Going solar is an exciting investment when you consider the financial benefits and environmental impact you’ll have. But when the time comes to switch to clean energy, you might ask yourself: Should I buy or lease solar panels?
At Namasté Solar, we believe the long-term benefits of owning your system far outweigh leasing solar panels, even if the latter option looks like a simpler solution at first. For example, those who lease do not have to worry about putting down a down payment, or be the ones to handle insuring their system and maintenance.
Let's look at the reasons why owning your system will put you further financially ahead than leasing would.
Missing Out on the Federal Tax Credit
For the remainder of 2020, there is a 26% federal tax credit available to those who invest in solar panel systems. In 2021, the tax credit will drop down to 22%; then in 2022, it will decline to zero for residential systems. With the 26% tax credit available, there is an average savings of $5,700 on residential solar systems, assuming an average size of 7kW.
When you lease solar panels, you miss out on the tax credit because it instead goes to the leasing company. However, if you own your own solar panels, you will be the one to reap the financial benefits of the tax credit.
Lease Payment Increases
Many solar panel leases contain clauses stating that each year your payments will increase by a certain percentage. For example, if during your first year you’re paying 12 cents per kilowatt-hour and your payments are increased by 3% each year, by year 15 you’ll be paying 18.2 cents per kWh. If you’re located in a state like Colorado where the cost of energy doesn’t rise as quickly as your lease payments, you could be looking at very little, if any, savings.
While trying to decide whether to buy or lease solar panels, this is an especially important consideration. Are you really saving money when you lease your system? Or are you trading out paying a utility company for a solar leasing company?
When you own your PV array and have paid off the system, you don’t have to worry about rising utility costs or lease payments – you can simply enjoy the benefits of free power once you’ve seen the return on your investment.
Selling Your Home
This is where things can get a bit complicated. If you’re leasing the solar panels on your roof instead of owning them, that could turn selling your home into a cumbersome and expensive process.
Since there is a lease on the solar panels on your roof, the house has a lien, which is a claim a lender has against a lessee’s assets – such as a house or car –that can be used as collateral to repay a debt. A lien prevents the homeowner from selling or refinancing the house without first notifying the leasing company. If you own the system, then there would not be a lien on your home.
When selling your home to a new buyer, you would have to transfer that lease to the new homeowner, and they must qualify with the leasing company. It could make your home more difficult to sell because the new homeowner would be taking over a lease that goes up in price every year. The new buyer’s decision whether to take over your lease could also depend on how well the system was installed and the quality of panels.
If the buyer wants the system but not the lease, the seller can prepay the remaining amount to the leasing company so the new homeowner can have the solar panels without the monthly lease payments. The pre-paid lease would be transferred to the new homeowner who won’t have to worry about insurance or maintenance on the system until the lease is up. If the new buyer doesn’t want the system or the lease, you could be stuck having to buy out the system, have it removed, and repair the roof. Both options require out-of-pocket costs to the seller they may not have planned for.
When you own your solar panels, however, the transfer of ownership is simple, and the system adds value to your home. A 2015 study, sponsored by the Department of Energy and conducted by the Lawrence Berkeley National Laboratory, found that a 6 kW solar system can add an extra $24,000 in value to your property. These findings were confirmed again by a 2019 report from Zillow that found that homes with solar panels installed sold for an average of 4.1% more than non-solar homes.
Solar Panel Quality
When you lease solar panels for your home, you’re essentially allowing a third party to lease your roof space. As a result, you don’t get much say over the quality of the panels because you don’t own them. This could result in not having the most efficient panels because the leasing company is most likely using the least expensive panels on your home to maximize their profit. The leasing company has no incentive to boost the homeowner’s savings by installing more energy efficient panels.
When you own your solar panels, you take control. You get to choose which solar panels you have installed on your home and have more say so in the aesthetics of your set up. If having a say over the quality of your panels and how your system will look is important to you, this is an aspect you should consider when deciding whether to buy or lease solar panels.
End of Lease
When you reach the end of your solar panel lease (typically 20 years), you have a couple of different options. You can continue the lease at a new rate which is going to be typically higher; you can have the leasing company de-install it which could involve extra fees; or you can purchase the system at a fair market value, which is the price that your system would sell for on the open market.
None of these scenarios are financially ideal and could be avoided by owning your solar panels from the beginning. In addition, a high-quality PV solar array should last for more than 30 years. So, when owning your system, your savings increase over time and get better the longer you own it. With leasing, the lease payment continues to increase which reduces your long-term savings.
Buy – Don’t Lease
When you are getting your solar panel quotes, consider what a company is offering when they give you the option to lease. It may look like a better deal initially, but it doesn’t add up in the end. That’s why Namasté Solar no longer offers leasing options. At one point in solar history, incentives to lease made it make sense; however, those incentives have since depleted and we found that ownership offers many more financial benefits to customers.
We want you to get the most savings from your system, and the best way to do that is to own your system. You’ll have total ownership over your power-producing asset, contribute to making a difference using clean energy, and find yourself with much more solar savings.