar lease term that charges 12 cents per kilowatt-hour. A 3% rate increase over 15 years gets you up to 18 cents per kWhwhich may be more than what your utility would have charged you.
Pros Of Solar Leasing
Solar leasing comes with many natural benefits, including the following:
- No need to pay high upfront costs of solar panel installation
- Locks in energy prices for the future, when the market may be volatile
- Avoid the headache of maintenance and monitoring of equipment
- Significant utility bill savings
- Reduced household carbon footprint
- Power production guarantees in solar leases mean payments can decrease if the panel doesnt produce as anticipated, minimizing the risk
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Is It Better To Buy Or Lease Solar Panels
There are three ways to purchase solar panels: cash, solar loans and solar leasing, otherwise known as a power purchase agreement . The best way for you to switch to clean renewable energy depends on your particular needs and financial goals.
Here is a quick overview of leasing vs. buying solar panels:
The financial benefits of buying a home solar energy system with full cash upfront include:
- Higher long-term savings for homeowners.
- Monthly energy bill savings from the first month, with no monthly payment to offset the savings.
The benefits of financing your solar panels with a loan include:
- Low upfront cost depending on type of loan .
- Significant long-term savings.
- Monthly utility bill savings, offset by a monthly loan payment.
- Loan payment will get paid down and eventually disappear.
The benefits of solar leasing or solar purchase agreements include:
- Lower upfront cost than purchasing with cash.
- Maintenance for the solar system will be the responsibility of the leasing company.
- Monthly electricity bill savings but a higher monthly payment for lease that will offset the savings.
Buying A Home With Leased Solar Panels
If you are buying a home with leased solar panels and thinking that you might be able to take them off, then think again.
- You can only remove leased solar panels when the lease agreement ends or when you buy out of it.
- Until the agreement ends, you are legally bound to keep the solar panels in place.
Unless the lease agreement on a property is almost at an end, then you are going to have to buy out of the solar lease as a new homeowner before you can take them off. If you see solar panels on a property that you are considering buying, make sure that you find out whether they are leased or purchased first.
You already know from one of the earlier sections of this guide that you will be paying for the panels, but you might not have been aware that you cannot remove them either. If you are buying a house based on its appearance, this could have disastrous ramifications.
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Start Your Solar Journey Today With Energysage
The EnergySage Marketplace 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. .
Ending Your Solar Lease
Customers who choose to lease solar panels may find themselves in circumstances where they want to end their lease, such as if they are moving to a new home. Solar leasing companies try to make this process as easy as possible, providing the option to transfer the lease to the new owners of the home or break the contract and remove the panels.
Even if you dont break your lease early, it will come to an end eventually. When this happens, customers can either renew the same lease or cease the solar contract. In the latter instance, the solar company will dismount and remove the panels.
A last option is that customers can purchase the solar panels at a discounted rate .
If you want to know for sure how many panels you need, you can click below to connect with an EcoWatch-vetted installer and get a free estimate.
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Solar Lease Rates How You Can Make Real Money Out Of Leasing
We are going to take a momentary sidestep to make you aware of one way that you can actually make a lot of money out of leasing. This method does not actually involve you leasing solar panels though. Instead, it involves you stepping into the role of the lease provider.
Here are some things to consider.
- There are many companies out there that are desperate to find spare space where they can place solar panels.
- There are a significant number of homes that have spare land that is not being used.
- You can make a considerable amount of money out of offering your spare land to solar companies in the form of leases.
- You might even be able to sell your spare land to a solar company so that they can build a solar farm on it, depending on your available space.
This version of solar leasing falls into the classic no one thinks about it category of revenue opportunities for homeowners. It is a completely viable way to make some really good money though. The average payout range per acre, per year is between $250$2,000 depending on the solar viability of your land.
How much money you make is largely going to depend on whether your land is south facing, has no obstructions in the surrounding area, and has plenty of peak daylight hours per day. This is how much you could realistically make from leasing your available land to a solar company depending on the size of your free area.
|Size of land|
|$60,000 per year||$80,000 per year|
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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Solar Panels Purchase: Cash Or Loan
When it comes to owning your own system and having full control, as we have already mentioned, your options are either to buy outright or to take out a solar loan. If you have a good credit score rating, loans provide another great option for owning solar that takes away some of the financial burden of paying for the system in the form of set monthly instalments and a low down payment.
