A solar energy system installation might cost a lot of money. Although the return on investment from solar panel purchases is high, not everybody has the capital on hand to go solar. Fortunately, solar leases and solar loans exist to help homes convert to solar power.
Now the question is, which solar finance plan is ideal for you? To assist you in deciding how to finance your solar power system, we’ll compare the cost of leasing solar panels and buying one outright.
How Does a Solar Lease Work?
Before installation takes place, you must decide between purchasing and leasing solar panels. Financing solar panels are just like financing a car. A solar panel lease is teaming up with a solar partner and entering into a solar lease deal, usually for 20 years.
A solar firm will install your solar panel system, but they will own it and collect any rebates or credits you are eligible for. Likewise, you pay them a monthly fee to use the system’s energy output. Homeowners can reduce their monthly electric expenses and switch to a clean energy source by leasing solar panels.
With solar leasing, your payment amount is guaranteed at a set amount regardless of how much electricity your panels generate. To summarize, you can anticipate a 20 percent reduction in your home’s annual electricity bill.
When you are leasing solar panels from a reputable company, they will handle all of the upkeep and repairs and provide insurance and monitoring for the lease term. Typically, after solar leasing ends, you can either continue leasing the panels, have them removed, or buy them outright.
When you sign a solar panel lease, you and the solar firm will decide on a regular payment schedule. Your current energy use, regional climate, and roof pitch will all be taken into account by the solar installation firm. The monthly payment and requirements for the panel system will vary depending on your scenario and the parameters listed above.
Benefits of leasing solar panels
- No upfront cost
The real benefit of solar leasing is the elimination of significant initial investment. Leasing may be a good option if you’re interested in exploring greener energy sources but don’t have the cash to buy your solar panels.
- No maintenance responsibility
Since the solar panel array on your roof is owned by the solar energy business, you will not be responsible for any servicing or upkeep fees. Due to solar panels’ low maintenance needs, this is becoming less of an advantage. Maintaining clean solar panels is as simple as giving them a quick rinse down with a hose a few times a year and ensuring they are free of debris.
Disadvantages of solar leasing
- Financial losses over time
Although installing solar panels on your home can reduce your monthly electricity bill, solar leasing has a lesser savings potential than purchasing one in the long run. If you choose to lease solar panels, you’ll have monthly payments for as long as you keep the lease, while if you buy them outright, you’ll enjoy free electricity for the lifetime of your home.
- Increased costs
Price inflation is a factor to consider when determining the cost of leasing solar panels. Most solar lease agreements include an annual price increase of one to five percent. As the cost of electricity continues to rise, we must increase our prices annually to keep up with it.
- Property value doesn’t increase
In a solar lease arrangement, you do not legally own the solar panels installed on your roof. As a result, the value of your home will not rise like it would if you held the solar panels all together. Your home’s sale price could be affected negatively if you decide to sell it before the end of your solar leasing term. If the new tenants do not want to keep the solar panels, they must terminate the contract.
How Does Buying Solar Panels Work?
You might or might not be able to get a financing option when you purchase solar panels. Additional rebates from the state or the manufacturer are sometimes made available to consumers who invest in solar panels. Although there will be long-term savings from using solar panels, there will be an initial cost.
If you invest in a solar power system, you will be responsible for its upkeep and running expenses. Investing in solar panels is the way to go if you’re looking to maximize your money’s worth and save money in the long run. State taxes can be lowered by various investment incentives, government rebates, and additional Solar Renewable Energy Credits, all of which contribute to these economic benefits. Other benefits include increased property value due to the addition of solar panels.
Benefits of buying solar panels
- Incentives and rebates
If you possess solar panels, you may be eligible for rebates and tax credits from government and private organizations. These options can help you save a tonne of money on solar panels while retaining complete ownership of the setup. Those who own their solar panel system can deduct up to 26% of the initial investment from their federal taxes thanks to the Investment Tax Credit. You can count on this credit until 2022 without worry.
- Savings with a long-term perspective
Monthly utility expenditures can be reduced by either purchasing or leasing solar panels. Leasing solar panels require ongoing payments for the duration of the lease. However, ownership of solar panels could mean no ongoing costs beyond the interest on any money saved each month. This makes buying solar panels the superior choice if you intend to use them for many years.
Disadvantages of buying solar panels
- High costs
The upfront cost of solar panels is high compared to solar leasing, whether you pay for them out of pocket or take out a private loan. Interest costs will add up over the life of a loan, so saving up for a cash purchase is preferable.
- Relocation expenses
If you intend to remain in the house for an extended period, installing solar panels can be a worthwhile investment. Still, the return may be lower if the next homeowner doesn’t share your enthusiasm for renewable energy. Solar panel relocation typically costs between $4,000 and $8,000.
