Until several years ago, most residential photovoltaic (PV) systems were purchased. Because of the upfront cost (and because solar systems were more expensive back then), there was a very limited pool of potential solar system owners.
Around 2008, solar leases or power purchase agreements started growing in popularity. This was a game changer in the solar world, because it helped remove financial obstacles. Suddenly people could have solar on their homes for as little as no money down, and often pay less each month for their electricity.
In the past couple of years, solar loans became available with more appealing terms. Suddenly people could get a relatively low-interest loan with a 20-year term. This again was a game changer for the industry because the loan payments are in many cases less than the reduction in the electric bill.
So you may wonder, is it better to lease or own. Of course the answer is: it depends.
Advantages to Ownership
There is a 30 percent tax credit available for PV solar systems that are purchased, not leased. A tax credit is different from a tax write-off and is more valuable to the homeowner. It is a dollar-for-dollar reduction in income taxes owed. If you install a $10,000 solar system, then there is a $3,000 tax credit available.
Another big difference between many purchased and leased solar system is the responsibility for maintenance. Typically the solar installer is responsible for repairs and maintenance if the system is leased.
Some installers that also offer loans for solar systems may also provide warranties that cover repairs, such as SolarCity’s MyPower program. This program is unique in that it offers low-interest rates and longer-term loans to solar homeowners for as little as no money down, while also maintaining the solar system.
In some cases, it might be more difficult to sell your home if you have a leased solar system on it. Many companies offer the ability to transfer the lease to the new buyer, which may be an appealing option for you and a potential buyer. Just be aware there might be some lack of information in the real estate market about solar leases and make sure you know your options before you sign a solar lease, especially if you think you are likely to sell before the lease period ends.
Advantages of Leasing a Solar System
If you don’t pay enough in taxes and can’t use the tax credit, then leasing will likely come out cheaper. Because the solar installer is usually eligible for the tax credit on your leased solar system, they will likely pass some or all of the savings from the credit on to you.
Some of the benefits or drawbacks of each vary by location and installer. To get a sense whether it is better to lease or own, this EnergySage tool helps make calculations.
Feature image courtesy of RightBrainPhotography