After deciding whether solar is a viable option for your home, the next choice you will make is whether you want to buy or lease your solar system. Among the wide selection of solar companies, loan options, and leasing contracts there is a lot of information to consider. Each has its own benefits and drawbacks, and knowing your options will help you choose what works for you. Your decision to purchase or lease is going to depend on your long term financial, housing, and money-saving goals.
Cash Purchase vs Solar Loan
You can buy your solar panels with cash, or with a loan. Depending on your state, the solar panel owner can receive special tax credits, rebates, and incentives. Generally, the systems range anywhere between $15,000 and $30,000, but it’s important to keep in mind that this overall price does not reflect any rebates or incentives. Many companies build these in, and their net price reflects any deductions. An initial price of $20,000 can get knocked down to as low as $12,000 after everything is said and done.
If cash is not an option for you, but you still want to own your panels, a solar loan might be your best option. Not to be confused with a solar lease, a solar loan provides you with the funds to pay outright for your system. Similar to other home improvement loans, they can be taken out through a bank or other institution.
With any loan, it is important to consider interest rates. Most solar loans have interest rates that range between 3-8%. These loans can last from 10-20 years, and monthly payments vary from loan to loan. Shorter loans typically have a higher interest rate, but if your finances are stable enough to make all the payments, you may still end up paying less interest overall.
Solar Leases vs Power Purchase Agreement (PPA)
If you choose to lease there are two major types of leasing contracts: Solar Lease and PPA.
With a Solar Lease, your provider supplies the permitting and installation financing for low or no cost. Once installed, you are charged a monthly fee for the length of your contract. Since the company still owns the system installed on your home, the lease generally covers repairs, maintenance, and insurance.
In a PPA contract, the provider handles the permitting and financing process, with the understanding that you will purchase the power from them at a set price. The company still owns the system, and the price is based on how much energy they believe your system will produce. You have the choice to pay upfront or monthly. Regardless of whether your system over or under produces, the price will not change. Some states don’t allow PPA contracts, make sure you know your state’s laws.
Neither contract is one size fits all, and different solar companies offer slightly different versions of these two main types of solar lease contracts. It’s important to get a selection of offers from several different businesses and understand the differences between their unique contracts. Research is paramount for a project as financially significant and long term as installing solar panels.
Lease or PPA Contract Length and Fees
Solar lease or PPA contracts are a long-term commitment. Residential leases range from 20-25 years, with a very small window for cancellation. If you haven’t found your forever home, this can create sticky situations further down the line. Generally, a lien isn’t placed on your home by your contract, but you are still responsible for the terms of your lease. You can, however, sell the contract to the new homeowners or move your panels with you. As long as the contract demands are being met, there are ways to work around these potential roadblocks.
If you choose a PPA contract, be aware of escalator clauses. An escalator clause means that your rental fee goes up by a certain percentage every year. A standard increase to expect is 2-3% annually. It is important to keep in mind that the lower your percentage, the more you save in the future. Do the math and see where your monthly fees are going to be in a few years to avoid being surprised by future expenses.
Before committing to a lease with one company, it’s always a good idea to shop around. Get several bids from different companies and compare them all closely. It’s the only way to know for sure what companies in your area are offering.
Who Owns The Panels?
When you lease panels, you receive the energy benefits, but the leasing company receives any financial benefits. While the panels may be on your property, the ownership belongs to whatever third-party provider you are leasing under, and any financial benefits, whether energy savings, rebates, or credits go to them. You may still save on your utility bill for electricity, but you won’t be entitled to any other compensation until you buy the panels.
On the other hand, when you buy outright, either from the beginning or at some point during your lease, all financial benefits transfer to you. Once the system is paid for, any energy you receive from it is free. If you want to increase your savings long-term, ownership is your best choice.
Regardless of the financial path you choose for your solar panel system, it’s a long-term commitment. Break everything down and look at where you want your home, your investments, and your financial state to be in the future. Doing the homework will set you, your home, and our earth up for success.