Options for a New Solar System
Based on his encounters with thousands of solar clients, Jim Gitas, CEO of Your Energy Solutions, offers the following observations on the different alternatives available for obtaining a new solar electric system:
A cash purchase of your solar electric system affords you, the consumer, all of the benefits that solar energy has to offer, without the liabilities of lien encumbrances on your property and long-term agreements.
- The highest return on your investment
- The shortest break even time
- Maximum monthly energy cost savings
- Full eligibility for available rebates and tax credits
- A 25-year system warranty
- Increased home value.
According to a publication issued by the Lawrence Berkeley National Laboratory, a home with solar will sell for an average of $17,000 more than an identical home without solar. The National Renewable Energy Laboratory also offers a useful guide when determining how much your property’s value will go up. According to its research, each additional $1 in energy bill savings (from your solar installation) adds $20 to your home’s total. While these are great articles worth reading, we believe a home with solar power has more curb appeal to a new buyer than one without, simply because it is detached from an electric bill, offering the new buyer long term savings. Putting it plainly: the amount of increased home values that results will always be a direct function of real estate market conditions.
Financing your solar electric system provides the same benefits as a cash purchase, with the exception of loan payments. You are able to select great solar equipment, own your system and pay for it over a range from 5 to 20-years. Financing is a great option if you want to hold onto your cash or have other investment plans. You can still claim the Federal tax credit even if you finance.
If your average monthly electric bill is greater than $100, you can typically realize immediate monthly savings by financing your solar electric system. Visit our “Finance” section to learn more about the options we offer through local Credit Unions, PACE financing, SunGage Financial, and Mosaic Financing.
With a solar lease, you “rent” the solar equipment installed on your roof, and the electricity it produces may help to lower your electric costs. Most lease terms are typically 20 years and require you to make monthly payments for the lease term. You never own the equipment, but you’re not responsible for it either, the lessor is. Solar leases are offered in several different variations: zero down, pay as you go, and pre-paid leases. While not all leases are bad, solar leases generally work best for individuals who have no use for Federal tax credits and are willing to accept small monthly savings on their electric bill with little or no money invested in the system.
If you choose a solar lease, you’ll forfeit some important benefits:
- Eligibility for rebates and tax credits.
- System ownership
- Longer equipment and workmanship warranties (beyond 20 years, the typical lease term)
It’s also important to note that most solar leases do not make provisions for high quality parts, nor do they encourage highly efficient solar panels or inverters. In fact, most solar leases favor cheaper, lower quality, less efficient, and less productive solar panels and inverters because the cheaper equipment favors the cost basis of the lessor that owns the equipment.
Most homeowners considering a solar lease are typically enamored by claims from the lessor, hearing “Don’t worry about it. If the system breaks or goes down, we own the equipment and we’ll be right out to fix it.” And this is a 100% true statement because all solar lease terms indicate that if the system goes down, the leasee is not responsible to make lease payments. Ask yourself this question: How can any company afford to install a complete solar electric system without you making any investment whatsoever? What’s in it for them? What’s in it for you?
Still leaning towards a solar lease? Consider this:
If you can qualify for a solar lease, then you can also qualify for most financing programs with fixed monthly costs, allowing you to maximize your savings over time.
Solar leases rapidly grew in popularity between 2008 and 2014, but a declining trend began to emerge in the United States in 2015 in mature solar markets due to market forces lowering the cost of system ownership. Many homeowners are now able to own a solar electric system using a finance vehicle that offers a monthly payment equal to that of a solar lease.
Financing vs Lease Payments
The main differences between financed vs. lease payments are:
Finance Payments: Remain fixed and allow the homeowner to have increased electric cost savings over time
Solar Lease Payments: Typically increase 2-3% per year, which erode the homeowner savings.
Selling Your Home
It is also very important to note that you could also be heavily penalized if you lease solar and need to sell your home during the lease period. With a solar lease, if the new buyer of your home refuses to assume the remainder your solar lease, it could cost you many thousands or even slow down your escrow process. This is often overlooked and the single most important factor in deciding whether a solar lease is right for you.
The Washington Post article “Why leasing solar panels may not be a good idea if you’re planning a home sale (Nov. 17, 2015)” says that potential buyers may be frightened by an existing solar lease on a home. They have to meet onerous credit requirements and make payments on the remainder of the lease term, often 10-20 years.
Meanwhile, Bloomberg states that “Rooftop Solar Leases Scaring Buyers When Homeowners Sell“.
What’s our view? Here’s a simple litmus test:
If you’re not certain you will be in your home for at least 20 years, do NOT lease solar.
If you must lease, we recommend you select a SunPower Corporation pre-paid lease. It is the best lease we’ve ever encountered, because SunPower Corporation directly leases the panels it manufactures (high-quality) without involving third-party lenders.
Power Purchase Agreements (PPA)
With a solar PPA, the solar equipment is installed for free by a third party owner, and you agree to purchase the electricity the solar panels produce at a lower rate than your utility company charges. Most solar PPAs produce small savings in the first few years of service but are marketed under the guise of “larger than life” savings with little or no money out of pocket at the inception of the agreement. Most solar PPAs terms are 20 years and require you make monthly payments for the agreement term. You never own the equipment, but you’re not responsible for it either, the third party owner is.
Solar PPAs are offered in several different variations: zero down, pay as you go, and pre-paid.
Most solar PPAs are very restrictive: they prohibit you from adding additional solar panels that you may need for future electric power needs, such as a growing family, home addition, new hot tub, or electric vehicle. They also have the potential to cause problems in the escrow process if you decide to sell your home during the PPA term due to transferability clauses, credit requirements, and assignment clauses written into many PPA agreements.
Most PPAs are transferrable, but ask yourself, “Would I assume aging solar panels that were matched to meet the power needs for a different home owner?” Most people would not.
Many real estate agents hesitate to represent owners with solar leases and PPAs simply because most buyers don’t want to assume a mismatched, dated solar electric system complete with monthly payment obligations. Don’t take our word for it. Talk to a Real Estate professional you trust to gain their insight.
Clearly, purchasing or financing a system is a consumer’s best option, offering the highest return on investment, quickest break even period, maximum energy cost savings, increased home value, and eligibility for all rebates and tax credits. Most of the residential solar market is moving toward system ownership as market forces have made solar more affordable, manufacturers have made OEM warranty periods longer (up to 25-years) and installers have a higher experiential acumen affording their customers longer workmanship warranties.