To Purchase or Lease Solar Panels: Which Option is Best?

A few blogs back, we talked about the costs and benefits of whole-home solar battery storage for homeowners with solar systems. With renewable energy being the wave of the future and Reach Codes requiring all new construction to have solar installed, many homeowners install solar panels on existing homes.

That begs the question: is it better to purchase or lease a solar panel system?

The initial cost outlay of buying can be daunting, making leasing appear less costly and more manageable. According to Consumer Reports and other sources, homeowners are better off purchasing than leasing a solar panel system.

Solar panel systems can range from $15,000 to $30,000, depending on the unit’s size. In addition to paying cash, there are several ways to finance solar systems, including HELOCs or solar loans, which have 10 to 20-year terms and interest rates from three to eight percent. At the end of the loan, homeowners own the system outright.

Those who lease systems will pay the full amount over the life of the lease, typically 20 years. Once the lease expires, homeowners must renew the lease or purchase the system, or the system will be removed.

Some leases have escalator clauses, allowing the monthly payments to increase a certain percentage annually. If energy costs don’t grow at a faster rate, any savings gained can evaporate.

Homeowners who purchase their solar systems and meet specific criteria can take advantage of federal tax credits and local incentives. These savings can offset up to 50% of the cost of the unit. Leasing a system does not allow homeowners to claim any incentives or tax credits. (Note: The federal tax credit is due to expire in 2022 unless Congress renews it.)

Homeowners who purchase a system with cash or through financing save 40 to 70 percent on their electrical costs over the life of the unit. That is considerable compared to the 10 to 30 percent savings for leased systems.

The other considerable advantage of purchasing a photovoltaic system is that it can increase your home’s market value. The same is not true of a leased solar system. Potential buyers may have to assume the lease’s remaining term, which some are reluctant to do. That can leave the homeowner having to buy out the lease or transfer the lease and system to a new residence if allowed.

Owning a solar system entails maintaining and repairing it, making some leasing arrangements seem more appealing since they include service plans. But, many of the issues that arise aren’t covered by the service agreement. Equipment issues typically fall under the warranty, and damage caused by storms or other “acts of nature” are addressed by homeowner’s insurance.

Speaking of homeowner’s insurance, if you install solar panels, be they owned or leased, inform your insurance carrier. Having coverage is crucial if you need to make a claim. Standard homeowner’s policies cover most solar units, but it is always best to inform your agent of any improvement in your residence.

If you’re considering installing solar panels on your home, all signs point to purchasing a system as a smarter long-term investment. You’ll save money on your energy costs, access renewable energy, be able to take advantage of federal tax incentives, and increase the market value of your home.

The Dawn Thomas Team guides nice people through Silicon Valley and Santa Cruz County real estate matters. Our mission is to help everyone find their place in this world. Contact us today, and we can assist you in selling or buying your home.

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