Lease Or Own Solar Panels?
Solar Power: Rent vs. Buy
Do you know there is a power plant in the sky? This power plant rises in the East every morning and sets in the West every night.
In case you have not figured it out: This power plant is called “THE SUN”.
Through a process called nuclear fusion---when atoms of hydrogen in the sun stick together and form a helium atom---the sun produces energy. Here is some great news:
- The energy the sun produces per second can fulfill the entire population of the earth’s power needs many times over!
- It only takes about 8 seconds for this energy (light) to travel to the earth!
- Chances are that the sun will continue to exist for another 4 or 5 million years!
Scientists discovered this energy, the sunlight, and then find ways to transform it into electricity. A solar array, also called a photovoltaic array, is a set of solar modules electrically connected and fixed on a supporting structure. A solar module is made up of individual solar cells. A solar cell is an electrical device, usually made of silicon, that can transform sunlight into electricity.
In 1977, President Jimmy Carter stated, “Because we are now running out of gas and oil, we must prepare quickly for a third change, to strict conservation and to the use of coal and permanent renewable energy sources, like solar power.”
Do you know that President Carter installed 32 solar panels on the White House in 1979? Even though these panels were pulled down nearly two decades later, now when we look at the ever-increasing popularity of solar power, especially among homeowners in recent years, President Carter’s words and action have proven prophetic.
Costs Of Electricity!
Monthly Savings Estimate!
President Carter was not the only one in the U.S. who was concerned about gas and oil shortage---it is one of the main reasons why more and more homeowners desire to go solar. Several other common reasons include:
- The process of converting solar energy into electricity does not produce harmful emissions that hurt the environment.
- Solar power can help reduce utility bill and save people money, immediately and over time.
- There is an emotional satisfaction in having some energy independence.
- There is also a financial satisfaction in knowing that the continual rising of utility rates will have less effect on their future money.
- Study shows that solar power systems can increase the value of the house.
Since there are so many advantages of equipping the homes with solar power, then why are solar power panels not sitting on top of every home? The biggest thing that is holding homeowners back is the high upfront cost of buying the solar power system.
Sunlight is free, but converting solar energy into electricity into your house is NOT.
Buying the Solar Power System Can Be Pricey
Exactly how much it will cost to install a solar power system varies---it depends on the size of the particular house, the amount of electricity the house owner needs, the specifics of the house (e.g., which direction does your roof face and are there trees around your house), and some other factors.
To give you a general idea: typically, homeowners would choose among 3 to 7 kilowatt solar power systems (a 3kW solar power system means it produces 3kWh electricity per hour under sufficient sunlight) and spend between $18,000 to $40,000. The following information provided by a solar company shows what you will likely be paying for: (Source: http://www.sunrun.com/solar-lease/cost-of-solar/)
Cool Solar Gadget Of The Month!
Costs Of Solar Panels and Installation!
Equipment Costs ~ 45%
Installation and Permitting Costs ~ 25%
Permits and Fees
Maintenance and Operational Costs ~ 30%
Additional Operational and Overhead Costs
It's An Investment!
Buying and installing the solar power system onto your house can be appropriately viewed as an investment. Gregory Barker, British Energy and Climate Change Minister, even “suggested people would be better off installing solar panels on their roofs than investing in a pension” (http://www.moneywise.co.uk/home-mortgage/improvements/are-solar-panels-good-investment) However, just like any other investment, many people simply do not have that much money to pay upfront.
Just like: I love the idea of making money by selling pizzas, but I do not have $265,000 to start a pizza shop!
Tax Credits, Incentives, and Rebates To The Rescue!
The good news is that federal, state, and local governments offer tax credits, various financial incentives, and rebates to encourage homeowners to go solar. The federal government allows homeowners to deduct 30% of their solar power system installation costs off their federal taxes.
For example: If you buy a solar power system that costs $20,000, you will pay $20,000 upfront, and then you can receive a credit of $6,000 when you file taxes the following year. In addition to federal tax credits, some states offer incentive programs that can cover up to an additional 30% of your solar power system cost. The incentive program rules, requirements, and definitions vary among states. To find out more about the incentive programs in a particular state, check out www.dsireusa.org.
By the way, these incentive programs are designed on a first-come-first-served basis. Meaning that there is a set amount of allotted funds, and as more people go solar and consume the funds, the rebate amount per home will continue to drop. In other words, if getting the rebates is your motivation to purchase a solar power system, you might want to do it sooner than later. Just a heads-up.
The graph below shows you how wonderfully the federal credits and other incentive programs can bring down the solar costs.
Costs By State!
Renting Is An Option!
If you really desire to enjoy the benefits of using solar energy in your house but are just sincerely against spending so much money upfront, you can explore two other options: using solar lease, or using a solar power purchase agreement (PPA).
Now you might want to first check and make sure that your state allows solar leasing---some states do not.