The main negative when we are comparing the two is that due to the interest required with pretty much any loan type including solar loans, you are going to be paying more overall for the cost of your system compared to purchasing it with cash. Another negative aspect is that if you fail to meet your payment terms over the course of your loan agreement, this could lead to your system being repossessed and the outstanding amount on your solar loan still being due until paid in full.
Even though the system is entirely in your name and you can essentially do with it as you wish when you have entered into a loan agreement, the system is never truly yours until the final payment has been made on your loan. Where possible, paying cash for your system and taking immediate ownership is the best option for those who want to go solar and will always yield the best price when compared to paying over time and the interest rates that come with this.
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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Why Leasing Solar Is A Bad Idea
One of the most attractive prospects of a solar lease is that you are not responsible for maintaining the solar panels. Here are the realistic costs of annual solar panel maintenance for the majority of average-sized systems over the years.
|Potential escalation cost per month after 25 years?||$350|
What does this mean? Well, at the 10-year mark with a purchased solar system, you are usually getting ready to put your feet up and relax because you have made all of the money back that you spent on your system in the first place. Provided you do not have any major issues, you will just need to perform 12 cleanings a year and an optional annual inspection.
After 10 years when you are leasing, even though your service and maintenance costs are covered, this is the point where you start to pay more than the equivalent of performing annual inspections and cleanings. Every year beyond that, you are paying much, much more per annum in total than you would if you owned your own solar system.
Unless anything goes wrong with one of the mechanical components of your panels, the figures in the first table are realistically the most you are likely to have to pay out per year to keep your panels in prime condition as a solar panel system owner.
When To Lease And When To Purchase
The solar lease vs. buy decision should be based on an evaluation of your specific goals and financial situation. Use the table below to determine what is right for you.
|When to Purchase|
|Homeowner wants to maximize the financial benefits of owning a solar system||Homeowner or business that is ineligible for state and federal incentives|
|Homeowner is eligible for federal and state tax credits associated with the system||Wants to avoid maintaining and monitoring the system|
|Business that can realize tax depreciation on the solar system|
|Interested in coordinating basic administrative work associated with tax credits and monitoring/maintaining the system|
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Leasing Solar Panels Vs Buying Solar Panels
The choice between buying vs leasing solar power is something that you have to answer for yourself, based on your own home and budget, and it helps to understand all of your options before making that decision.
Both a solar lease and a solar PPA enter you into a solar contract you must abide by for the duration of the agreement. With a solar lease, you pay a fixed amount every month for the entire lease period, and a solar PPA has you paying a fixed rate per kWh for the electricity you use. In both cases, the solar installer retains ownership of the system and is responsible for monitoring and maintenance.
If you wish to enjoy the full benefits of your solar panel system, including increased savings, higher property values, and greater control, you should consider buying your solar panels outright. You can either buy it in full upfront with a cash purchase or finance it through solar loans.
If youre thinking about going solar and want to maximize your benefits, then contact Palmetto today. Our experienced solar professionals can walk you through your options, explain the entire process, and take care of all the details on your behalf. You can get started today by using our Free Solar Design and Estimate tool to find out what system size is right for you.
What Is Solar Leasing And How Does It Work
Solar leasing is a financing option through which customers pay a monthly fee for the panels and get to use the power the system produces. They do not, however, own the panels. It is an arrangement similar to leasing a car the idea is to provide a convenient option for those who want to go green and reduce their electricity bills without the overhead of buying a solar energy system.
There are a few benefits to solar leasing. First, it reduces a customers upfront costs to install panels. Using a solar lease means the maintenance and liability to damaged panels rests on the solar company rather than the homeowner. However, because you do not own the panels, you miss out on incentives like local and federal tax credits.
Typical solar leases last for 20 years, and they include a solar lease escalator that increases the monthly installment once per year based on current market prices and the energy landscape. Many solar leases come with the option to buy the solar panels at a discounted rate at the end of the lease agreement .
Solar leasing was especially important in the early days of solar when systems were more expensive, but as the cost of solar panels has decreased, leasing doesnt make as much sense as it used to.