Differences between Leasing and Buying Solar Panels
- Long-term savings
You can reduce your monthly energy costs by leasing solar panels or purchasing solar panels. On the other hand, you can save a lot more money in the long run if you buy the system outright. Also, a solar loan will provide you with considerably more long-term savings than a solar panel lease.
There are no ongoing costs associated with installing solar panels because you can pay for the entire system once. However, if you opt for a solar lease, you’ll be committed to making regular lease payments for a minimum of 20 years. With leased panels, you spend more money and get fewer benefits.
- Financial incentives and reductions
In particular, the federal renewable energy tax credit, which can reduce the cost of solar panel installation by as much as 30 percent, is not available to those who opt for solar leases.
You don’t own the solar panels, even though they’re on your roof. As a result, the solar installer you’re leasing from will be the one to profit from any rebates or tax credits. Owning solar panels entitles you to benefits such as the federal tax credit and rebates from your local utility and state government.
- Home value
A home with solar panels on it is worth more. According to the research, solar-powered homes sell 20% faster and for 17% more money. In contrast, leasing solar panels might make it considerably more challenging to sell your home to potential purchasers without actually increasing the value of your property.
For what reason is that? Even though the solar lease can be transferred to the new owner, finding a buyer who is also interested in signing a 20-year solar contract can be challenging. Also, the solar firm can decline a new homeowner’s enrollment in the agreement if they have a low credit score. Because of this, it can be challenging and time-consuming to find a new lessee who is both willing and accepted by the solar lease company.
- Monthly payments
Paying cash for a solar power system eliminates the need to make regular installments. Not only will you not have to worry about electricity costs regularly, but in many cases, you won’t. To finance the installation of solar panels, you must make regular payments. However, these repayments won’t change throughout the loan.
Alternatively, solar leases typically include a price escalator that specifies the annual percentage increase in the lease payment. As a result, your lease’s third-year costs will be higher than the first-year payments were. Future electricity price forecasts are used to set the escalator’s height.
If electricity prices rise less than expected or by a small amount in a given year, however, your lease payment could end up being higher than your energy bill would have been without solar. The long-term savings from a solar lease without an escalator are sometimes more significant.
If you decide to install solar panels, you’ll be responsible for the upkeep and monitoring. You are responsible for detecting any solar system problems and covering the associated costs.
There is some good news: solar panels require little upkeep. The inverter may need to be replaced throughout the system’s lifetime, and other maintenance costs may also arise.
When you sign a solar lease, you don’t have to handle repairs or replacements. The leasing firm for solar panels is solely responsible for this. If there are problems with the system, the leasing firm will pay for the necessary repairs in the lease agreement.
Solar Panel Costs and Financing Options
- Prepaid lease
If you’re interested in solar leasing but prefer not to make monthly payments, a prepaid solar lease may be a good option. In this case, you would pay the solar energy provider for a guaranteed rate of return over a specified period. Although the solar business would retain ownership of the panels during the lease term, you could lock in today’s energy rates in exchange for your upfront payment.
- Cash purchase
If you can afford the initial investment, owning a solar panel system will be preferable to leasing. Your solar system will produce energy as soon as you make the initial cash investment. You won’t have to pay anything regularly to use the power produced by the system.
- Equity loan on a house
A low-interest home-equity loan could be a suitable option for financing the purchase of solar panels. Getting a home equity line of credit, or HELOC, requires you to have some accumulated home equity. Then, you and the lender will negotiate the terms and conditions if you are qualified for a home equity line of credit. In that case, you can invest in solar panels and repay the HELOC to the original lender or the secondary market investor who purchased the loan.
- Solar loan
Getting a solar loan allows you to spread out your payments over the loan’s duration while still being eligible for rebates and incentives tied to installing solar panels. Interest is an expense that arises from borrowing money, and it will be assessed to your account throughout the loan’s term. Therefore, the total cost of installing solar panels will exceed the initial financial outlay. The main benefit of a solar loan over a solar lease is that you will eventually own the system. Before committing to a solar loan, you should look for the most favorable rates and terms.
Solar panels require a substantial investment up front, but they start “paying for themselves” in under a decade. Once that is accomplished, the cost savings from using less energy can continue.
Leasing is the best choice if you’re just starting with solar. Leasing solar panels allow you to reap the benefits of lower power bills and greener living without investing significantly. At the end of the lease term, you may have the option to purchase solar panels from the leasing company.
When homeowners purchase or lease solar panels, they can reduce their power bills and benefit the environment. While buying solar panels can save you cash in the long run, leasing is a good option if you want to get started with solar power.