Solar lease and solar PPA are very similar. Basically, if you choose to go this route, you will be paying the solar company for the solar energy you enjoy while the solar company owns the solar power system and takes care of the installation and maintenance of the system---very similar to renting a house or getting cable service.
The main difference between these a solar lease and a solar PPA is: what you pay the solar company for.
When using solar lease, you pay a monthly fee for the whole system, and then you enjoy all the electricity that the system generates. When using solar PPA, you pay for the solar-powered electricity you use monthly. You can also choose a “pre-paid” solar lease or solar PPA---in that case, you will pay 20 years’ (or however long your lease term is) worth of monthly fees or solar power payment upfront. They are very similar to buying the solar system except that the solar company maintains the ownership.
Recommended: Build A Solar Panel!
What To Expect If You Rent!
When you choose to rent a solar power system (either solar lease or solar PPA):
- You pay very low or $0 down payment.
- The lease terms are usually for 20 years.
- The monthly fee or the solar-powered electricity rate may be fixed or may rise annually. (Note: This is something you want to get detailed information on when talking to the solar company.)
- Just like buying the solar power system, the monthly fee or the electricity rate varies from house to house.
- The solar company owns the system.
- The solar company is responsible for monitoring the system’s performance, maintaining and repairing the system, and replacing inverters.
- The federal tax credits and other financial incentives and rebates belong to the solar company.
- Should you decide to sell your house before the lease term ends, you can choose to either transfer the remainder of the lease to the buyer or buy the system and sell it along with the house.
- At the end of the lease term, you have three options: (1) buy the system, (2) have the system removed at no cost to you, or (3) renew the lease.
Cool Solar Project!
How Can Solar Power Save You Money!
The promise of saving money is the biggest motivation for many people who choose to go solar. Since how much it will cost each person to buy or rent the solar system and how much electricity each person will need over an extensive period of time varies, it is hard to calculate exactly how much money one can save by switching to solar power. Many homeowners report that after they started using solar power, they had a 50% cut back on their electricity bills.
If you choose to rent the solar system, you will have a monthly lease payment, but your new electricity bill plus this monthly fee will still be less than your original bill; hence you can immediately rejoice in the money you get to save. You just need to make sure that if your monthly fee has an annual increase, the increase rate is not too high that, a few years down the road, you end up paying more than what you would have paid had you not gotten the solar power system.
If you choose to buy a solar system, you will spend around or more than $10,000 upfront, and thus you probably will not feel the joy of saving money right away. However, with your new-gained energy independence and an increase on your house value, you can expect to see clearly the amount of money the solar power saves you in a few years.
SREC's Help You Earn Money
Talking about saving money, you might like to know about Solar Renewable Energy Certificates (SRECs). In states that have Renewable Portfolio Standard (RPS) legislation, it is required that a certain percentage of electricity be produced from renewable energy sources. To meet this requirement, energy utilities will “buy your solar power.” Once your system is certified, you can apply for SRECs.
For every 1,000 kWh of electricity produced by your solar power system, you receive 1 SREC. You can then sell this SREC to energy utilities for anywhere between $100 and $600. In other words, you earn extra money by using solar power!
This benefit is available only if you own the solar system or use prepaid solar lease/PPA. If you choose to sign a $0-down solar lease, then sorry, SRECs are not available to you. This is just one more thing for you to think about before you decide whether to buy or rent the solar system.
Should You Rent or Should You Buy?
Take a look at the differences between renting and buying solar systems:
Renting Solar Systems:
- Low or $0 upfront cost
- No offsets from federal tax credits, incentives, or rebates
- Solar company is responsible for maintenance, repairs, and monitoring the system’s performance
- Potential issues should you decide to sell the house before the lease term ends (you might lose some potential buyers due to their dislike of inheriting a solar lease)
Buying Solar Systems:
- High upfront cost
- Tax credits, incentives, or rebates can reduce the cost
- You own the system, so you are responsible for maintenance and repairs
- You may need to pay about $100-$200/year extra to have your system’s performance monitored
- Increase in property value
Should You Lease The Solar System?
You should rent or lease your solar panels if:
- You really do not have (or want to pay upfront) a large amount of cash
- You do not want to worry about any maintenance or repairs.
- You are not excited about filling out all the paperwork needed to receive tax credit, incentives, and rebates.
- You will never sell your house.
How Solar Panels Work On A Home!
Should You Own The Solar Panel System?
You should buy the solar panels for your home or shop if:
- You have the ability to pay for the system (whether out of your pocket or borrow at low rates).
- You are acquainted with finance and know how to benefit from this investment.
- You plan to sell your house in the near future.
If you are leaning more towards to buying the solar system, the good news is that the cost of a system most likely will continue to drop.
The Energy Department’s goal is to reduce the cost of solar power to the point where solar power “can be fully cost-competitive with traditional energy sources by 2020” (http://energy.gov/eere/sunshot/sunshot-initiative).
You are encouraged to get quotes from several solar power companies to make sure that you get the best deal available. Remember to explore all possible payment options before you make the final decision.