Which is Better; To Lease or Own Solar Panels?

Solar_panels_on_a_roof**UPDATED FOR 2016 GUIDELINES**

Dozens of solar installation companies, such as SolarCity and SunRun, have sprung up in recent years, cashing in on the solar energy wave. "Save $$! Lock in your utility rate!" Technically they are known as solar service providers.

The EPA has a web site called Green Power Partnership where it has published a summary about Power Performance Agreements. In a nutshell, PPAs are arrangements where solar installation companies rent space on residential roofs to generate power. In exchange, the homeowner gets a reduction (usually 10-20%) of their utility bill. The solar service provider owns, maintains and operates the photovoltaic installation. The homeowner pays nothing up front, so there is no capital cost outlay. Sounds like a no-brainer, right? Wrong.

Consider these drawbacks to leasing:

  • The solar leasing companies own the solar panels, so they, not you, get the 30% federal tax credit.
  • The solar leasing lease companies own the power that your panels generate, so although you will get a reduction in your monthly bill you will still be obligated to continue to pay the 80-90% utility payment to the solar leasing company. In essence they become your utility provider.
  • You're buying your energy from the solar service provider, but in cases where your panels don't generate enough power you also have to buy your energy from your traditional utility.
  • The price per kilowatt may be fixed, but solar service providers often build in an annual price escalator of 1-5%.
  • Transferring property ownership with a solar lease can be problematic. Solar contracts require the new owner to take over the leases and terms, which often aren't attractive terms to potential new owners who would prefer to own the equipment. In these cases the current owner may be liable for the remaining lease term and any fees associated with removing the equipment.
  • You can't claim ownership or get credit on your appraised value with leased solar panels.

In contrast, consider all the financial benefits of owning your solar panels:

  • You harvest the SRECs (solar renewable energy credits)
  • You pay little or no money for your electricity bill, except in cloudier weather when your system generates less electricity
  • You own the panels, so you can legally sell them if you sell your home, and you can receive a potential higher green premium on your sale or on a new appraised value.  Many consumers now recognize solar power as a justifiable premium cost and value when making property purchase decisions.

The bottom line is that leasing solar panels is not a good economic decision for homeowners or a good business practice for building owners (commercial properties may make more economic sense), because leasing greatly diminishes the economic returns for building owners and makes money for the equipment owner, not the building owner. Leasing also encumbers the real estate selling process because prospective buyers may find that the equipment is obsolete and the terms from the solar service provider may not be attractive.

If you can afford to buy your solar panels outright, you'll be in a better financial position and will get a better return on your investment. However, it costs several thousand dollars to buy solar panels; therefore not every consumer can easily afford to make such a green upgrade without a loan. The good news is that there are many loan programs available that can finance as much as 100% of the costs.  Many solar companies who sell equipment are able to facilitate your tax credit up front, and the rest of the costs can then be financed.  FHA Title 1 loan programs also allow up to $25k for solar financing with 0% down payments.

Traditionally, the monetary value of solar panels has not been recognized by lenders, so it can be difficult or expensive for homeowners to obtain a loan for such green improvements. However, appraisers and lenders are starting to recognize some value for solar and the barriers are being removed.

That's where Green Energy Money comes in; we help lenders and appraisers quantify the value of energy efficiency improvements. For example, if you want to generate your own power via solar panels, a green lender may give you a loan so you can buy the solar panels outright.

Or, suppose you already have solar panels your home; in that case, a green appraisal can ensure that your property is appraised at a fair market value that reflects the value of those solar panels. In this way, Green Energy Money helps homeowners find the financing they need to not just install but to own solar panels.

See the chart below for an overview of the pros and cons of financing vs. leasing  vs. owning solar panels:

chart showing pros and cons of leasing vs owning solar panels

Do you want more information about Solar Panels or need to find out if you qualify for financing? We can help. Contact Teresa Lopez today.

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How Do Solar Panels Work?

The question many people have is: How exactly do solar panels work? Unlike power from a wind turbine or even a power plant, solar panels don’t seem to have any moving parts -- so how exactly is that energy being produced? Learn more about how solar panels work 

For further reading:

Hank Investigates: Leased Solar Panels

Solar Panel Lease Complicates Home Sales and Refinancing

Federal Solar Tax Credit

About Title I Home and Property Improvement Loans

Solar Loans: What's Not to Like?

Sandia National Laboratories Photovoltaic Valuation Model

Solar Lease Problems.comf

Residential Solar 101: Comparing Solar Leases to a Solar Loan

Solar Leasing Pros and Cons

 

5 Responses

  1. George Kopf
    |

    Let me preface this comment by saying I am not a solar professional – I am a Building Analyst. That said, I think the author may be confusing Power Purchase Agreements (PPAs) with solar leases – not the same thing though the author uses the terms interchangeably. As I understand it (and please feel free to correct me if I am wrong), in a PPA the homeowner agrees to purchase the power coming off the panels. The rate (which is usually lower than the utility’s rate) is locked in for the term (15-20 years is normal as I understand it) with a built in escalator (1%-2% as I hear it) to compensate for natural and expected inflation. It’s a good deal for many homeowners as the PPA protects the homeowner from rising utility rates. A solar lease on the other hand is where the homeowner leases the panels. They get the power coming off the panels and pay a fixed monthly lease rate for the panels. The hope is that the amount of money saved from the power coming off the panels is greater than the monthly leasing fee. Both the lease and PPA can complicate a real estate transaction so should be given serious scrutiny by anyone considering selling the home before the term of the lease or PPA is done. This is one of the many reasons folks like Jigar Shah (founder of SunEdison) sees solar loans as the mainstay of the residential solar market in the future. All of these products have pros and cons which the article doesn’t address. The best deal for one homeowner may be a disaster for another. There are many different products because there are many different needs. l think the author’s blanket dismissal of solar leases is perhaps too broad a generalization. But, as I said, I am not a solar expert – I am an efficiency professional. I am eager to hear input from solar professionals on this article.

     
    • Pepper Williams
      |

      Nice article. But let me ‘cut to the chase’ as it were. I’ve owned my home since 2006. I’m 63 years old and have no intention but to die here (in our home), with my wife of 39 years (hopefully, another 30 or 35 years more). Anyway, I’m also in the position to pay cash for solar. Now, in my case, which is better, buying, leasing or PPA?

       
      • George Kopf
        |

        If you can afford it, purchasing the system outright is usually the best option. For one thing, you can take advantage of generous federal tax incentives. Second, if you’re planning on selling, owning the system will simplify the sale of the house. There’s even research showing homes with solar sell for around $15,000 more than comparable homes without solar panels. One suggestion: make sure the real estate agent you use is familiar with solar. Ask them if they have the NAR Green Designation. Hope this is helpful.

         
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