Is it better to lease or buy solar panels? What you need to know
Solar installations can come at a pretty high price. While buying solar panels gives you the best return on investment, not everyone has the cash on hand to cover the upfront costs of going solar.
Luckily, homeowners can take advantage of financing options, like solar leases and solar loans, to help them afford making the switch to solar.
But which solar financing option is the best for you? We’re going to take a look at the financial benefits of leasing vs buying solar panels, to help you figure out how you should finance your solar power system.
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What is the difference between buying and leasing a solar panel system?
The main difference between buying and leasing a solar system is who owns the system. When you buy solar panels, whether it be with cash or through a solar loan, you are the owner of the solar panels.
With a solar lease or solar power purchase agreement (solar PPA), you don’t have to pay any upfront costs to install solar panels on your roof. Instead, a solar company installs and owns the solar system.
You get to use all of the solar power that your system creates, which cuts down your utility bill with net metering. In exchange for using solar energy, you pay a monthly lease payment to the solar company.
Comparing leasing vs. buying solar panels
Both buying and leasing solar panels have their own advantages and disadvantages. Let’s take a look at how these two financing options stack up.
|Buying solar||Solar lease|
|No upfront costs||No||Yes|
|Better long-term savings||Yes||No|
|Own the system||Yes||No|
|Qualifies for federal tax credit||Yes||No|
|Qualifies for SRECs||Yes||No|
|Easy to sell your home||Yes||No|
Whether you lease or buy solar panels, you will save money on your energy bill. However, when you buy the system outright, your long-term savings will be substantially larger. Taking out a solar loan will also give you much greater long-term savings than if you lease solar panels.
When you purchase solar panels, you pay off the system immediately and then have no more monthly payments. With a solar lease, on the other hand, you are locked into monthly lease payments for 20 years, sometimes more, depending on the lease term.
So, you end up spending more and saving less with leased panels.
Tax credits and incentives
One of the biggest disadvantages of solar leases is that you don’t get to take advantage of certain solar panels, most notably the federal investment tax credit - which will save you 26% of the total cost of the solar panel installation costs.
This is because even though the solar panels are on your roof, you don’t own the solar panels. Instead, the solar installer you are leasing with gets the benefit of the tax incentives and rebates, not you.
When you buy solar panels, you own them, so you will be able to take advantage of the federal tax credit, solar renewable energy credits (SRECs), plus other utility and state incentives.
Selling your home
Owning solar panels increases the value of your home. In fact, studies have shown that homes with solar panels sell 20% faster, and for 17% more money.
Leasing solar panels, on the other hand, can actually make it much harder to sell your home to potential buyers, without adding much value at all to your home.
Why is that? Well, although the solar lease can be passed onto a new homeowner, it can be difficult to find a potential home buyer who will want to enter a 20-year solar contract on top of buying a new home.
Plus, the solar company can deny new homeowners from entering the contract based on their credit score. So, finding someone who is willing to take over the lease and someone that the solar lease company agrees to can be difficult and time consuming.
When you purchase a solar energy system in cash, you don’t have to worry about any monthly payments. In many cases, you won’t even have to worry about any monthly electric bills either.
If you purchase solar panels with a solar loan, you will have monthly payments. These payments however, will be fixed through the term of the loan.
Solar leases, on the other hand, usually include a price escalator, which outlines the amount in which the monthly lease payments will increase each year. This means that you will pay more the third year of being in your lease than you did in the first year of having your lease. The escalator is determined by how much the price of electricity is predicted to increase in the future.
However, if electricity costs don't increase by the predicted amount in a certain year, or it only increases slightly, you might actually spend more on your lease payment than you would have paid on an electricity bill without solar.
In a few cases, a solar lease will not have an escalator, which is better for your long-term savings.
When you purchase solar panels, maintaining and monitoring the system is entirely your responsibility. If there is an issue with the solar system, you have to spot it, and pay for it.
The good news is that solar panels are pretty low maintenance. You should still be prepared to have to pay for some repairs and upkeep over the lifetime of the system, such as replacing the inverter.
With a solar lease, you don’t have to worry about maintaining the system. This falls entirely on the solar leasing company. Issues with the system will be covered by the lease company, so long as the repairs needed are covered by your contract.
Is leasing or buying solar panels right for you?
Installing solar through a zero-down payment approach, like a solar lease, can be very tempting. It is important to keep in mind, however, that although you won’t have to pay any upfront costs, you won’t save as much money as you would if you had bought the solar panels.
On the flip side, there are some situations in which entering a solar lease makes perfect sense. A solar lease might be right for you if:
- You are not eligible for the federal tax credit
- You are not eligible for SRECs or other local solar rebates
- You do not qualify for a solar loan and you don’t have cash to purchase a system outright
Regardless of whether it’s the best possible way to go about it, for many people wanting to switch to solar, leasing panels is the only way. In order to find the best solar financing options for your, you should get solar pricing quotes from multiple installers.
- Not everyone can afford to buy solar panels upfront, so there are financing options, such as solar leases, to help people who want to go solar but don’t have the cash on hand.
- Buying solar panels, whether it be with cash or through a solar loan, will give you the best long-term solar savings.
- Solar leases provide much less in savings, and prevent you from taking advantage of many solar incentives.
- Unless you are not eligible for the federal solar tax credit and other local rebates, you do not have the upfront cash, or you do not qualify for a solar loan, it’s always better to buy your solar panels.