Buy vs Lease Solar Panels: Which Solar Financing Option is Better?
Solar panels are becoming an increasingly popular way for homeowners to save money on energy costs and reduce their carbon footprint. However, when it comes to investing in solar panels, there are two primary options: buying or leasing. Both options have their benefits and drawbacks, so it is essential to understand the differences and determine which one is the best fit for your situation. In this article, we will explore the buy vs. lease solar panels debate and help you make an informed decision.
How does the leasing of solar panels work?
Leasing a solar panel is just like renting a house or leasing a car. By leasing vs buying the solar panel, you will be able to receive the perks of clean and sustainable energy without paying the upfront cost. Leasing solar panels can make solar energy more accessible to consumers who may not have the required amount of cash in their hands right away. But they want to reduce their carbon footprint as well as save on high utility bills. Leasing solar panels just simply mean that you do not own the solar panels. Therefore, these solar panels do not become an asset to your property.
To lease a solar panel, you basically sign a power purchasing agreement or commitment with a third-party company, that owns the solar system. With this agreement, you are agreeing to pay a fixed monthly fee to rent their solar systems for your solar energy production. All the installation, maintenance, or repairs are covered in the monthly payment that you are agreeing with the third-party company.
Leasing vs buying solar panels:
The common thing between leasing and buying solar panel is that both allows the homeowners to experience utility savings while reducing their carbon footprint at the same time. The major difference between buy vs lease solar panels comes in three categories:
- Ownership of panels.
- Benefits of solar panels
- Selling or buying a house.
Buying a solar system:
If you buy solar panels either through cash or loans, you hold 100% ownership of your solar system. This will also make you eligible for the 30% solar credits. For example, on buying a $20,000 solar system, you will receive a $6,000 credit. Some extra credits are available to homeowners based on their state, local, or installer reimbursements.
If you sell the house the solar panels will treat as house commodities. This will likely increase the property value of your home. According to Zillow’s estimation, solar panels can increase the property value of your home by up to 4%. These houses are likely to sell faster on the market as compared to non-solar houses.
Leasing a solar system:
The ownership belongs to the third-party company when you buy vs lease solar panels. Therefore, stripping you of all the incentives that come along with being the system owner. The incentive benefits usually belong to the leasing company.
Selling a house with buy vs lease solar panels can be a little bit complicated. This is because the potential buyers may worry about the lease agreement especially if it is 20 years long worth of monthly lease amount to pay. Depending upon the lease agreement these panels can be difficult or impossible to remove. In some cases, these panels are not easily transferable to the new owners. So, it is quite hard to sell the property with buy vs lease solar panels. If you are interested in buying a property with the lease panels don’t be afraid to ask these three questions:
- Is the lease agreement transferable to the new homeowners?
- Can I outright buy the solar panels if I want to?
- If I don’t want to use these solar panels what is the process for their removal?
What is the process of removal of leased solar panels?
Most lease agreements do not have the option to transfer your current buy vs lease solar panels to your new property owner. In most cases, the new buyers of your home don’t want the lease solar panels. For this, you will have to contact your leasing company to entertain the most suitable available option for the situation. You can always choose the buyout option but that will cause you a setback of probably $20,000. However, you can always remove the lease solar panels on your own but that will result in heavy fines from the leasing side. This is due to the fact that they are the ones getting benefits from your rooftop solar system.
What is the cost of leasing a solar panel?
Leasing solar panels can set you back about $50 to $250 per month on average. This buy vs lease solar panels cost usually depends on the following factors:
- The total energy usage of your household.
- The leasing company.
- Your credit score.
- Your house location and structure.
Most lease agreements last for about 20 years. In a typical lease agreement, you can see a yearly increase in the amount of about 3.9% in interest rate for straight 15 years. Some leasing companies ask you for a down payment while some leasing companies will allow you to lease solar panels with a $0 down payment. In some leasing agreements, the cost of your monthly leasing amount can surpass your previous utility electrical bills. In that case, buy vs lease solar panels can only boil down to limiting your carbon footprint by relying on clean and sustainable solar energy rather than focusing on the return on investment.
For whom the leasing option is the most suitable?
Leasing can be a good option for a person who wants to utilize green and renewable solar energy without depositing a huge upfront financial investment in the first place. Leasing is also a good option for you if you get overwhelmed by the maintenance or repair cost of solar panels. This is due to the fact that these panels require a whole new level of investment. Lastly, leasing is also a good option for you if you do not qualify for federal or state incentives in the first place. It is better to lease vs buy solar panels because what is the point of making this huge investment into something if you are not going to get benefits from it, taxation-wise?
What are some pros and cons of buy vs lease solar panels?
Benefits of Buying Solar Panels
When you buy vs lease solar panels, you own them outright, and the energy they produce is entirely yours to use. You can expect to save significantly on your energy bills, as you will no longer need to rely solely on your local utility company for power. Additionally, owning your solar panels can increase your home’s value, making it more attractive to potential buyers if you decide to sell.
Another benefit of buy vs lease solar panels is the tax incentives and rebates available to homeowners. The federal government offers a 30% tax credit for the cost of solar panel installation, and some states offer additional rebates or incentives. By buying solar panels, you can take advantage of these benefits and maximize your savings.
Drawbacks of Buying Solar Panels
While owning your solar panels has many benefits, it also comes with a significant upfront cost. The cost of solar panel installation can range from $10,000 to $30,000, depending on the size of your home and energy needs. While long-term savings may be worth it, not everyone has the financial means to make such a significant investment.
