Is it better to buy or lease Solar panels?
Are you aware that only an hour of sunshine a day is needed to meet the energy demand of the earth population for one year? For instance, the United States alone consumed only 3.8 trillion KWh of energy in 2020, but the sun emits 173 000 TWh every hour. Thankfully, this enormous energy can be harnessed through the use of technologies such as photovoltaic cells, solar heating, solar architecture, etc., and converted into electricity for use in homes and businesses. This form of power is the cleanest and most efficient source of renewable energy available for human use today. It is also the best solution for the rising greenhouse and global warming emissions.
The demand for solar power has been on the rise due to catastrophic effects of global warming and other factors such as environmental legislation, government rewards, and tax incentives for solar system installations. Furthermore, the expense of installing solar power equipment has been reduced by 70% over the past decade, thanks to multiple solar energy innovations. This has made it a more profitable option than the grid and contributes to its popularity among householders.
As a result, the solar energy market is projected to grow from USD 184.03 billion in 2021 to USD 293.18 billion in 2028, according to the latest market reports by Fortune Business Insights. Are you a solar installer? Innovate solar offers you opportunities to get more customers and build more projects easier and faster online by becoming one of our solar energy partners today.
Fortunately, there are four financing alternatives available to households willing to switch over to the solar power system, and all options are guaranteed to cut down power supply expenses significantly. These alternatives include buying, renting to own, solar power leasing, or Power Purchase Agreement (PPA), and they all have their pros and cons. This article will compare their different benefits and expenses to help you choose the best long-term, cost-effective energy solution with the greatest ROI.
What does leasing solar panels mean?
Home solar power leasing is a popular trend amongst households today. Its popularity stems from the high expense to own solar panels compared to the lower cost of a solar lease. This arrangement allows householders to enjoy the power these panels produce at a lower monthly price. The idea is for companies to provide a cheaper, convenient, and alternative power source for homes or businesses who want to go green. A Solar lease is a good idea because it doesn’t attract any upfront payment obligations from you.
How do leased solar panels work? In this arrangement, the company owns the panels and is responsible for their maintenance. The panel is installed on your roof so you can use the power produced from the system. However, you will pay a specified fee monthly or be billed based on the solar panel kWh output. This amount is usually lower than the regular utility bill you paid monthly prior to going green, thereby saving you the extra expense.
However, you may want to ask how much does it cost to lease solar panels? The energy consumption level of your home determines how much you pay. Typically, a solar power estimate calculator is used to determine the size and number of panels your home would need and the power output the panels produce to estimate your monthly bill.
Another question people ask is, “is it better to buy or lease solar panels?” Or “is leasing solar panels worth it?” Both options are great and have many benefits. However, outlining the pros and cons of leasing solar panels will help you decide if it is better to buy or lease solar panels to meet the energy requirement of your home.
Pros and cons of leasing versus buying solar panels
Here is our analysis of the advantages of solar lease vs. purchase. This table breakdown will help you decide whether to buy or rent solar panels is best for your household energy demands.
Ownership of system
Long-term savings advantage
Attracts federal tax credit
Merits of leasing vs. buying solar
Attracts no initial payment
Most lease agreements come with no initial payment obligation. This is probably the best part of leasing solar panels vs. buying, which makes it simple to switch and enjoy its benefits at lower expenses monthly.
Lower energy bills
You get to save more due to the reduced energy expenses compared to that from the grid. Also, your monthly payments are fixed and stated in the contract. Furthermore, you only get to pay for the energy consumed if you use less power from the system within a billing period.
No maintenance or monitoring expense
You are not responsible for monitoring and maintaining the installation as this falls to the providers. But if you own the system, you are responsible for identifying problems and paying for the repairs throughout its lifespan.
Leasing minimizes risk because they come with power production guarantees. This results in lesser payment when the system produces lower power output than expected. This is another factor to examine in the buying versus leasing solar panels debate.
Demerits of leasing vs. owning solar panels
Long-term savings advantage
Hiring has a lower savings advantage compared to owning the system. Ownership can eliminate your power billings, whereas you get to pay a monthly lease for 20 years or more, based on the agreement. Additionally, leasing contracts always include price escalators which increase your bill as utility bills increase each year. This can undercut your expected savings benefits.
Federal tax credits and other Incentives
Hiring disqualifies you for the 26% federal solar tax credit and other local incentives because it goes to the providing company. Furthermore, you can’t partake in the solar renewable energy credits (SRECs), which puts a lot of money in the pockets of solar owners.
