Should I Lease or Buy My Solar System?

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Should I lease Or Buy My Solar System

The main difference between buying vs. leasing your solar system is the question of ownership. When you lease your solar system or sign a power purchase agreement, a third party owns the system, whereas if you buy your solar system, either outright or through a financing loan, you own the system. This distinction significantly affects the overall cost of switching to solar and the long term return on your investment.

Solar panels on a roof

Why Buy vs. Lease Solar?

At Smart Solar Energy Co., we typically always recommend buying, rather than leasing, your solar system, for several reasons. Buying your own solar is usually the smart choice, for four main reasons:

  • Incentives: Buying your solar system allows you to partake in the generous federal, state, and utility incentives available to homeowners who buy solar systems. These incentives drastically reduce the cost of switching to solar, and those who rent their systems are ineligible for solar incentives.
  • Financing options: With attractive, low-interest solar loans available through local banks and credit unions, purchasing solar is more affordable than ever. Homeowners who buy their solar systems can spread their purchase across several years, just like you would with a car loan, and avoid paying any upfront costs.
  • Increased home value: Purchasing solar panels increases the value of your home by an average of 3%, which can often exceed the cost of the solar panels themselves. Homeowners who switch to solar can pocket this money when they sell their home. Homeowners who lease their solar, on the other hand, can run into challenges when trying to sell their home. They must either find buyers who are willing to take over the solar lease or the sellers must pay off the system in its entirety.
  • Maximize long-term savings: Buying your solar system allows you to benefit the most, financially, in the long run. By owning your own solar system, you save tens of thousands of dollars on your lifetime power costs.

Additionally, there isn’t much of an upside to leasing your solar system. There are certain types of purchases that might make more sense to lease, rather than buy—like a car. When you lease a car, you’re not responsible for maintenance to the vehicle, which can be a huge benefit. Alternatively, when you buy a car, its value depreciates rapidly, which means it’s not much of an asset and you stand to gain very little if and when you sell the car. Solar, on the other hand, depreciates very slowly, and most solar panels and installers provide robust maintenance warranties. When you buy solar, you don’t have to worry about unexpected maintenance costs, because those are covered by your solar warranties. Most solar systems are guaranteed to produce at least 80% of their initial energy production power for 20-25 years. At Smart Solar Energy Co., our solar panels are warrantied at 85% production power for 25 years. This means your solar panels will only depreciate 15% over 25 years—whereas a car depreciates by 90% in the first 10 years alone.

With that in mind, let’s dig in to the benefits we mentioned above to better understand all of the reasons we recommend buying vs. leasing your solar system.

Incentives

There are a variety of lucrative incentives, including the Federal ITC, that have been put in place in order to lower the barrier to entry for solar, making it cheaper and less intimidating for homeowners on any budget to make the switch. These incentives are only available to those who purchase their solar systems, rather than lease them. When you make the decision to lease your solar system, you’re essentially saying no to free money from the government.

Let’s go over each incentive:

