With rising energy costs and a growing demand for renewable energy, homeowners are increasingly turning to solar power to save money and reduce their environmental impact. However, when it comes to installing a solar energy system, one major decision can significantly influence your savings: Should you lease or buy the system?
In this article, we’ll explore the key differences between solar leasing and solar purchasing, so you can decide which option will save you more money in the long run.
What is Solar Leasing?
Solar leasing is a popular option for homeowners who want to go solar without the high upfront costs of purchasing a system. Under a solar lease or Power Purchase Agreement (PPA), a third-party company installs and maintains the solar panels on your roof. You pay a fixed monthly fee or a per-kilowatt-hour (kWh) rate for the energy produced, typically at a lower cost than your current utility rates.
Types of Solar Leasing:
- Solar Lease: You pay a set monthly amount regardless of the amount of energy your panels generate.
- Power Purchase Agreement (PPA): You pay for the actual energy generated by the panels at a pre-agreed rate per kWh.
What is Solar Purchase?
When you purchase a solar system, either outright or through financing, you own the panels and the electricity they generate. This means you’re responsible for the installation and maintenance, but it also allows you to take full advantage of available financial incentives, such as tax credits and rebates.
Ways to Purchase:
- Cash Purchase: Pay for the system in full upfront, which maximizes long-term savings.
- Solar Loan: Spread the cost over time through financing, while still retaining ownership of the system.
Cost Comparison- Solar Leasing vs. Solar Purchase
Upfront Costs
Solar Leasing: Leasing typically requires little or no upfront payment. The solar company handles the system’s installation and maintenance, making it more accessible for those who want to avoid a large initial investment.
Solar Purchase: Purchasing a system outright comes with a significant upfront cost, usually ranging from $10,000 to $30,000, depending on the size of the system and your location. However, federal and state incentives, such as the 30% Federal Investment Tax Credit (ITC), can reduce the overall expense.
Long-Term Savings
Solar Leasing: While leasing eliminates the upfront cost, long-term savings are usually lower. You continue paying monthly fees for the energy produced, and those payments may increase over time due to escalation clauses in the contract. You won’t own the system, meaning you don’t benefit from tax credits or sell energy back to the grid.
Solar Purchase: Buying a system can lead to significant long-term savings. Once the system is paid off, the electricity generated is essentially free. Additionally, you benefit from financial incentives like tax credits, rebates, and Solar Renewable Energy Credits (SRECs). Over time, purchasing tends to yield a higher return on investment (ROI) compared to leasing.
Ownership and Control
Solar Leasing: Since the solar company owns the system, they’re responsible for maintenance and repairs. This can be convenient, but it limits your control. For example, if you want to upgrade the system or move to a new home, you may encounter restrictions or additional fees.
Solar Purchase: When you purchase a solar system, you have full control over it. Although you are responsible for maintenance, modern solar panels are highly durable and come with long-term warranties (typically 20-25 years). Owning the system also means that if you sell your home, it may increase the property’s value.
Maximizing Financial Incentives
Solar Leasing: One downside of leasing is that the solar company, not the homeowner, benefits from most of the financial incentives. These include:
- Federal and State Tax Credits: The 30% federal tax credit and other state-level incentives are available only to those who own the system.
- Net Metering: You may still receive some benefit from net metering, but the solar provider takes the lion’s share.
- SRECs: Solar Renewable Energy Credits, which can be sold for profit, are also retained by the leasing company.
Solar Purchase: When you buy your solar system, you retain all financial incentives, including tax credits, net metering savings, and the ability to sell SRECs. These perks can significantly boost your overall savings and shorten the payback period of your solar investment.
Flexibility and Transferability
Solar Leasing: Leasing offers less flexibility if you plan to sell your home. Transferring a solar lease to a new homeowner can sometimes complicate a sale, as the new buyer has to agree to take over the lease. Some potential buyers may see this as a drawback.
Solar Purchase: Owning the solar system can increase your home’s resale value, making it a more attractive option for potential buyers. There’s no need to transfer ownership, and buyers benefit from the system’s free energy after purchase.
Which Option Saves You More?
Short-Term Savings
If your goal is to save money without a large upfront investment, solar leasing can provide some immediate relief by lowering your utility bills. However, keep in mind that you will be paying monthly for the energy produced, and the savings over time are typically smaller.
Long-Term Savings
If you’re looking for the highest financial return over the lifespan of the system, solar purchase is usually the better option. While the upfront cost is higher, you’ll eventually enjoy years of free electricity after the system is paid off. Purchasing also allows you to capitalize on incentives like tax credits and increased property value.
When deciding between solar leasing and solar purchasing, it’s essential to weigh both your financial situation and long-term goals.
If you’re focused on short-term savings and want to avoid a large upfront expense, solar leasing offers a low-cost entry into solar energy. However, if you’re thinking long-term and want to maximize your return on investment, purchasing a solar system is the better option for securing higher savings and complete control of your energy future.
Both options provide benefits compared to sticking with traditional energy sources, but your personal financial goals and how long you plan to stay in your home will ultimately determine which is the best fit for you.