Solar panels are the future of efficient energy generation because they are affordable in the long term and can help you go or save green. Unfortunately, the upfront price of installing solar panels is high, making it a barrier for many homeowners who lack cash on hand. Luckily, there are solar products available to finance consumers, like solar renting and loans. However, which option is more favorable? Buying or leasing?
Each of the above options will directly impact the cost, savings, maintenance, and terms of the solar energy agreement. This blog explains how buying or leasing solar panels work and the advantages and disadvantages to assist you in understanding the most suitable option for your situation.
Understanding a Solar Lease
A solar lease is a consumer financing tool where you lease the roof of your home or part of your property to a leasing firm. In exchange, the company installs solar in your home free of charge. Unfortunately, under this system, you will not own the energy system nor the energy produced. Instead, you will be buying electricity from the renting firm.
Before installing the energy system, you must enter into a contract with the lease company, which often lasts for fifteen to twenty years. The agreement states the lease period and the rates you will be paying for the energy produced by the panels. The rates can be fixed or increased annually.
Note that you should not sign a contract where electricity rates are higher than utility companies’ rates to assist you in cutting your power costs.
Also, you need to worry less about maintenance with a lease because this is the leasing company's responsibility. They will perform all the repairs and maintenance required, and at the conclusion of the lease, they will uninstall their solar power system.
The General View of Solar Buying or Ownership
When it comes to buying, you pay the total cost of installing the solar panels upfront. In return, you enjoy the incentives of buying a solar power system, owning the solar panels, and the electricity they produce.
However, because you own the panels, you will cover all repair and maintenance costs. At the end of thirty years, which is usually the system's warranty, you will be responsible for uninstalling or removing it. The lifespan of the solar panels might even exceed the warranty period by decades, meaning you will enjoy free electricity even longer than the warranty states.
You can pay cash or use the solar loan option to trade the existing power bill for a solar loan payment when buying.
Leasing Vs. Buying Solar Panels
By renting a solar power system, you are renting your system from the solar leasing company. You won’t incur any upfront costs, but you have to pay the leasing company electricity rates. On the other end, whether using cash or loan, buying solar panels makes you the owner and thus eligible for incentives stemming from the purchase and free energy.
Leasing or buying solar panels has pros and cons, as explained in the section below.
Tax Incentives and Credit
The main benefit of buying solar panels is that you enjoy the tax incentives associated with the purchase, thus saving money. Also, by purchasing solar, you benefit from the solar renewable energy credits (SRECs) under the federal tax, enabling you to save money. With SREC, you receive one credit for every 1,000 Kilowatt per hour the solar energy system produces. You can then sell the SREC credit in the market at the current market rates.
Again, if you buy solar, you enjoy the federal investment tax credit. The tax incentive offsets or saves 26% of the total installation cost.
Unfortunately, if you choose to lease the panels, you will miss out on SRECs and other tax incentives. Instead, the leasing company will enjoy the federal investment tax and SREC credit because they own the system and the electricity produced. Although the panels are installed on the roof of your home, you lack ownership which rules you out from these rebates.
Solar Maintenance Costs
Although by leasing a solar system, you miss out on tax credit, the option saves you the cost of maintenance. The solar panels are owned by the solar company, which is liable for all maintenance.
However, when you choose to buy the system upfront, you will be responsible for monitoring and maintenance. Fortunately, solar energy systems require little to no maintenance after proper installation. The energy system doesn't move, and with the improved technology in design and installation, maintenance shouldn’t be regular. And even if the panels develop a problem, it doesn’t mean you will part with hefty amounts of funds for the maintenance or replacement.
The only parts that might require replacement only once or twice in the panel’s lifespan are the inverters. These have warranties of around ten to twenty-five years, meaning if the part requires replacement, the solar panel manufacturer will replace it at zero costs.
Also, installation companies have artistry warranties, meaning for the period of the warranty, you won’t be paying for repairs. The installer will perform any repairs related to the installation of the solar panels at no cost. Therefore, warranties lower the risk of maintenance which is an advantage for you if you opt for ownership rather than leasing.
Although you avoid maintenance costs by opting to rent the panels, solar panel leasing firms exaggerate the costs of maintenance to make leasing seem more attractive than buying. Therefore, you should take time to evaluate the maintenance costs of different solar energy installation services if your decision on leasing or ownership is based on maintenance.
Home or Property Sale
If you are thinking about installing solar power, you must consider how renting or ownership will impact the sale of the property. In certain instances, buying solar panels is the best option because they increase the property’s value. A home fitted with a solar power system will sell faster and make more money than one without solar power.
