Solar Panels for Home: Lease or Buy?
With the global energy crisis, climate change, and soaring inflation, it’s highly likely solar energy will become a popular alternative to fossil fuels. To incentivize homeowners further, the federal government recently announced a 30% solar tax credit, making it the best time to install solar panels for homes!
At a time when solar power is becoming more popular and homeowners are thinking of installing a PV system, it’s important to consider how you plan to finance the panels. You have two choices: buying solar panels or taking them on lease.
While both of these methods have their share of benefits and drawbacks, the first option is more profitable for you in the long run. However, the second option isn’t bad either, as it helps you get started with solar even if you don’t have a lot of money saved at the moment. But if you have long-term benefits and tax incentives in mind, purchasing solar with an upfront payment should be your first choice.
Solar Panel Leasing
When you lease solar panels, you are taking the system on rent from a third party, or the solar company. The company is the legal owner of the system, and you pay them every month for using the panels, just like you pay your house rent.
You enter into an agreement for 20 to 25 years, and you have to continue the payment for the entire tenure. No need for a hefty investment at the beginning, but over the years, you end up paying more than the upfront cost of the panels.
- You don’t have to pay a lump sum for solar panel installation
- You enjoy lower utility bills
- Maintenance and other related costs are the solar company’s liability
- You can purchase the solar system in the future after the lease tenure ends
- Depending on your agreement, you might be able to transfer the lease to another person
- Suitable for those who do not have a tax liability
- You don’t get any solar tax incentives or rebates, despite paying a monthly fee
- Not much scope for long-term savings, as you’re spending the amount saved on utility bills to pay for the monthly lease
- You don’t own the panels, so it doesn’t add anything to your property value
- Solar leasing can complicate the home selling process
Buying Solar Panel
Buying is a straightforward procedure. You contact a solar panel company, they give you a quote, and once you agree, they install the system in your home against an upfront payment. After this one-time payment, you practically enjoy free energy for years.
If you’re not able to pay the entire amount at once, you could opt for a solar loan too, but it’s not a smart decision from a financial point of view. Why? Because you’ll have to pay interest on the solar loan, which will bring down your savings. So if you’re willing to install solar panels for home, try to have enough corpus saved to pay for the system upfront. The solar system will pay for itself over the years.
- The monthly savings on utility bills will begin to offset the initial investment within a few years
- You can enjoy the benefits of net metering
- You’ll pay a predictable cost for energy for at least 25 years
- The solar panels will increase the value of your property, in case you plan to sell it
- It’s a great option for people who have a high tax liability
- You own the panels, so you can enjoy the solar tax rebates and tax incentives
- Solar panel installation requires a lump sum one-time investment
- You are responsible for maintaining the solar panels
- Your home insurance premium would go up
At A Glance: Key Differences Between Solar Leasing & Buying
|Leasing Solar||Buying Solar|
|Doesn’t require any upfront payment; you pay for the lease every month for a particular tenure||Requires an upfront payment at the time of purchase|
|You cannot enjoy the perks of net metering||You can reduce your energy expenses further by taking the advantage of net metering|
|Not cost-effective from a long-term perspective||The solar panels pay for themselves in the long run, so it’s a great long-term investment|
|You don’t own the solar panel; the solar company is the owner||You own the solar panel system|
|You cannot claim solar tax rebates or incentives offered by the federal and state governments||You can claim solar tax rebates or incentives offered by the federal and state governments|
|Maintenance and repairing damage are not your responsibility||As you are the owner, you are responsible for maintenance and repair|
|You have to consult the leasing company before selling the property||Selling the property is not an issue|
|You can transfer the lease to another person||No such provision unless you sell the house|
|Leasing solar doesn’t increase the value of your property||Buying solar increases your property value|
What is A Solar Power Purchase Agreement?
Besides buying and leasing, there is another way for you to enjoy solar energy—through a solar power purchase agreement (SPPA). It’s a contractual arrangement where you pay for the amount of energy produced, instead of paying for the panels. The third party or the developer is the owner of the solar panel, and the homeowner has to bear the expense of the electricity purchased from the solar system. There are no tax benefits available for the homeowner.
Lease vs Buy: What’s the Best Option for You?
After considering the pros and cons of both arrangements, it’s time to decide what works best for you. If you have a high tax liability, and you can afford to pay the solar panel installation cost upfront, buying solar would be the ideal option. The solar panel will add to your property value, reduce your energy costs, and eventually, will recoup the initial investment.
But if you don’t have a lump sum amount saved to pay for the solar panel, or you’re not mentally prepared to make a big investment at the moment, renting or opting for PPA would be a viable alternative. You’ll enjoy solar energy against a small monthly fee, and there is no need for a large one-time payment.
After all, solar is a long-term investment. So make sure you’re aware of both sides of the coin before making a decision. If you want expert consultation on solar panel installation, or you want to resolve your queries, feel free to reach out to our team at KR Solar.