Should you Buy or Lease Solar Panels?
Going green with solar energy is a very popular option right now. We have all seen temperature and weather extremes growing, and we have heard the latest climate reports. But is purchasing solar panels the right choice for you and your home? Or would leasing solar panels be a better option for you.
These choices can be difficult, and there is no one right answer for everyone. In the solar lease vs. buy debate, you have to consider all the pros and cons before making a decision. Here, we break down the advantages and disadvantages of buying solar panels vs. leasing them.
Take a look at all the facts before you make your decision. Whether you choose to go with a solar lease vs. buying solar panels, you will still reap the benefits of more clean power generation. Energy that is clean and emissions free, and that uses the readily available heat from the sun to help shift how we get our energy.
You’ll be a part of the clean, green revolution no matter what you choose. What is important is considering which method of adding solar panels to your home makes the most sense for you financially, practically, and for your peace of mind.
Buying Solar Panels
Purchasing solar panels for your home is a great idea for many homeowners. It has three major advantages: you own the system and the power it generates, you reap the tax benefits and other incentives, and you don’t have to renegotiate with your leasing company
When you install solar panels that you own, you are in control. You are the owner of all the power that those solar panels generate, and you can make any changes you like to your solar array. That means that you can choose to sell power back to the grid, if your home generates enough energy, or to create and maintain your own battery backup and go totally off grid.
When your home has its own solar panels, your energy bills can be dramatically lower. You reap the full benefit of those savings without having to regularly pay a leasing fee.
Additionally, you are the recipient of any tax credits, rebates, or other incentives that are set up by federal or local agencies. In the 2019 tax year, you can deduct up to 30% of the cost of purchasing solar panels on your tax return. That can drastically reduce your tax liability, and you can even roll over excess into the next tax year if you are eligible. But these benefits are only available to the owner of the system. You are not eligible for this investment tax credit if you are leasing your panels.
Purchasing solar panels for your home can increase your home’s market value. That can, in turn, create additional equity in your home that you could potentially borrow against if needed. This is another way that you can take advantage of incentives for solar buyers.
Finally, if you purchase your panels, you don’t have to worry about the variations in price that can sometimes go with leasing solar panels under something like a PPA (see below).
And you don’t have to worry about breaking or renegotiating your lease if you had to sell your house. If you own your solar panels, they could make a difference in your home’s market value, and you could sell them along with your home if you needed to move. If you’re leasing, you have to make alternate arrangements, as the panels are not yours to sell.
However, do keep in mind that there are disadvantages to purchasing solar panels instead of leasing them. Chief among those is the upfront cost. There’s no getting around it: buying solar panels is a significant investment that cannot be taken up lightly.
True, that investment is likely to pay off. And it may pay off relatively quickly. Most homeowners recoup their costs in five to eight years between credits and incentives and the lower cost of their utilities.
However, no matter how much you might stand to save down the line, you still have to come up with the cash up front to pay for the full solar array. This includes materials such as the photovoltaic panels and mounting systems, as well as site preparation, installation, and other labor costs. The average home solar energy system costs between 15 and 25 thousand dollars.
Of course, the exact price can be more or less for you depending on your site and your home’s energy needs. And financing for solar panels is available, often at a relatively low interest rate for those who qualify.
But the cost is still a major factor. If you finance, you’ll have to make monthly payments, just like a lease. And not everyone can save up enough cash for buying solar panels.
Leasing Solar Panels
When you choose to lease solar panels, the upfront costs are usually minimal. That is one of the main advantages of solar lease vs. buy. Other major advantages include low maintenance and a simpler installation process.
But, before we dig too deeply into the pros and cons of leasing solar, it’s good to define how solar leasing typically works.
In most instances there are two main types of solar leasing. In traditional solar leasing, you sign a lease agreement with your provider, and they install solar panels on your property. You pay them a fixed sum for the panels each month based on the anticipated energy those panels generate.
There is another way to structure your solar lease, however, called a power purchase agreement (or PPA). Under a PPA, your leasing company installs solar panels, and offers you a flexible payment based on the actual energy that the leased panels generate.
The specifics of a solar lease vs. a PPA can be a little complicated. But they both involve solar panels owned by a leasing company being installed on your roof for little or no down payment. You will pay either a fixed or flexible sum of money to that company on a monthly basis.