Benefits of Leasing Solar Panels
Leasing solar panels is an excellent option for homeowners who are not able to make an upfront investment in solar panel installation. When you lease solar panels, you pay a monthly fee to a solar company, and they will install and maintain the panels on your property. This means you can start saving on energy costs without having to make a significant upfront investment.
Leasing solar panels also come with some tax incentives, but they are not as significant as those offered to homeowners who own their solar panels. Additionally, leasing solar panels does not increase your home’s value, as you do not own the panels.
Drawbacks of Leasing Solar Panels
While leasing solar panels may seem like an attractive option, there are some significant drawbacks to consider. The monthly lease payments can add up over time and may end up costing you more than if you had purchased the panels outright. Additionally, if you decide to sell your home, you will need to transfer the lease to the new homeowner, which may make it more challenging to sell.
Leasing solar panels also mean you do not own the energy produced by the panels, as it belongs to the leasing company. This means you may not be able to take advantage of net metering services. Net metering allows you to sell excess energy back to the grid and earn credits on your energy bill.
How do the Insurance premiums work for buy vs lease solar panels?
Leased solar panels are basically borrowed solar panels. If you are leasing solar panels or buying them on the power purchase agreement. You do not have to worry about the hike in your insurance premiums or buying an extra homeowner insurance policy because you practically do not own these solar panels. Third-party companies, which are usually solar panels provider companies, will cover the insurance since they practically own the systems. You can reach out to your lease providers to confirm whether they offer any insurance on damages to solar panels or your home while their installation process. It is better to clarify details with the lease provider beforehand.
But if you are planning on buying solar panels and installing them on your property. Not only it will hike your property value but also it will increase your insurance value. In some cases, you also need to buy a separate policy for your solar panels. The insurance policy is simply there to ensure the fact that in case of any damage to your solar panels. You don’t need to pay a hefty amount for solar panel repair out of your pocket.
Which payment option is the best?
Buy vs lease solar panels both come with their own set of payment options
Payment Options For Lease Solar Panels:
1. The monthly solar lease:
The leasing installer company will install your rooftop solar panels in return for a monthly lease payment. This will be less than your utility electricity payment. The lease payment usually lasts for about 20 to 25 years with the annual escalator, which is usually 3%. For example, if your monthly utility bill is $140, then for the first year your lease payment will be $99. This will eventually save you about $41 monthly, leading up to a total saving of about $492 for the first year. Your lease payment for the second year will be $102 and for the third, it will be $105. The recurrent change can be seen for about 15 years, afterward, it will get constant. Solar lease can provide you with immediate relief but in the long run, it gets quite expensive.
2. Power purchase agreement:
The difference with the power purchase agreement is that instead of paying a fixed monthly amount. The homeowners will have to pay for the price of electricity that their solar panels will generate. The concept behind PPA is that homeowners will have to pay less for solar electricity than utility ones. For example, if the utility company offers the homeowners 16.6 cents per kWh of electricity. The leasing company offering rate will be 12 cents per kWh. But there is a catch, the escalator rate is still applicable on the PPA.
Payment options for buying solar panels:
1. Buying with cash:
Paying for the solar panels with upfront cash can come up with a lot of benefits like no interest rate or no escalating payment on a monthly lease amount. Some installers also offer a discount by paying upfront for the solar panels with cash. This eventually adds up to the overall savings that you are trying to achieve by going solar. The breakdown of cash payment is as follow:
- Down payment or deposits- $1000
- Design Approval- $2000
- Material deposits- 60% of the remaining balance.
- Building inspection: the rest of the payment is done after the installation of the solar panel.
You have to pay the full contract fee. The solar tax credits usually take off after the payment of your solar panels. Once you claim your tax credit then you will be able to avail yourself with the lower net cost.
2. Buying with solar loans:
This option is suitable for those homeowners who want to enjoy sustainable solar energy but do not want to bother themselves with the upfront cash payment.
The following are the qualification for home loans:
- The loan borrower needs to own the house.
- The house must be its primary residence.
- The minimum credit score of 650.
- Less than 50% of debt to income ratio.
As long as the down payment is zero and the loan term is not more than 20 years, solar financing can a good option. Loans can be of two types:
i. Combo loans:
Combo loans are perfect for those homeowners who are confident enough in the fact that they will receive the full 30% tax credit in their first year of installation.
A combo loan is basically a combination of two loans:
- Primary loan for the net cost of solar panels.
- Value loan for the tax credit value.
ii. Re-amortizing loans:
Re-amortizing loans are just like home loans but with a free one-time refinance. This type of loan is perfect for homeowners who are not confident in the fact that they will receive the 30% tax credit that early. In re-amortizing loans, the loan amount is based on the contract price of the system. For these types of loans, you have to pay extra upfront costs than the combo loans. However, as the name suggests, the homeowners can re-amortize this loan by making a lump sum payment to lower the monthly payment.
When it comes to deciding whether to buy or lease solar panels, there is no one-size-fits-all answer. Each option has its benefits and drawbacks, and it is essential to consider your financial situation and long-term goals. If you have the financial means to purchase solar panels, it may be the better option, as you will own the panels and maximize your savings. However, if you cannot make the upfront investment, leasing may be a better fit for you. Also, a certified solar installer like SolarSME can assist you with the best solar financing options. Regardless of which option you choose, investing in solar panels is an excellent way to save money on energy costs and reduce your carbon footprint.
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