Although we all know that powering our homes using renewable energy, and the chief method is with solar panels, is a great way of doing our bit for the environment. But the cost of solar energy can be a deterrent. The question of whether we can 1) afford it and 2) produce enough solar power to meet our needs, is hanging over our decision.
A solution to the quandary that has been available since for a number of years and is growing in popularity with homeowners is the option of leasing solar panels rather than buying them. A Solar Lease means that somebody else owns the actual solar system equipment (panels, inverter, etc) and are responsible for any ongoing maintenance costs. In return you pay a monthly fee over a set lease term that may be anywhere between 10 and 20 years.
There are a number of companies such as Solar City, Sun Edison, BriteLease, Sun Run and Sungevity who offer photovoltaic panels in no-money-down lease options. The option means that people can generated solar power in their homes without having to outlay large sums of money.
It seems like a great option that will not only make solar energy more accessible to a wider cross section of the community but will also boost the solar power industry.
But is it an option that is worth taking up?
First There’s The Good News
Let’s first take a quick look at the benefits for taking up a solar panel lease.
- The obvious one is the lower upfront cost
- You can start saving money from the first day of installation
- The cost of the lease plus the smaller electricity bill can total less than the old electricity bill
- Maintenance of the solar panels doesn’t cost you anything
- Upgrades are easier to complete
Then There’s the Not So Good News
All of this sounds as though committing to a solar panel lease is a win-win situation. But there are some drawbacks to think about too.
- Because the solar panels are owned by the leasing companies you don’t get the 30% federal tax credit
- Cash incentives that may be handed out by states and utilities will not come your way
- The Renewable Energy Credits (RECs) that can be used to offset carbon emissions are retained by the owner of the panels
- The cost per watt is very likely going to be much higher over the life of the lease
- It can make selling your house more difficult if the potential purchaser is not willing to assume the lease
For many people who are merely concerned with doing their bit for the environment in a way that is not going to immediately impact their wallet, many of the stated drawbacks will not be a concern. Those who find themselves in the happy position of seeing a net lower electricity bill each month will not be concerned with the possibility of missed cash incentives or tax credits. Do you realy want to be one of those people.
Another thing to be very careful about is the utility inflation rate that may be attached to your lease. Some Solar Leases have a Payment Escalator attached to them which will increase the cost of your lease over the years. In some cases the cost can turn a positive investment into a negative one and you find yourself paying way more than you should for your electricity. You should be looking for 0% escalation so that the energy costs remain fixed over the life of the lease.
It should be remembered that buying and installing a solar system will significantly raise the value of your home. On the other hand leasing a solar system puts a debt on the home and may not be seen as desirable by a potential home buyer.
Disregarding the tax credits and total cost of a long-term lease, though, is a dangerous option and will very likely cost you tens of thousands of dollars. The money you think you are saving by “only” paying a certain amount each month and not having to pay the maintenance costs will only narrow the gap between the overall cost of a lease and the cost of owning your solar panels outright.
Do Your Due Diligence
Here are some things that you should understand about your lease before you sign up
- The utility inflation rate attached to the lease (preferable is 0% escalation)
- If there is a Payment Escalator, understand how it works
- Get to know how an early termination or transfer of the lease works and what the implications to you are
- Familiarise yourself with operating and performance warranties
- Is there a Final Payment to be made at the end of the lease?
- Find out how you will benefit more from taking out a lease over buying a solar system outright – ask the leasing agent
It is very important to carefully look at the numbers, know what the cost per watt is for both leasing and buying and then choose accordingly.
Like the majority of leases that are offered, regardless of the product you are buying, a lease gives you the opportunity to pay less up front and enjoy the product now but ultimately paying more over the long term than if you were to buy the product outright.