In essence, a traditional leasing agreement is you paying rent on the panels, and a PPA is you paying for the power they generate. No matter which method of solar leasing you choose, however, there are very similar advantages and drawbacks.
The greatest benefit of leasing solar panels is the lack of upfront costs. Solar panels are expensive. Having cash upfront to purchase a solar array can be daunting for many homeowners. In fact, the cost of a solar panel system is often as much as the family car. And while there are benefits and rebates that offset the costs eventually, it takes years to fully recoup the costs involved in purchasing solar panels.
On the other hand, leasing solar panels means little to no upfront cost. When you sign a solar lease, the company will purchase and install the panels for you on your home. You’ll reap the benefits of solar power, and add to clean energy production without being tens of thousands of dollars out of pocket.
An second advantage is that when you agree to a solar lease, you don’t have the responsibility to maintain the solar panels yourself. When you are buying solar panels, you are the one on the hook for making sure the system is working properly. If something breaks, or is damaged you must pay for repairs out of pocket. These types of unexpected expenses are one of the hardest parts of homeownership generally, and with solar ownership they can be equally stressful.
When you’re renting, you’re not the one responsible for repairs. Just like you can call a landlord when you’re renting an apartment, you can call your solar leasing company if there’s a problem with your panels.
And the third advantage is also related to your ease and peace of mind. The process of installing solar panels with a solar leasing company can be a more streamlined experience from your point of view as the homeowner.
Solar leasing companies have their own relationships with suppliers, installers, and other laborers. That means you don’t have to go out and make individual judgements about what company and contractors to work with.
You will probably have to work your leasing company somewhat on permitting, and scheduling access to your home, but you don’t have to make hiring decisions, or deal with project questions or problems in the same way as when you are buying solar panels. Leasing solar panels can mean fewer headaches because you’re working with a company, not out on your own.
But leasing solar panels does have drawbacks. When you are leasing you don’t get the benefits of tax credits or rebates. And you often don’t qualify for other incentives.
When you lease your solar panels you are typically locked into a lease for terms of 7-25 years. If you have plans to sell your home, or move during that time, you will have to negotiate with the solar leasing company to either transfer your lease to the new home buyers, or to break or renegotiate the lease. That may include certain penalties, which can make the home selling process even more complicated and stressful.
Leasing or Buying Solar Panels: What’s Right for Me?
As you can clearly see, there are significant advantages and disadvantages for both solar panel leasing and solar panel purchasing. It’s important to carefully weigh all the options.
You may want to begin by checking for local solar installers as well as for solar leasing companies that offer services to your area. Speak to them, and don’t be afraid to ask questions. But keep in mind that a solar installer has an incentive to encourage you to buy a system, and a solar leasing company has an incentive to get you to lease instead. Carefully compare the information they each give you about local conditions.
The way that solar works can vary quite a bit from location to location. In dry, sunny Arizona one set of conditions will prevail, and in wet, windy Seattle, the prospects for solar will be quite different. That is why we highly recommend that you talk to those who offer services in your area before making a final decision.
Additionally, if you have neighbors, friends, or family that have gone solar, ask them about their experience. What worked out better than expected? What did they regret? People will often be very happy to offer specific information and recommendations, especially if they had a particularly good or bad experience with an individual installer or leasing agent.
When you consider purchasing solar panels, the biggest thing to look at is price. Can you afford to pay cash for those panels? If not, you may have to take out a loan, and that can mean paying even more in interest over the life of the loan.
But, remember that up to 30% of that cost will come back to you in the form of tax relief next year. And over the next 5-10 years you are likely to recover all of the remaining costs through lower electric bills. If recovering your investment is a high priority and you have some cash on hand, or some home equity you are willing to tap into, then buying solar panels may be your best option.
When you consider leasing solar panels, think about your circumstances. Is it more important to you to generate solar power quickly, versus getting the most in rebates and incentives? Do you expect to be in your home for the duration of the lease? If you know you simply cannot come up with the cash needed to purchase solar panels on your own, leasing may be the best option for you.
No matter what you choose, you will be contributing to the growth of solar energy. You’ll help to lower your utility bills, and reduce fossil fuel pollution and other negative effects of traditional power generation.
A clean, green future is ahead of you. It’s up to you whether this is a dream you’ll buy or lease. The choice is yours.