Purchase vs lease
Going solar for most people is an investment. It provides one of the best returns at about 15% and a 25% annual return on investment (ROI) for each of the 25-year product lifespan. Deciding how best to finance the solar panel cost is an integral part of the solar journey. You can purchase the solar system by paying cash, solar financing, or leasing. Purchasing allows you to take full advantage of available incentives and maximize financial benefits. Leasing solar panels allows you to go solar with little to no upfront costs, but with lower financial benefits and some conditions. Neither purchasing nor leasing is inherently better or worse. As long as you fully understand the choices and you meet your goals, either option is beneficial. Different purchasing and leasing solar panel options with LA Solar Group are described below.
Purchase – Cash
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 least qualification criteria. Cash purchasing has become even easier as the average cost of solar panels continues to decrease.
Purchase – Financed with Bank
Financing a solar system offsets the initial solar panel cost. Solar financing provides many of the same benefits of cash purchasing. The most obvious benefit would be not needing to pay the entire amount upfront. However, solar financing’s associated fees and interest payments will reduce the monthly savings and make the payback period longer. It will reduce your ROI as compared to a cash purchase. Most solar financing solutions will also have qualification requirements.
Purchase – Property Assessed Clean Energy (PACE) Financing
Property assessed clean energy (PACE) financing is a program that allows homeowners to pay for solar through an increase in their 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 excellent for homeowners who do not qualify for traditional solar financing. Solar payments might also be tax deductibles.
Unlike today, solar was new and uncertain in 2010. During this timeframe, solar and third-party finance companies started leasing solar panels to entice potential customers with reduced or no upfront cost, little risk, and minimal maintenance responsibilities. Twenty-year leases or 20-year power purchase agreements (PPA), both with a 20-year “bumper to bumper” warranty and $0 down, were almost a no-brainer. As a result, these leasing options became very popular. Leasing may be the right solution for some customers, but you must understand the terms and conditions and their present and future repercussions.
In a straight solar lease, the solar company installs the system on the homeowner’s roof at no cost to the homeowner. The company will own the solar equipment and the rights to any incentives. The incentives cannot be directly taken advantage of by the customer, but 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, you would pay a higher monthly fee from the start. The terms of these agreements are usually 20 years and include a complete warranty and maintenance services, like 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 solar lease. Keep in mind the new owner may or may not be willing or be qualified to do so. When choosing between a solar loan or solar financing, you should understand which terms are right for you. In the end, both options will decrease the electric bills. If you are eligible for a federal solar tax credit or any other state solar incentive program, solar panel purchase is the best option.
Power Purchase Agreement (PPA)
In a power purchase agreement (PPA), the solar company installs the system on the homeowner’s roof at no cost to the homeowner. However, the company 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 that will be lower than the previous utility rate. These agreements usually include an “escalator clause” that increases the rate every few years. If you do not want the price 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. Keep in mind that if the home is sold, the new homeowner must take over the remaining term of the solar lease. The new owner may or may not be willing or qualified to do so, which could be a potential disadvantage.