  • Federal Solar Incentive Tax Credit (ITC): The US government incentivizes homeowners to make the switch to solar by offering an eye-popping dollar-for-dollar tax rebate. The Federal ITC lowers your tax obligations to the tune of 26% of the overall cost of your solar system. Because this is a rebate, not a tax credit, your overall tax payment will be reduced, dollar-for-dollar, at 26% of the total value of your solar system. This means that, if you purchase a $15,000 solar system, your federal tax obligations will be reduced by $3,900 when you file your taxes for that year. There is no limit to the credit amount you can receive, and there is no limit to the number of homeowners who can receive this credit. The 26% rate applies to solar projects of any size that begin construction in 2021 or 2022. The credit will be reduced in 2023, to 22%, and in 2024, the credit goes away entirely for residential solar installs.
  • Energy Trust of Oregon (ETO) Cash Rebate: Oregon homeowners benefit from the Energy Trust of Oregon’s cash rebate program when they purchase a solar PV system. The ETO offers this rebate in partnership with Oregon power companies. If your power company is Portland General Electric, you will receive a rebate of $0.30 per watt, up to $2,400. If your power company is Pacific Power, you will receive a rebate of $0.25 per watt, up to $2,000. This specific rebate is only offered to customers of PGE and Pacific Power, but many other utility companies offer rebates of their own as well. Find your utility company’s rebate policy here. In order to qualify for the rebate, your home must be inspected for a Total Solar Resource Fraction (TSRF) rating of 75% or greater. The TSRF is an indicator that accounts for the total amount of sunlight that your roof will collect in a year. TSRF factors in shade that falls on the roof, the roof’s orientation, and more. A TSRF rating of 100% would mean your roof receives all of the sunlight possible, and there are zero obstacles (like nearby buildings) that will obstruct the sunlight at all. Our Smart Solar Energy Co. free home solar audit includes determining your roof’s TSRF to identify whether you qualify for the ETO cash rebate. Even if you have a TSRF of 100%, you won’t qualify for this cash rebate if you lease your solar system.
  • Net Energy Metering: Net energy metering is a huge benefit, especially for homeowners in the Pacific Northwest, where solar systems often aren’t large enough to generate all of the power your household uses. This is because the average amount of shade homes receive and the typical roof sizes in Oregon and Washington make it difficult to install an excess of solar panels that would generate more electricity than the household needs. However, this is normal, expected, and you’ll still save money by going solar, regardless. When you have a grid-tied solar system, you are still connected to the power grid. During the times when your solar panels produce more energy than your home consumes, like in the summer, the excess energy gets fed back into the grid, and you receive credits for the power you provide to the grid. Then, during the times when your solar panels are producing less energy than your home consumes, like in the winter, you will draw from the power grid to supplement your solar energy. However, because you fed all that clean, green energy into the power grid during the summer, you won’t have to pay for the energy you draw from the power grid. Instead, the credits you received during the summer will be rolled over and cover your power costs in the winter, leaving you with a fraction of the power bill you would have had. This process is tracked by a two-way meter that is installed with your solar system. There is no limit to how long the credits can be rolled over. This is one of the biggest benefits of owning your own power production – you can essentially sell that power back to the grid to save money later. However, when you lease your solar system, you aren’t able to take advantage of net energy metering. The third party who owns your solar system receives these benefits, not you.
solar Net Metering diagram

Financing Options

These incentives above are only available to homeowners who buy their solar systems. When you combine the massive cost reductions of both the ETO rebate and the federal ITC, and factor in the long-term savings of eliminating your power bill with net energy metering, the costs of purchasing solar are reduced significantly. It’s clear that buying your solar system is a good investment.

And, to make the purchase as seamless as possible, if you opt to finance your solar system, you’ll pay zero dollars up front. Then, when your cash rebate and tax credit checks arrive, you can put all those dollars directly toward your monthly solar loan installment payments. If you follow this process, which we recommend, you won’t have to spend any of your own money for the first several years after installing your solar system. Then, once your financing period ends, you are insulated from ever-increasing power bills, because you’ll own your own energy source. You will only need to purchase power in the small amounts that your net energy metering doesn’t cover.

At Smart Solar Energy Co., we partner with a variety of local banks and credit unions that offer attractive, low-interest solar financing options to our customers. Contact us to find out more about your financing options.

Increased Home Value

When you buy your solar panels, the value of your home increases by an average of 3%. For a house worth $500,000, that’s $15,000 in additional value – which might be more than the cost of the solar system itself. You aren’t forced to wait until your loan is paid off before you can sell your house, because if you choose to sell your home before your solar system is paid off, the increased sale price will cover any remaining loan balance. However, if you lease your solar system, the value of your home will not be affected. In fact, it may be more difficult to sell your home if you choose to sell prior to the end of your solar lease (typically 20 years). Leasing your solar system adds some complexity when selling your home. You will have to choose between a hefty payment to pay off the rest of your lease, or you will need to find buyers who are willing to take over your solar lease.

Home For Sale

Long-Term Value

On average, power bills increase by 3% annually. This means that a power bill that costs $1,200 each year today could cost $2,500 annually 25 years from now. If your current power bill is $100/month, over a 25-year period, you will spend over $43,000 on that monthly power bill! However, if you buy your solar system, you’ll spend much less – likely somewhere between $7,000-12,000 (after incentives) spread out across the term of your loan. Then, when your loan is paid off, you will continue to produce your own power for free. Conversely, if you lease your solar system, your loan is never paid off, so you would lose out on almost $30,000 savings over 25 years.

Buying your own solar system doesn’t have to be an intimidating financial decision. In fact, it’s a smart financial choice that will save you tens of thousands of dollars, increase the value of your home, and it won’t cost you anything more than what you would have spent on your power bill in the first place! Contrary to what many might think, buying your own solar system doesn’t mean you have to make a big down payment.

We recommend finding out if your roof qualifies for solar as soon as possible. This way, you can make a decision about purchasing your solar system now (while the federal ITC tax rebate remains at 26%). The federal ITC rebate is a huge benefit, and in a few years, it will be gone entirely, increasing the overall cost of switching to solar for all homeowners.

Get a free solar audit to find out if your home qualifies for solar!

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