Yet, a lease will make your life more challenging because finding potential buyers willing to assume the lease contract becomes an issue. Your property will have fewer buyers, and the pool of potential buyers will shrink even further if the energy rates by the renting company are high.
Moreover, the solar installation service might be afraid of entering into a new deal, especially if the potential buyer of the property has a low credit score. Therefore, even if it is easy to find a property buyer willing to assume the lease contract, it will be challenging and time-consuming to spot a buyer the leasing firm wants.
So, if you plan on selling the property in the future, it’s best to buy solar panels because everyone wants to buy a property that produces its electricity for free.
Another benefit of buying solar panels as opposed to renting is you worry less about paying monthly electricity bills. You own the energy system and the electricity it produces, meaning you won’t worry about paying rent. Further, even if you opt for a loan, you only need to pay fixed monthly installments until the loan is repaid.
On the other end, solar leasing requires monthly payments of electricity rates to the leasing company. Although the rates are cheaper than your utility company charges for electricity, the lease contract has a price escalator outlining how your electricity rates will increase annually. You will be paying more to the company every year based on the amount electricity rates are expected to increase every year. By leasing, you should not be shocked by paying more in your fifth year in the lease than what you used to pay in the first or second year.
Even if the electricity rates remain constant, you will realize that you will pay more to the lease than you used to pay monthly electricity bills.
However, some solar panel lease companies don’t have an escalator, which might save you money in the long term.
Electricity savings, in the future, will be more significant with buying solar panels than leasing. In the best-case scenario, you will pay lower monthly rates for electricity with leasing solar panels than the initial power utility bill, which allows you to save some more in the long term.
Unfortunately, lease contracts have escalators that increase electricity prices annually. Sometimes, if power prices are projected to grow, the escalator might increase your monthly payments for the power generated by the leased panels than what utility companies charge. Therefore, you could end up paying more for solar energy than what you could have paid if you had not installed the energy system in the first place.
A lease might save you money sometimes, but not as much as you can save by buying or owning solar. The installation cost is high because you pay upfront, but there are no monthly payments after the installation. You will obtain free electricity for the lifespan of the solar panel, which sometimes extends way over the warranty period of twenty-five to thirty years.
Even if you take out a solar loan, the money you could have used to pay electricity bills can repay the loan. After you are done paying the loan, it reaches the payback period where you have ownership of the solar panels and free electricity that doesn’t require any monthly payment. Therefore, in the long term, purchasing solar panels upfront will help you save money than renting.
Should you Lease or Buy Solar Panels?
As you have seen above, your financial situation is what determines what is suitable for you. Renting or ownership of solar panels has merits and demerits. It’s up to you to evaluate these two options based on your financial goal.
If you don’t have money to pay upfront, leasing can be tempting because there is no down payment. Also, when the system exceeds the guaranteed power production annually, the extra power is free of charge. When the system produces power below the minimum level, the leasing company covers or pays for the difference.
However, you must know that while there are no down payments, you will save less in the future compared to the person who purchases the panels upfront. Nonetheless, leasing is a better option than purchasing. Renting solar panels will be suitable if:
You do not qualify for the federal investment tax credit
You don’t qualify for SRECs or other tax rebates
You aren’t eligible for a solar loan and don’t have the money to install your panels outright
If the only option for you is renting the panels, you must research the market for the available solar energy installation companies in Northern California and the Bay area. After you have found the installers you are interested in, the next phase is to obtain detailed quotes to understand their solar pricing. This is the point where many individuals make mistakes because some solar panel installers use hidden charges or exaggerate maintenance costs to lure customers.
Therefore, take time and evaluate each quotation and compare it with those of other installers near you. That way, you will choose a solar leasing company that will benefit you later as you go green.
Find the Right Solar Power Installation and Services Near Me
For a long time, there has been a perception that solar energy systems are expensive. However, today even individuals who cannot afford to pay upfront can rent the panels or take out a solar loan. Whether you lease or buy solar, you will be contributing to a viable planet by reducing your carbon footprint.
Many solar panel installers and services have joined the market due to the increased demand, and it’s challenging to find the best company for the job. At Sun Solar Electric, we are here to guide you in this journey of reducing your carbon footprint and cost of electricity by installing solar panels in your Northern California and Bay Area property or home. We will help you find the best plan, whether leasing or buying, by checking your financial goals, energy usage, and current electricity rates. Call us today at 707-658-2157 for more information.