When considering installing a rooftop residential solar system, homeowners are often faced with two main options: purchasing the system, or leasing it. There are advantages and disadvantages to each, and no single solution is the catch-all for every home and homeowner.
Under a solar lease, or Power Purchase Agreement, the solar company owns the equipment, and the homeowner owns the power it produces. Customers agree to offset a determined percentage of their overall energy use, and the solar lease payment replaces the money that would have been paid to the utility company.
As you might imagine, when purchasing a system, the homeowner owns the equipment and all the power it produces.
Savings
Image: Pixabay
A solar lease often offers upfront savings, reducing the cost per kWh relative to the utility bill. Typically, if upfront savings are the main goal, a solar lease will be offered. However, financing is often available for a solar purchase, so a no-upfront-cost loan structure can be achieved.
While a solar lease helps avoid any kind of upfront cost, it generally winds up costing more over the 20–25-year life of the contract, said SolarReviews. These contracts are long-term, so it is important the system is properly sized to maximize savings.
An upfront cash purchase will, in most cases, be the cheapest option for going solar. EnergySage said systems can cost between $15,000-$30,000 or more before rebates and incentives. Most cash purchases pay for themselves in savings in five to seven years, and a typical loan breakeven point is hit in a little over eight years. Interest rates usually running about 3-8%, reports EnergySage.
EnergySage said purchases often will save a homeowner about 40-70% on energy bills in the long run; solar leases save between 10-30%.
Tax credits and incentives
Rebates, tax credits, and other incentives can reduce total cost by up to 50%, said EnergySage. While it is generally the case that a homeowner owns the rebates and credits in a purchase, and the solar installer owns them in a lease, the benefits of these cost reductions can be available in both arrangements.
Often, solar installers will manage rebates and incentives for the customer, and the price reduction is built into the contract. This is true for both leases and loans. If it is important for the homeowner to take in a tax credit directly, then purchasing is the best option.
Maintenance
Solar maintenance agreements vary widely company-to-company, and contracts should be read closely to understand what is covered. Often, when purchasing a solar system, the maintenance and monitoring of the system is the homeowner’s responsibility. Sometimes solar companies will offer an additional maintenance protection program with a cash purchase or loan.
Image: Sullivan Solar
A solar lease is more often coupled with a complete maintenance package for the length of the term. Many solar companies offer performance guarantees, meaning they either have to keep the equipment producing at the level promised, or the homeowner will be paid for any shortcomings in production.
Thankfully, solar is relatively low-maintenance, said SolarReviews. The life of a solar panel can be well over 25 years, and typically inverters are the first major component to cause downtime or failures.
Selling the home
When a solar system is owned, it is considered an improvement to the home, and increases home value. Zillow reports homes with solar sell for an average of 4.1% more, and that they leave the market 20% faster.
By contrast, a solar lease does not increase a home’s value directly. The entire agreement can typically be transferred over to the next homeowner. If the buyer is not willing to take on the lease contract, the seller usually has the option to buy-out the solar system, and then recoup that cost in the sale of the home. This can make selling a home with a solar lease more difficult in some cases, said Forbes.
Bottom line
If long-term savings and the flexibility to sell the home unabated are of chief priority, then a purchase may be the best option. If a low-maintenance, turnkey solution that provides savings day one is an appealing arrangement, then a solar lease may make the most sense.
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