Owning Vs Leasing Solar Power in Phoenix, AZ
Installing a solar energy system on your house is one of the best ways to reduce your carbon footprint, help the environment, and save energy costs. As solar energy technologies continue to develop with innovative new designs and more cost-effective materials, more and more people are turning to home-based solar systems for their energy needs.
Once they have made the decision to go with solar, though, many people find themselves facing an even more challenging question: whether they should lease or own the solar system that they decide to have installed on their home. This is a crucial decision because it will not only impact the short- and long-term costs and benefits of switching the solar, but also matters such as maintenance, offsets and tax credits, property value, insurance, terms, and maintenance.
If you find yourself in this situation, here are some of the main pros and cons for each option to help you decide. And remember that your best course of action is always to contact a solar energy specialist who can help you work out what the best plan is for your particular property and situation.
Buying your own solar panel system means that you possess the equipment, either outright when paying with cash or after repayment of a solar loan from a solar power financing company. Most loans from a solar power financing company are for terms of 10 years to 20 years, with interest rates that vary from 3 percent to up to 8 percent depending on your particular FICO credit score (most solar power loans require a score of at least 640).
When you buy your solar panel system, you are effectively switching your home’s energy source while also making an investment in your property.
Pros of owning your system:
• Perhaps the primary benefit of owning your own solar energy system is that, beyond the environmental benefits of using solar energy, it will maximize the financial return from your investment by simultaneously reducing energy costs and increasing property value.
• After factoring in discounts and tax incentives and accounting for differences in properties, owning a solar energy system will save you between 40 percent and 70 percent on your total electricity costs over the entire life of your system. For the average American home, this comes to approximately $1,500 per year. Under most purchase plans and given the average consumption of energy per home, the typical solar energy system pays for itself after just 5 years to 7 years of operation.
• Owning your own solar power system means that your electricity is free—your only cost being repayment of your loan or recovering the cash payment that you made for the system. Because most loan periods are between 10 year and 20 years and the life of most solar energy systems is around 30 years, owning your own system means you will be enjoying entirely free electricity (except for maintenance costs) for a period of 10 years to 20 years.
• When you own outright the solar power system, it adds to the market value of your property. On average, each watt of solar power adds approximately $4 to the value of a home, or, in other words, a solar energy system will boost the value of a home by between $15,000 and $30,000 (note that this is the same as the purchase price range of most solar energy systems). Or put another way, according to a study done by Money magazine in 2019, the installation of an owned solar energy system will increase the value of the property by about 4.1 percent. The National Renewable Energy Laboratory has found that homes that have fully-owned solar systems installed on them sell 20 percent faster and for 17 percent more overall than homes that do not.
• In order to access all of the state and federal tax benefits and deductions that are awarded for solar and alternative energy use—including the federal investment tax credit—you must own the system generating the power. In some areas, rebates available to system-owners can amount to $6,000 per kilowatt and there are tax credits of up to 30% off the cost of buying and installing the system. In addition, the interest on most loans for solar purchases is tax deductible as well.
• When the solar power system that you own generates a certain amount of energy (typically 1,000 kilowatt hours of energy), you can obtain a Solar Renewable Energy Certificate. These certificates can be sold to a power company as a way for the company to claim credit for obtaining a certain portion of their electricity from renewable energy sources. The value of the certificate varies depending on the market, but it is usually around $100 to $200, and the typical home-based solar energy system can generate between 4 and 8 certificates per year.
• If you place the solar system on a business structure or you have a home business, the system is a depreciable asset for purposes of calculating profit-and-loss and taxes.
Cons of owning your system:
• Purchasing a solar energy system can cost between $15,000 and $30,000, though rebate, credit, and discount programs do exist that can reduce that total cost by up to 50 percent in places.
• When you own the energy system, you alone are responsible for maintaining, repairing, and upgrading it. Reputable solar energy installers will provide a warranty on their equipment—and often the opportunity to purchase extended warranties as well—so some of these costs, particularly early in the system’s life, will likely be covered, at least for the first ten years (on average).
• In some situations, buying solar equipment and installing it on your property can slightly increase the cost of your homeowner’s insurance (because of the value of the equipment and because the value of the property itself will go up).
When you lease a solar panel system, the equipment remains the property of a third party and your sign a lease or (if permitted by law in your area) a power purchase agreement with that company. With a lease, you pay a fixed monthly amount for the panels and associated equipment; with a power purchase agreement, you pay only for the power that the panels produce each month. Most power purchase agreements and equipment leases are for a period of 20 to 25 years and, upon their conclusion, provide the option to renew the agreement or lease or to purchase the system.
When you lease your solar panel system, you are essentially switching your home’s energy source without adding to the home’s value. That is, leasing a solar energy system is a commitment, not an investment.
Pros of leasing your system:
• Leasing a solar energy system allows you to get the equipment set up on your property for little or no money down up front, resulting in savings from the first day of operation.
• The average savings on electricity when you lease a solar power system are between 10 percent and 30 percent, depending on the nature of your property, the terms of the lease, and any incentives available in your state.
• When your solar energy system is owned by a third party, they are responsible for almost all of the maintenance and repairs resulting from normal use of the system. This, however, depends entirely on the terms of your lease, so be sure to read it carefully: some leases stipulate that certain kinds of maintenance are the property-owners responsibility, and some even require that your homeowner’s insurance cover their system.
• Many lease programs provide free apps or web portals that allow you to track the performance of your solar energy system.
Cons of leasing your system:
• Solar systems that are leased, rather than owned, do not provide any increase to the market value of your property.
• When you lease a solar energy system, you will not be able to avail yourself of the special rebates or incentives, which, instead, will go to the third-party owner of the system.
• When leasing, your energy savings are dependent upon whether or not the future costs of electricity remain stable, go up, or go down. Most solar power companies only offer leases with escalator clauses that increase the amount of payments by about 3 percent each year, under the assumption that energy costs overall will go up by that amount as well. If costs from competing utilities go down below your lease payment rate, though, you will end up paying more for energy than you would if you were not locked into the lease.
• Leasing, rather than owning, a solar power system renders the property ineligible for state or federal tax credits resulting from alternative energy use, but the third-party owner of the system will have access to those credits.
• If, at the end of your lease period, you choose to purchase a system that you have been leasing, the equipment (which will, by that point, be between 20 years and 25 years old) will likely be more outdated, more worn, and less efficient than a new system would be.
• Leasing a solar energy system can make it harder to sell a property because any buyer of the property will also need to be willing (and financially able) to assume the lease themselves—otherwise, you will have to be willing (and financially able) to buy off the remainder of your lease in order to sell the property. Some solar power companies will allow you to move the system from one property to another, but this often comes at a cost of $1,000 or more, and is dependent on whether the new property is appropriate for the existing system.
Deciding to switch to solar energy for your home is a major decision, and there are lots of options and variables to consider. For the reasons outlined above, many homeowners come to the conclusion that owning their own solar energy system is the best option for them in the long run, but everyone’s situation is slightly different. As you research your options, be sure to carefully compare details about solar financing packages, lease packages, and quotes for system installation and operating costs.