“Do I want to lease or purchase a solar power system?” This is probably one of the most common questions I hear from homeowners that are interested in going solar. The real answer: It depends.
Everything about a solar power system should be customized to the individual property owner, especially when it comes to financing solar panels. With today's financing methods, solar saves most people money from day one when financed, but there are different options that you want to be aware of to identify which method of financing is best for your individual needs. When looking at options for your solar installation, make sure that the company you are looking at using is providing all of the financing options. Be wary of solar firms that try to "sell" you into one option over the other and do not provide you with all of the financing tools available. With an investment in your home like solar, you want to look at all of the options that are available to you so that you can make an educated decision that is best for you and your loved ones.
Leasing Solar Panels: Renting your solar panels, or what is referred to as a solar lease, means that you are not the owner of the solar products or the energy that is produced off of the system. You are basically replacing the monthly payment that you make to the utility each month and instead making low payments to a third-party financing company for solar energy. Leasing options allow you to go solar for no money out of pocket and lock in a fixed and guaranteed cost of electricity (kilowatt-hour rate) for the next 20-years. When you lease solar equipment, the system is fully insured with maintenance included for the full 20 year period. In year 10-15, your solar power system's inverter is likely to fail. This means that the replacement cost of your inverter, is covered under the lease and will be replaced at no cost to you. The most important difference between leasing and owning your solar project is that when you lease the system, you are forfeiting the incentives associated with the project that you receive when you own the solar panels. You will not receive the Federal tax credit, which is the greatest solar incentive - the Federal tax credit is 30% of the overall solar project cost. Instead, the leasing company takes the tax credit on your behalf and provides you a low monthly payment. If you do not have a tax appetite, then leasing solar is definitely the best option for you, because you wouldn't be able to take advantage of the tax credit otherwise. What happens at the end of the solar lease agreement? There are typically two options that are stated in leasing contracts: 1. You can buy the solar power system at "fair market value," which unfortunately, no one can predict what that cost will be. Or, 2. Have the solar panels removed from your roof at no cost to you. The solar panels will still have about 80% of their initial power output remaining, so there is still a lot of life left in the solar panels at the end of the 20-year period. If you decide to lease your solar project, be sure to ask the solar company if there is an escalator on your payments. I have heard of some companies not being upfront and including an annual escalation in monthly payments without telling their customers. The real benefit of a lease is locking in a fixed payment for the solar power system over the full period of the lease term.
Financing a Solar Power System: When you purchase or finance a solar power system, you are choosing to own the solar panels and the energy they produce. With more and more solar financing options coming online, in most cases, you are able to go solar for $0 down and own the solar panels, with a monthly payment less than your current electric bill. In addition to immediate cash-flow savings, you will receive a significant Federal tax credit, which is 30% of your overall solar project cost. If you pay taxes each year, owning your panels has a lot of benefit. The solar tax credit can be used over a period of 5-years, so if you do not have the tax appetite to use it all in the first year, it carries over to the next. In most cases, owning a solar power system is going to provide you the best return on investment and payback period. You do not get the maintenance coverage that you do with a lease, so the cost to replace the inverter is something you will want to take in to account (for the average home system, you are looking at about $2,500 to replace the inverter) - expect to have to pay to replace the inverter in year 10-15. Unless you use Sullivan Solar Power. Our company now provides an extended warranty for 20 years to all new customers, because we know that the inverter is going to need to be replaced in the life of your solar power system. When you own your solar power system, there is a greater increased value to your property, so this is another benefit that you will want to take into account when comparing the options. When you own the solar power system, you are covered by manufacturer's warranty for 25 years. The truth is, there are solar panels that were installed in the 1960's that are still producing power today - so there will be a lot of life left in the system at the end of the manufacturer warranty.
Buying a Solar Power Installation: As always, cash is king. You will hands-down see the best payback period, Internal Rate of Return (IRR) and Return on Investment (ROI) on your solar project, when you purchase the system with cash. You receive all the same benefits of ownership as you do when you finance your solar power system, but without any interest rates, charges, or financing fees. If you have money sitting mutual funds, or other investments, you will want to evaluate the IRR you are receiving on those other investments - in most cases, solar is the better investment.
Regardless of how you finance solar, the bottom line is that you will save money. One thing is for certain - the cost of electricity in California is not going down any time in the near future. Despite which financing mechanism you decide to use when you go solar, you want to pay extra attention to the contractor that you select to install your solar panels. As with any home upgrade you make, not all contractors are alike. Go solar with a quality company that has a proven track record and reputation - choose a solar company that you know is going to be around and provide excellent service for the longhaul.