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Leasing vs Buying

How Solar Leases Work

Some of the large solar installers have started offering homeowners the option of leasing rather than owning their systems. This is an attractive option for anyone who doesn’t want to pay the money up front and it is attractive to the leasing companies because they own the system and they qualify for business tax incentives that weren't available to homeowners in the past. These tax savings are large and this is the only way these leases work: The companies can build and own the system for less than you can. They sell you the power that the system produces and charge you less than you pay without a solar system, but more than you would pay if you actually owned the system.

The following sections provide an in-depth benefits comparison of leasing versus buying solar.


Why Would I Want to Lease a Solar System?

  • Leasing a residential solar system normally requires little or no down payment.
  • Leasing nets the customer a lower payment than the current utility bill. (However, the customer still makes a small payment to the utility company each month because the leased system produces less energy than the customer actually uses, which is called "underproduction.")
  • Leasing includes monitoring, cleaning and inverter replacement. These are considered basic maintenance items.
  • With very good credit, leasing is as easy as signing your name on the contract and making a down payment.
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Considerations and Questions to Ask Before You Lease

  • What is the guaranteed energy output of the system?
  • How much of my current bill will it cover and how much is left over?
  • What happens if we go over the guaranteed output?
  • What happens if we use less energy and don’t need all of the guaranteed output?
  • Is there a “back-end payment” due when the lease ends? A back-end payment is a prenegotiated price you pay to "keep" the solar system.
  • What is the buyout option? If during the contract period you sell your home or choose to buy the system, what's the cost, and is it fairly and evenly prorated?
  • Since basic monitoring and maintenance is included in your original lease agreement, what happens to these services if you “buy out” of the lease prior to its maturity date?
  • Because you are renting your energy from a solar company versus a utility company, what is your cost per kilowatt on the lease program?
  • What is the yearly increase in rates under the lease agreement?
  • What happens if you are late on your lease payment or cannot make a payment? Does it also affect your credit rating? Can the investors reclaim their system?
  • Why can’t you offset your entire bill?
  • Can you have better and more efficient solar panels installed?
  • Can you add to your solar system at a later date? Consumers should not assume that the solar panels and inverters are priced competitively.
  • If you sell your home, does the new buyer have to purchase the solar lease? What are the terms for the buyer?


Why Would I Want to Own a Solar System?

  • You can drive a hard bargain when you ask several companies to bid for your business.
  • You receive the cash rebate from the state.
  • You receive the 30% unlimited federal tax credit.
  • You choose the solar panels and inverters that you want.
  • You enjoy the satisfaction of having the system pay for itself within 5 to 7 years. This equates to a 25-35% internal rate of return.
  • You offset all of your utility bills.
  • You are exempt from future rate hikes because you continue to offset 100% of your utility bills.
  • You can add or modify your system at a later date and benefit from competitive pricing.
  • You can opt for monitoring as well as extended inverter warranties up to 20 years for a minimal fee.
  • You choose the company to install your new system.
  • You can utilize state agencies to help regulate service and warranties.
  • You don't pay a substantial amount of money to the leasing company at the end of the term if you decide to "own it."
  • You receive the appreciation value if you sell your home. This can easily give you a profit because the increase in value is more than you paid for the system. As utility rates increase, homes with solar sell faster.
  • Homeowners may write off the interest paid on a solar home loan. Those who lease cannot write off lease payments.


Premium Equipment

Why Would We Consider Using Better Quality Solar Panels and Inverters?

  • Better panels will produce more energy than the lesser quality panels. This will not only make you more money, it will allow you to receive higher rebates.
  • The degredation factor. All solar panels lose the ability to produce as much electricity as when they were brand new. High efficiency panels not only create “more” energy when they are new, but also degrade at a lower rate as they age.
  • Inverters that are better quality and have higher efficiency ratings can be utilized. Better efficiency translates into more annual kilowatts of energy produced versus a lower efficiency inverter. Higher rebates are also received.
  • Better warranties are available to double the warranty period to 20 years and may also allow for free monitoring.

Why Would A Solar Contractor Ever Suggest Offsetting 100% Of Your Entire Utility Bill?

  • Customers seem to really want to be free of PG&E (as well as inflation). That is really the whole idea of generating your own energy.
  • Better and more efficient systems offset a larger percentage of your utility bill at a very minimal cost.
  • Leases do not offset all of a customer’s utility bill. The whole idea of customer’s remaining utility bills doubling every 10 years is usually not preferable.
  • Bragging rights come into the equation when their utility bill is gone, as well as maintaining a higher lifestyle with the consistently high raising prices of utilities, and of course the additional environmental savings.


Leasing Case Studies

Methodology

The following case studies are calculated by comparing the current utility-bill payment with the new lease payment.  The yearly increase in lease payments is calculated using the solar lease's inflation rate. The current utility bill is $500. The lease payment starts at $289 per month and increases 3.9% per year. This new $289 payment offsets only $440 per month; $60 is still owed to the utility company each month. The degradation factor is also computed. The average inflation rate of the past 40 years is 6.75% annually. We are using this conservative, old rate even though customers experienced a 16.5% increase in 2008!

Case Study #1

At the end of 15 years, the total monthly payments, using the above-listed calculations, equal $735.05!  This customer would have spent $93,711.07! Now the homeowner also needs to pay an additional $50,000 to the solar-leasing investor if he wants to purchase and own the system. The grand total for this lease and buyout is $143,711.07. Other options are to renew the lease or have the leasing investor remove the system and donate it to charity for yet another write off - for the leasing company!  If the consumer pays $50,000 to buy the system, the total out-of-pocket expense at the end of 25 years is a whopping $185,032.27! And this does not include the presumed additional energy use of the pool, spa and waterfall.

Case Study #2

While considering the purchase of the solar system, the homeowner expressed an interest in offsetting more than 100% of the utility usage to account for the new pool, spa and waterfall purchase planned for 2009. By calculating the anticipated energy demands they were planning and choosing a larger and more efficient system to offset the entire new utility bill, the total investment after larger rebates and tax credits was only $48,000!

 

 

Why Would a Solar Contractor Ever Suggest Offsetting 100% Of My Entire Utility Bill?

  • Customers want freedom from PG&E as well as inflation. That is the primary reason for generating your own energy.Better and more efficient systems offset a larger percentage of your utility bill at a minimal cost.
  • Leases do not offset a customer's entire utility bill and customers usually don't prefer to pay utility bills that double every 10 years.
  • Customers' bragging rights: Their utility bill is gone, they maintain a high-quality lifestyle in the face of escalating utility costs and they are helping save the environment.

 

 
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