Added value to your home
Another advantage of owning vs. leasing solar panels is the value it adds to your home. Ownership increases the value of your property and the chances of selling it. But leasing doesn’t because the panels are not yours.
The expense of leasing vs buying
The average cost of leasing solar panels is between $50 to $250 per month. Factors such as home structure, location, and energy usage are responsible for determining this rate. Conversely, it costs between $15 000 to $40 000 to buy and install the equipment. Your home size, type of panels, and the suppliers of the panels determine this rate. You can visit Innovate solar to find the best prices for your home solar power installation needs. Let’s explore how these factors affect the expense of either option.
Owners of the system in sunnier states enjoy more benefits than those in colder states, and the reason is apparent. In sunnier states, the panels capture more sunlight and can use the excess to offset electricity bills through net metering.
The structure of your home can affect how you install the system. For example, it is cheaper to install on the roof provided the structure can support it. Also, the age of the roof and how much weight it can carry are factors to consider.
Bigger homes use more energy because a bigger house can have more facilities that consume power. Therefore, if you have a small home and your monthly bill is lower than $50, leasing won’t be the best option because you may end up paying more in bills.
What’s the difference between a lease and a PPA?
A lease and power purchase agreements (PPA) are financing options where the homeowner does not own the panels installed on their roof. Instead, the installations belong to the company while the homeowner pays monthly fees for using the power supplied.
Under a lease contract, the homeowner pays a monthly fee throughout the period, usually 20-25 years. With PPA, the homeowner only pays for power consumed at a fixed rate per kilowatt throughout the agreement, usually 20-25 years. The rate is usually agreed upon between the homeowner and PPA company and can increase based on the price escalator clause.
Both arrangements are similar in many ways and have the same benefits. The only difference is the monthly amount, which may be stable or fluctuating based on the power produced. With a lease, you pay a fixed rate all year round, irrespective of the power produced. So, for instance, you pay the same amount for energy during winter as in summer. But with PPA, you get to pay less during winter because the system produced lower output than its production capacity during summer. This means you get to save more in the long-term with PPA.
How does leasing vs. buying solar panels affect selling your home?
Renting can affect your chances of relocating to another area as this could involve relocating the system. It also affects the chances of selling your home because many buyers would be unwilling to continue the lease contract based on your power usage. This leaves you with the option of either paying up the lease or relocating the system if the company is willing.
Although some leasing companies may offer to relocate the system, this option could expense up to $1000 for the initial audit and panels transfer. Besides, you may need the approval of local authorities such as condo or householders’ associations, utility authorities, and local landmarks commission. Not to forget, that the roof of the new house should also be able to carry the installation.
Why leasing isn’t a bright idea?
Is leasing solar worth it? Although the zero upfront charge is attractive to many householders, the long-term expense is not always as expected. When deciding between owning vs. leasing solar, the reduced expense of electricity stands out. Householders can enjoy substantial savings on bills during the lifespan of their system as they stand to save up to $1000 in a year.
Furthermore, some states require utilities to offer net metering, allowing householders to sell the surplus power their system supplies to the utility. This will be credited to their electricity bills and can be used to pay off future electricity expenses.
Another advantage of solar panel purchase vs. lease is the insurance against a future increase in electricity prices. There is no doubt electricity prices will continue to increase, which is the reason for the price escalator in lease and PPA contracts. For example, if your bill increases by10 cents per kilowatt in the coming year, that means your net metering savings will increase by 10 cents also.
Solar purchase also qualifies you for the 26% tax credit, and other state incentives. You can channel the accumulated sum of the tax reductions, net metering, and other rewards toward offsetting the expense of acquiring the system. Thus, after paying for your solar system, you continue to enjoy a free power supply throughout its lifespan.
Owning the system means you bear the upkeep bills, though, the panels have very low expenses and could only require rinsing at least four times a year. In addition, other major faults can be covered by the warranty, while the insurance company can cover damages resulting from storms. A typical purchase deal normally comes with these protections, so the expense of maintaining it is not a disadvantage.
All in all, is leasing or buying better?
Yes, it appears attractive in the short term because of the zero upfront payments. But increasing electricity prices can undermine the short-term savings advantage. Also, the difficulty experienced in moving and selling off your property is a drawback in leasing.
The major drawback to buying is the high expense of acquiring the system. However, the elimination of future bills, net metering savings, etc, make up for the initial expense. Furthermore, it adds to the value of your home if you choose to sell it in the future. Thus, the advantages of buying outweigh the downside and prove to be a wise investment in the long run.