Buying vs Leasing
Solar Power: A Short History of Buying vs Leasing
As a company who sells directly to homeowners, we believe solar panels are an asset to your home that can increase its value, save you money, and increase your energy independence. If that’s the case, why are there companies who choose to lease you systems? Well, we hope this post sheds some light on the history of solar panel leasing…
The rebates begin: Federal, state, and local
Since 2006, there has been a federal tax rebate that underwrites some of the costs of a solar purchase and installation. The government didn’t have a lot of luck with the original limit of $2,000, so the plan was changed to cover 30% of the total cost of the solar purchase and installation with no upper limit.
Soon, state governments got involved, offering state-sponsored rebates, subsidies, and grants. Eventually local administrations joined in as well and local utilities agreed to buy excess energy that was fed back into the grid, often at twice the going rate that they were charging for electricity. Why? Because by using a certain percentage of renewable energy, they were granted carbon credits which they could use to offset the pollution they were creating elsewhere.
The recession: How to make money in a down market
The recent recession from 2008 to 2014 put a pretty big dent in the US economy. As a result, many of us learned a rather costly and humbling lesson not to overextend ourselves financially.
To make matters worse, bank loans dried up. The stock market had poor returns; savings accounts were paying negligible interest. Investors needed some sort of profitable vehicle for their cash, and they found solar energy.
(Excuse the slight drama)
“Great!” thought the investors, “We’ll rent solar panels to people, giving them a 10-15% savings over what the local utility would charge for the same amount of electricity. They’ll pay just to get away from what their utility charges, and feel self-satisfied that they are green. But since we own the panels, we’ll get all the rebates and subsidies, plus any income derived from selling excess power back to the grid. We’ll have the household revenue stream, plus what the utility pays us. And since power will rise in cost, we’ll put in a clause increasing the cost 3%/year even though we’ve done nothing to improve the service!”
“That’s true,” said another, “solar panels are maintenance-free, so they cost us nothing more, but we’ll rake in the monthly fees. And just to be sure we keep making a profit, all lease contracts for solar power shall be at least 15 years, and our renters can only pass leases on to a subsequent purchaser of the house if that purchaser has a 640+ FICO score, so our investment is always protected.
“And,” said another investor, “if they terminate the lease early, we can impose large financial penalties. Best of all, at the end of the lease, they still don’t own the solar panels. They can renew the lease or they can buy the solar panels at almost the original price. We’ll make a fortune!”
While everybody else in the post-market crash was looking for returns of 1-2 percent and considering themselves lucky if they found 2.25%, the companies leasing panels were looking at 8% returns on their investment, 400-800% better than other investors.
The road to recovery: The post-recession solar market
Now that the economic recovery is well underway, interest rates are at an all-time low, and lending money is once again available, there’s no reason to let solar rental companies continue to making huge profits at your expense.
The federal subsidy we mentioned earlier was supposed to expire in 2016, but it has been renewed until the year 2019 with no changes (30% of total installed cost). Then it will gradually decrease in amount every year (down to 22% by 2021) and finally expire at the end of 2021.
Now would be a great time to take advantage of the credit before it’s gone. Even though the cost-per-watt of panels is decreasing every year due to increased production and economies of scale, the other costs of solar (additional hardware, installation, permitting, etc.) are not decreasing as quickly. The federal tax credit covers ALL of the above, not just the panel costs, but 30% of the total installed cost, including labor and permitting. If you wait too long, you won’t be able to recoup those other costs (which can be quite significant).
As an example, if you were to purchase a typical four-kilowatt solar system today like our 4.2kW Solar Sky Astronergy package, you would save at least $2100 from the federal tax credit alone. If you waited until the FTC to expire, even if panels dropped 50% in price by 2021, you would still not recoup that much money. Only the FTC can save you so much on the overall cost of a system (remember: panels are only a percentage of the overall system costs!), and you only keep the FTC if you buy, not lease, a system.
Would 4 kilowatts be enough to run your home? That’s just the average in California. If you can afford it, you can choose a bigger system. Then, even if you’re not home all day, your solar system continues to create power and, in states that permit it, excess power is returned to the electrical grid and “net metered” (meaning you actually get credited for any excess power you produce).
