Should I Lease or Buy Solar Panels?

Should I Lease or Buy Solar Panels?

Congratulations on the decision to explore solar for your home! You’re probably looking forward to a lower energy bill. But that’s not all. You can also be proud of decreasing your carbon footprint for the good of humanity. Energy customers have the choice to either lease or buy solar panels. Which one is right for you?

Should I Lease or Buy Solar Panels?

Regardless of whether you lease or buy solar panels, the result is the same. You’ll be using energy that was harvested from the limitless rays of the sun. That’s good news for all. Still, you have decisions to make to get to that point.

Leasing Solar Panels

Leasing solar panels is akin to leasing a home. For example, the person leasing a home pays a monthly fee to use it. If something goes wrong or the house needs maintenance, the owner of the home pays the bill.

On the other hand, the homeowner reaps the long-term benefits of owning a home they don’t live in. This is in the form of tax credits, as well as increased equity.

Lessees consume the energy produced by their leased solar panels. Additional energy produced by the solar panels goes to the owner of the panels. If maintenance or repair is necessary at any point, the lessee isn’t responsible for the costs.

Instead, the owner, typically a solar company, foots those bills. Solar panel lessees enjoy the energy that the solar panels produce. But they’re not burdened with the responsibility of ownership.

The U.S. Department of Energy (DOE) explains that monthly lease payments depend on the lessee’s monthly energy usage. Lease agreements generally have a duration of about 25 years. At the end of the lease agreement, most companies offer to sell the solar panels to the lessee at a lower cost.

When deciding whether to lease or buy solar, consider the monthly payment difference. Leasing payments are commonly lower than purchase payments. All in all, if you can relate to one or more of the following characteristics, leasing might be right for you:

  • You’re unable to take advantage of the tax credit
  • The lowest monthly payment is most important to you
  • Home equity growth isn’t one of your goals

Power Purchase Agreement

A power purchase agreement is like a lease. One difference is that a third party owns the solar system instead of the solar company. Another difference is the way the consumer pays for the energy.

The third party sets a price for the energy. Then the consumer purchases all the energy the system produces at the set price. This is an advantage for the consumer if the price is right. Many companies explain that the tax credits allow them to set the right price for the consumer.

Carefully read the contract of a power purchase agreement. Ask questions. For example, “What if the solar system doesn’t produce enough energy?” “Is there back-up power if something goes wrong?”

Buying Solar Panels

There are a few ways to purchase solar for your home. Solar companies take payment up front, as well as offer financing. Financing can come from a bank or credit union, too.

The DOE also points out that purchasers can combine their home mortgage and solar costs into one loan. The Federal Housing Administration allows buyers to include home improvement costs in their mortgage loans. Solar panels qualify as a home improvement cost.

If buyers are unable to secure funding through these options, it may be possible through PACE financing. With PACE financing, buyers basically use their home as collateral. In other words, the financer puts a lien on their home until they pay the cost of the solar panels.

Advantages of Buying Solar Panels

Before deciding whether to lease or buy solar panels, consider the significant incentives that state and federal governments offer. The federal government alone, offers 28 policies and incentives for buying solar. In fact, the federal government extended several tax credit incentives that were set to expire in 2020. Hundreds more are offered by state governments.

We’ve discussed government incentives and home equity (above). Buying solar panels offers another advantage. The Federal Trade Commission explains, “Depending on local net metering rules, your utility may pay you for power your system returns to the grid.” In other words, you can sell your excess energy to your local electric company for a small price.

Another way to do this is to obtain renewable energy certificates. A renewable energy certificate affirms that you “generated a certain amount of renewable energy.” Then the buyer can sell these elsewhere.

Deciding whether to lease or buy solar panels is important. Regardless of how you pay for the solar system, your energy bill will likely decrease. As will your carbon footprint. That’s something to feel good about.