Lease or Buy Solar Panels? Which is Better?

Lease or Buy Solar Panels

The answer to this depends on your purchase power and financial goals. The two choices – buying and leasing – have one main difference. While purchasing will give you ownership of the solar system, leasing doesn’t. And, this makes a world of difference in the claimable incentives and rebates and in its home value addition.

Moreover, solar leases or Power Purchase Agreements (PPAs) are not available to all; in fact, in some areas, solar leases are not legal. So, if leasing is your choice for going solar, make sure your location offers solar leasing.

Read on to learn more about the pros and cons of solar leasing and buying.

Why do solar shoppers consider leasing?

The average cost of a 10-kW solar power system for residential use comes to around $20,000. This is a huge amount for most homeowners. Not everyone has the financial backing to fund the purchase. 

Though incentives and rebates can help in recovering the system cost to a large extent, it varies from state to state and area to area. Moreover, you need to spend the money, purchase the solar power for homes, install it and get it going before you can claim most of the incentives like the federal solar tax credit.

So, naturally, solar shoppers who are facing a roadblock with finding funding for the purchase, search for other options. The two of the best choices available to homeowners are solar loans and leasing solar panels.

Solar loans are offered by traditional banks, panel manufacturers, utility companies, NGOs, and more. Whether you purchase the solar system with the cash in hand or finance it with a solar loan, you are eligible for all the incentives and rebates for going solar. 

Solar leasing is an arrangement in which you enter into an agreement with a third-party like the solar installers and solar financing companies. Under this agreement, the solar system is owned by the leaser but you get to use the solar energy generated by the system in return for a monthly payment.

A comparative look at buying and leasing

In the case of solar panels, the choice of buying and leasing is not black and white. Meaning, what works for one may not work for another. It is better to understand both options, analyze their advantages and disadvantages based on one’s own circumstances and requirements, and then make the decision.

Let us see how these two funding options stack up.

Buying Leasing
Ownership You own the system The leaser owns the system
Upfront cost In the range of $15,000 and $25,000 Zero or low down payment
Incentives and rebates Eligible. Can help in reducing the financial burden Not eligible. Goes to the third-party system owner
Maintenance You are responsible for the system upkeep and resultant expenses The leaser owns the system and responsible for its maintenance
App for tracking the performance of the system May not be included in the purchase Leasers often offer free apps
Financing Solar loans are available for 10-20 year terms, after which you own the system Solar lease agreements are for 20-25 years, after which you can extend or buy it
Interest payable In the range of 3-8%, depending on credit score and term of the loan No interest payable
ROI Can save up to 70% on electricity bills during the lifespan of the system Can save up to 30% on utility bills during the lease period
Free electricity Once the system crosses the break-even point, it offers practically free electricity for the remainder of its lifetime No free electricity. Lease payment will continue during the entire lease period
Home value addition Yes No

It is better to buy solar panels when….

  • You want to make the most of incentives and rebates on offer. The ownership of the system is a deciding factor to avail them.
  • You give equal importance to financial benefits and environment-friendly technology.
  • You have cash on hand to fund the purchase or pay EMIs for solar loans.
  • You are a business and want to avail tax exemptions for the solar installation by managing it as a depreciable asset.
  • You want to add value to your property.

It is better to lease solar panels when…

  • You are not very keen on availing of the incentives and rebates offered for going solar. As you do not own the system, you will not be eligible for the financial incentives. As the owner, the leaser will be eligible for them.
  • You are more interested in doing your bit for the environment and do not give importance to financial benefits. 
  • You do not have the capital to finance the system.
  • You do not consider the fringe benefits of going solar important, such as value addition to your property.

Benefits of going solar

Besides contributing to the cause of the environment, a solar installation comes with numerous benefits. Let us look at them in detail.

1. Long-term savings

Irrespective of whether you buy or lease solar panels, you will save money on your electricity bill. However, the savings will be substantially higher if you own the system. Even when opting for a solar loan, the long-term savings are much higher than the leasing option.

When you make an outright purchase, you are no longer saddled with monthly payments. And, most of the system costs can be recovered through availing incentives and rebates. On average, the break-even point for the system is achieved in 7-8 years, if not earlier.

However, both solar loans and leasing require monthly payments. The solar loan makes you eligible for incentives and rebates, while leasing doesn’t. That further brings down the long-term savings aspect for leased solar panels.

2. Federal and state tax credits

Both outright purchase and solar loans are eligible for tax credits but leasing is not. Ownership of the solar panels is the main criterion for the accrual of the financial benefit. 

Even though purchasing requires heavy investment, much of it can be recovered through tax credits. In the case of a solar lease, the leaser is getting the tax credits for the solar panels installed on your roof. 

3. Monthly payments

While outright purchase does not entail monthly payments, solar loans require monthly loan repayments and solar lease demands monthly lease payments. However, there is a world of difference between loan repayments and lease payments.

Loan repayments remain fixed throughout the term of the loan. Lease payments, on the other hand, increase whenever the electricity rates go up. Or, the lease agreements may include a yearly increase in monthly payments. This acts as a damper for leasing solar panels.

4. Maintenance

This is one point were leasing solar panels scores hands down. Buying, whether outright purchase or solar loan, places the responsibility and financial burden of maintenance on you. With a solar leasing arrangement, you need not worry about maintenance or related expenses. It is the responsibility of the leaser to maintain the system.

5. Value addition to property

Many studies and surveys point to an increase in the valuation of property with a solar installation. And, they are found to sell faster than those without solar systems. However, this value addition is applicable only if you own the system. 

Solar leases are found to hamper the sale of a property as the new homeowner should be eligible and willing to take over the lease. 

Bottom Line

The mode of going solar leaves its footprint on all the financial aspects of a solar panel system. From its cost and maintenance to savings and return on investment. All these make this a major decision to make when considering a solar installation.

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