Then when you are home at night, you can draw that power back from the grid (sometimes for lower than daytime rates). If your production vs consumption balances out by the end of the month, your power usage bill is almost zero (there might still be a small flat fee that utilities charge just to connect your house to the power lines). If you put in more than you took, you get a check or an account credit.
And even if you undersize your system, producing less than you use, or if you choose to start with a smaller system with the option to scale up later (like our Enphase micro-inverter systems), you would still be able to take advantage of the FTC and at least partially offset your utility bill.
But if you don’t own your system at all and only rent it, the leasing companies keeps the federal tax credit AND the excess production that you would’ve gotten paid for.
In summary: To rent or lease?
There are number of factors to consider, such as if you have a good southern exposure, how much insolation (usable energy from the sun) you receive, what your current financial picture looks like, whether you have a very old roof on your house that you would want to replace before you install solar panels that are going to last up to 40 years. Ground-mounted installations are another option.
Reasons to buy:
- If you buy it, you own it.
- There is a fixed, predictable period of time over which it will pay for itself (3-6 years, depending on the install), after which it is pure profit.
- It increases the value of your home;
- You get to keep all of the subsidies, grants, and tax credits;
- You get paid for extra power production if your utility allows net metering.
- In most cases you can claim the interest on your loan to purchase the system as a deduction on your taxes, something you cannot do with the solar lease program;
- Systems are very reliable; they hardly ever need maintenance aside from a scheduled inverter replacement a decade or two later. Inverters come with a warranty of 12 years (upgradeable to 25).
Reasons not to rent:
- The “zero-down” claims are not entirely true. You may not be giving them cash money, but by signing that power purchase agreement (PPA) or lease, you are giving them your 30% federal tax credit and any eligible state or local incentives. You’re giving them the thousands upon thousands of dollars that should rightfully be in your pocket or your bank account.
- When all the adding up is finally done, you’ll discover that you paid the leasing company more than twice as much as it would have cost you to purchase the system yourself and finance it. With the available incentives it should cost less than $2 per watt (all-in) to install your solar system if you DIY it (like many of our customers do; see our Customer Installs of the Month)
What if I can’t afford to buy a solar system outright? Can I finance it?
Some of our customers have enough in savings to purchase a system in cash, which is what we usually recommend (debt can be dangerous!). However, for those who want to take advantage of the Federal Tax Rebate before it sunsets in 2021, there are other options to help with affordability, such as:
- Starting with a smaller system, such as our expandable Enphase solar starter kits (starting from just $1000), and adding more panels later. These have the additional upside of being able to squeeze every last watt out of individual panels under different shading conditions.
- If you’re in California, see if you qualify for the HERO program, financing specifically designed to help homeowners immediately afford renewable energy upgrades to their homes. Annual payments are tacked on to property taxes and the interest may be tax-deductible. For other states, check to see if there is a similar PACE (Property-Assessed Clean Energy) program near you.
- Consider a home equity loan with a local bank or credit union, especially those who participate in the federal PowerSaver loans program (see map of PowerSaver lenders).
- There are more ideas on our Financing Solar page.
Renting solar panels is a great idea… for the leasing company. It is not a consumer-friendly business model.
In our recovering economy, PPAs and solar leases no longer make sense. Those two methods actually represent the most expensive ways for consumers to use solar energy. They were designed for investors to take advantage of a market in recession, not to help homeowners install solar.
Even more insidious is the escalator payment scheme, which allows leasing companies to increase your payment rate by 3% per year for 20 years. By year 20 you’re paying more than 175% of what you paid in year one.
By contrast, buying your panels outright saves you more and more money every year you own it. Even if you have to finance it, with a low enough interest rate there is still a good potential for positive payback.
Wholesale Solar is a 100% employee-owned company, and we want to do what’s right for you, our customer. Our 4.9 star Google reviews rating proves this. Give us a call at 1-800-472-1142 or use our online form to request a quote. We’d love to hear from you!