Leasing Solar Equipment or a PPA Vs. Purchasing 

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Leasing Solar Equipment or a PPA Vs. Purchasing 

There are several leasing and purchasing options available to consumers interested in installing a home solar power system. Below we go over the different options available from Baker Electric to help you decide what route is best for you and your family. 

The low upfront costs of leasing solar panels and the requisite solar system equipment may make it look like the most appealing option at first. Consumer Reports found that 72 percent of people that installed residential solar systems in 2014 leased the equipment or had some other type of third-party arrangement.

However, both leasing and purchasing have pros and cons, dependent on what your goals for your solar power system are and your personal financial and credit situation. 

What Are the Different Options Available? 

Solar Lease:

The most attractive facet of choosing a solar lease is that it's generally a zero-money-down situation, and homeowners will see savings in their first month. Keep in mind that most solar leases have a 20- or 25-year lease agreement, after which time the homeowner's only options are to purchase the solar system at a fair market price or have it removed from their roof. 

A solar lease may be the only option available to a prospective customer – people with low credit or without the cash to purchase the system. In this case, the lease will undoubtedly save homeowners money both in the short and long term, albeit not as much in the long term as if they were to own the system. 

Power Purchase Agreement:

A Power Purchase Agreement, or PPA, is an arrangement made between the homeowner and a PPA company where the PPA company installs its solar panels on your roof. You buy the electricity generated at a fixed price for a set number of years, generally 20 to 25. When the panels aren't creating power at night, the homeowner buys their electricity from the power company. 

In a PPA, the homeowner does not own the solar system. They essentially "host" the PPA company's panels for the privilege of buying electricity at a fixed amount to save money on utility costs. 

Buying with Cash or a Solar Loan: 

On average, a homeowner can pay off their solar system within 12 years – half the time of a lease or PPA contract. When you own the system, you also own the power and often can sell unused electricity back to the power grid. Other advantages are receiving the federal tax credit and raising the value of your home. 

If you're thinking of selling your home in the future and are looking forward to the higher property value a solar system will get you, consider buying, as many prospective real estate buyers don't want to take over a lease.

Generally, buying the system or financing the purchase has the highest pro to con ratio unless the homeowner does not qualify for financing or doesn't have cash.  

To Be Eligible for Receiving Federal Solar Tax Credits, You Must Own the Solar System

The US government offers what's known as the Solar Investment Tax Credit to incentivize people to switch to solar. This credit is only available to solar customers that own their equipment. Leasing your solar system disqualifies a person from receiving the tax credit. This means that if you're leasing or using a PPA (Power Purchase Agreement), you won't receive the tax credit; the lease or PPA company will claim it for themselves. The IRS has indicated that to receive the tax credit, your new Photovoltaic solar power system must have completed construction and be placed into service within the calendar years specified below to be eligible for that year's associated tax credit percentage. 

  • 30% Tax Credit for a Solar PV system installed before December 31, 2019. 

  • 26% Tax Credit for systems installed before December 31, 2020.

  • 22% Tax Credit for systems installed before December 31, 2021.

The Solar Investment Tax Credit is currently scheduled to expire for homeowners (unlike corporations) that do not complete installation before January 1, 2022, unless renewed by Congress. 

Achieving the Maximum Long-Term Savings Favors Buying Vs. Leasing or PPA

The average cost to put in a new solar power system is $15-20,000. If you take out a home equity loan to buy your solar system, the interest on your loan is tax-deductible, as well as relatively low (3-5%). Most systems end up paying for themselves in five to seven years. 

If you lease your system and have agreed to a common contractual clause called an escalator clause, that will raise your payments 3% per year. If the cost to lease eventually outweighs your savings on utility bills (it is likely if you lease long-term), you're not saving much money in the long run.  

It Isn't Easy to Have Equipment Serviced if it's Leased or Under a PPA

Many solar leasing and PPA companies tend to find loopholes to avoid servicing equipment. A typical solar lease contract will include a maintenance plan. This sounds great until you realize that the maintenance plan you agreed to was just a selling-point that doesn't cover damaged or malfunctioning equipment. Generally, only the warranty will cover the equipment – a warranty you won't have if you don't own the equipment. 

Other times, the homeowner is obligated to service the equipment out-of-pocket, which stings all the more when they're still required to pay the solar leasing company that month whether or not the equipment is functioning correctly or needs servicing. 

Whether leasing or buying, it's always important to inform your homeowners' insurance company when deciding to go solar. Often, in the event of damage from a storm or other natural event, your insurance will cover reparations. 

The Short and the Long Term

There are benefits and advantages to each option available to consumers, and you must research each to determine what will work best for your home. In the short term, a lease or PPA will show the most significant initial savings. However, when you do the math and figure out how much you'll be paying throughout a 20-year contract, these initial savings might begin to seem less significant. 

The details on each available option will be best explained by a professional. They'll help you wade through the confusing aspects and gain a better understanding of solar leases, PPAs, and buying outright. Baker Electric is committed to providing customers with unbiased information for all their questions. Contact us today to learn more. 

Sources

The Real Cost of Leasing vs. Buying Solar Panels - Consumer Reports

Are solar leases or PPAs a good or bad idea? (thesolarnerd.com)

Homeowners Guide to Financing a Grid-Connected Solar Electric System (Brochure), Solar Energy Technologies Program (SETP)

What is the Difference between a PPA and a Lease? | Baker Home Energy (energystoragecalculator.com)

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Thomas Hilton
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