July 9, 2014
Customers interested in solar for their home are often presented with several options when it comes to having solar installed on their roof or land. The two most common options are a direct purchase or a lease of the system.
In short, a solar lease allows a customer to install solar on their roof or land at no upfront cost. The customer and solar lease company agree on a purchase price for all the power generated from the panels for 15 – 25 years at either a locked-in rate or at a rate that may rise on an annualized basis. The company that installs the system is responsible for maintaining and repairing the solar system. In order for the customer to save money with a solar lease, the agreed upon lease rate must be lower than the electric rate from the grid.
A solar purchase is exactly what it sounds like. The customer pays for the complete cost of the project upfront and is responsible for maintaining and repairing the system. After the initial investment, essentially all the electricity generated from the system is free.
There are advantages and disadvantages of both a solar lease and solar purchase. With more than half of all residential solar systems installed today in the US being leased projects, we are starting to see a pattern of where the advantages and disadvantages are becoming more apparent.
Customers who are in a solar lease and decide to sell their home are required to find a credit-worthy buyer to take over the solar lease. Even though there are savings with the lease arrangement for the potential buyer, it will narrow down the field of potential purchasers significantly. Also, contrary to a direct buy, leased project rarely raise the value of the home.
Leases are often marketed to customers as a way of benefiting from solar but not having to worry about the maintenance or repair of the solar system. However, these maintenance and repair fears are often exaggerated by solar lease companies to make the deal happen. Our experience tells us that there is very little that goes wrong with a solar project, because of the lack of moving parts in a solar system. However, customers considering buying a solar project should still take the precaution of allocating some funds for maintenance and repair cost when reviewing the investment. Additionally, Paradise Energy Solutions has a 10-year workmanship warranty with all of our installations.
In a solar lease, the solar leasing company receives all of the tax credits and government incentives towards solar lease project. In contrast, in a solar purchase, you receive these large government incentives when the solar system is purchased. Essentially, customers who lease a solar system are walking away from a 30% tax credit of the project cost and other incentives that may be available in their state.
At the end of 15-25 years, customers who loaned the money for a purchase will have an asset while customers who had leased will have no asset to show for. Leasing does allow a person to not have to make an initial upfront investment, but usually, this comes at a cost. Leasing companies are in the business to make money, so don’t be fooled by a lower lease payment. You could most likely receive a loan that cash-flows with your electric bill. This means, that you could pay exactly the same out of pocket cost you are paying now (in loan payments), but in ten years after the loan is paid off, you will have free electric from your solar system for at least another 15-20 years.
After incentives are taken into account, the direct purchase option usually costs the customer less over time. Purchasing versus leasing a solar project gives the customer greater control, saves the customer more money over time, and provides an asset.