The Economics of Leasing vs. Purchasing Solar Electric Systems

Posted by Samantha on January 29th, 2015

Should I lease or purchase a solar system?


It’s one of the first questions that most customers ask when they begin their research into solar for their home. While purchasing solar panels is nothing new to the market, the leasing model has risen quickly in the last several years to provide stiff competition for an expensive product. Solar leasing was largely championed by Solar City, a company chaired by tech entrepreneur and Tesla CEO Elon Musk, whose inventions and investments have made him a household name in sustainability and innovation in the 21st century. Leasing’s “0 down” approach provided a way for homeowners of all income levels to accomplish their solar goals without going broke. However, there are many that say the downsides of leasing far outweigh the benefits; some even argue that leasing is at best, a phase to get the solar market through the tough growth years until prices naturally decline, and at worst, a scheme to talk people out of their best interests for a profit.



Homeowners in Oso, Washington purchased their 
ground mount
solar system, and will see benefits for years to come.

So which is the better model, the purchase or the lease? The National Renewable Energy Lab just released two reports (found here and here) comparing the economics of owning and leasing solar electric systems, and the results are fascinating.

The first report concluded was that the levelized cost of energy (LCOE) for homeowners financing their solar PV with a solar-specific loan was up to 29% lower than the LCOE for homeowners leasing their solar PV, largely due to both the tax equity in a solar lease as well as the higher investment for purchasing solar PV outright. The second report largely focused on commercial solar, and determined that the LCOE for a self-financed solar PV system was 30% lower than the LCOE for the solar leasing system. However, these percentages change depending on how the companies view the risks of ownership, and the resulting pre-tax discount rates applied to the financing. That being said, if a business is able to secure low rate financing, they overwhelmingly benefit from owning a solar PV system.

The NREL's results are clear; both homeowners and businesses who use low-cost and/or solar-specific financing save up to 30% when compared to customers who lease their solar systems through a third party company such as Solar City.




This Seattle homeowner leased their solar electric system,
and it will still return in less than six years!


For most homeowners who ultimately purchase their solar system, they came to the same conclusion: if they leased a solar system, they would lose many benefits that owning gives them, such as the 30% federal tax credit, local incentives, and renewable energy credits, all in exchange for zero down. While the upfront cost is initially lower to lease the system, you pay for it over time. With a solar lease, a homeowner enters into a contract with a third party company, who essentially becomes a second utility with lower electric rates. The solar leasing company installs the solar on your home for zero down, and then charges you a few cents less per kWh than your current utility rate for all of the energy from your solar system, resulting in a lower electric bill.


However, this model doesn’t really insulate the homeowner from rising electric costs- most leases have built in annual escalators that increase your rate every year. Most leases are also a long term, 20 year contract with no options to buy out. When a system is owned, all of the energy it produces is yours- free of charge. It also insulates you from future energy rate hikes on all of the kWhs that you produce yourself. That’s why even with a $25,000 - $40,000 average investment, the return on investment is 4 - 8 years in the Pacific Northwest, and costs 50% less than leasing a solar electric system over time.



This solar installation produces over 6000 kwHs annually-
at .12c/kWh electric rate, that's over $700 in annual electric bill savings!


Don’t get us wrong- leasing isn’t all that bad. More solar on more homes is always a good thing, and the leasing model gave the solar market a way to survive while prices declined, and gave homeowners a way to accomplish their energy goals without having to invest their life savings up front. And for people who don’t plan to stay in their home very long, leasing is a great short term way to save on your electric bill and decrease your carbon footprint. But if you plan to stay in your home for more than five years, there’s no doubt about it- between the price of solar dropping more than 50% in the last two years and projected to drop another 40% in the next two years, owning a solar system is a significantly better investment for your home and for your wallet.


If you’re interested in learning more about a solar electric system for your home, one of our solar design consultants would be glad to help! Call SolTerra Systems at 800-865-9005 or email us at info@solterrasystems.com to get some answers!


Sources:
Clean Technica
Renewable Energy World

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