Purchase vs. Lease
Solar Power Purchasing options
To Buy or to Lease Solar Power
Going Solar for most people is an investment – it provides one of the best returns (about 15% – 25% annual ROI for each of the about 25 year product lifespan) – and deciding how best to finance this investment is an important part of the Going Solar journey.
You can purchase the solar system by paying cash or by financing it, or you can lease it. Purchasing allows you to take full advantage of available incentives and maximize financial benefits; whereas, leasing allows you to Go Solar with little to no upfront costs, at a cost of lower financial benefits and some conditions. Neither is inherently better or worse as long as you fully understand the choices and the choice meets your goals and situation.
Cash or Financing
Buying Solar Power
Cash purchasing the solar system is the best choice if you have cash and want to invest it, especially considering the current low interest rates. This method also has the shortest payback period, fewest conditions, and qualification criteria.
Financed purchasing the solar system also provides many of the benefits of cash purchasing with the most salient benefit of not needing to pay the entire amount upfront. But, financing’s associated fees and interest payments will reduce the monthly savings and will make the payback period longer and will reduce your ROI, compared to a cash purchase. Also, most financing solutions will also have qualification requirements.
PACE financing is a program that allows homeowners to pay for solar through an increase to your property taxes. The PACE program does not have any credit requirements and it is based only on home equity and property taxes. This program is great for homeowners who do not qualify for traditional financing. Solar interest payments might be also tax deductible which is a great advantage.
Leasing Solar Power
In a straight lease, the solar company installs the system on the homeowner’s roof, at no cost to the homeowner, while owning the solar equipment and the rights to any incentives. Although the incentives cannot be directly taken advantage of by the customer, the customer benefits indirectly through the lower rates that the company can charge the customer. The homeowner agrees to pay a monthly charge for the system – more accurately, for the stated amount of energy generation – and can consume some or all the energy generated by the system.
These agreements usually include an “escalator” clause that increases the monthly payment every few years. If you did not want the monthly payment to increase, then you pay a higher monthly payment from the start. The term of these agreements are usually 20 years and include a complete warranty and maintenance services, including an energy production guarantee. One of the downsides is that if the home is sold, the new homeowner must take over the remaining term of the lease, which the new owner may or may not be willing to, or be qualified to do.
Power Purchase Agreement
In a Power Purchase Agreement (PPA), the solar company installs the system on the homeowner’s roof, at no cost to the homeowner, but owns the solar equipment and the rights to any incentives. Although the incentives cannot be directly taken advantage of by the customer, the customer benefits indirectly through the lower rates that the company can charge the customer. The homeowner agrees to purchase the energy generated by the system at a fixed $/kWh rate but lower than the prevailing utility rate.
These agreements usually include an “escalator” clause that increases the rate every few years. If you did not want the rate to increase, then you pay a higher rate from the start. The term of these agreements are usually 20 years and include a complete warranty and maintenance services. One of the downsides is that if the home is sold, the new homeowner must take over the remaining term of the lease, which the new owner may or may not be willing to, or be qualified to do.
