Once you’ve decided to install a home solar panel system on your roof, it’s time to decide how you want to pay for it. You have three options to enjoy solar energy and lower your electricity costs: buy it, lease it, or sign a Power Purchase Agreement (PPA).
Each method provides you with different benefits and drawbacks for your solar power system, especially in terms of financial goals, responsibilities, and ownership. To truly determine which one is right for your home and budget, you need to understand the difference between leasing vs. buying solar panels.
What Is a Solar Lease?
A solar lease is a financial arrangement where the company that installs your solar panel system retains ownership, and you pay a fixed monthly amount to use the system and receive any electricity it produces.
You'll make a monthly payment for the duration of your lease, and the solar installer is fully responsible for installation and maintenance. With this arrangement, you typically don’t pay any upfront costs for the residential solar installation, only the subsequent monthly "rent."
What Is a Solar PPA?
A Solar Power Purchase Agreement, or PPA, is a financial arrangement where you pay your solar company a fixed price per kilowatt-hour (kWh) for the power generated by the solar panels on your roof.
A solar PPA is nearly identical to a solar lease, but with this arrangement, the contract you sign sets a fixed price per kWh, usually lower than what the local utility company charges. With a PPA, the solar leasing companies are fully responsible for the installation and maintenance costs, and you typically don’t pay any upfront fees.
What Are the Differences Between a Solar Lease and a Solar PPA?
A solar lease and solar PPA are fundamentally the same product. You enter into a contract with a solar company to have them install a solar energy system on your roof, and you get to use the solar power that the system generates in your home, while they retain ownership.
The difference between a solar PPA vs lease largely depends on how you pay the solar company for that power:
- Solar Lease - You pay a fixed monthly "rent" to the company for the duration of the lease, regardless of how much electricity you use.
- Solar PPA - You pay a fixed rate for the amount of electricity you use, which can vary from month to month.
Should I Buy or Lease Solar Panels?
The decision over whether to purchase or lease solar often comes down to your current financial situation and long-term housing plans. Buying vs leasing solar panels are both ideal options in different situations, so you should thoroughly examine the pros and cons of leasing vs buying solar panels to determine which is right for your needs.
- Solar leasing might be perfect for homeowners who can budget for a flat monthly fee, but they don’t have the money on hand to buy the system outright, or can’t secure the loan.
- For other homeowners, buying a solar energy system outright or through a solar loan may be more suitable, especially if you’re looking to enhance the long-term value of your home for a future sale.
The Advantages of Buying Solar
Whether you're buying your solar panels upfront or financing your system over several years, there are many reasons to choose ownership:
Higher Long-Term Savings
A big reason for buying solar vs leasing is that buying your solar panels outright ensures significant long-term savings. Your solar panel system typically generates electricity for 25+ years, which helps lower your energy usage and reduce your electrical energy bills.
If you pay cash, you pay for the solar panel system immediately, and there are no future recurring monthly payments to make. If you finance, you have monthly payments, but you should still save money each month, and once you pay off the loan, all of the additional savings go right into your pocket.
Whether you buy the panels or get a loan, you will typically reach a point in 7 to 10 years where the amount of money you have saved equals the amount of money you paid for the panels. This is known as the solar payback period. Once you clear this period, you should start to see even greater savings on your monthly energy costs than ever before.
If you choose to lease or sign a PPA, your total savings will likely be more modest, as you will still pay the solar installer every month of your lease period, with no breaks or end date. Additionally, many leases and PPAs contain an escalator clause that can annually increase your monthly payments over the life of the agreement, which is usually 20 years, and sometimes longer.
Easier to Sell Your Home
When you own a solar panel system outright, it’s completely yours. That makes it easier to sell your home - often for more money than if you didn’t have solar panels. That’s a reason many homeowners prefer buying vs leasing a solar system.
While you can still sell your home if you sign a solar lease or PPA, your contract with the solar company can make the process more difficult. Since the solar installer technically owns the panels on your home, they have to be involved in any conversations over the transfer of ownership. You have two primary options for negotiating the terms of your deal:
- Pay off the remainder of your lease/PPA so you own the panels outright
- Convince the potential new owner of your home to take over the lease/PPA agreement
You should discuss the full details of both options with your solar company if you choose a lease or PPA, as the financing of your solar power will play a large part in the process you follow when selling your home.
Tax Credits and Incentives
When purchasing a solar panel system, you can take advantage of federal tax credits and state tax credits, which can significantly lower the cost of solar panel installation. Moreover, you can take advantage of local incentives such as net metering programs that can help you save even more on electricity.
If you lease, the solar installer gets the Federal Solar Tax Credit and any related state incentives because they own the panels. You have to get approval from the solar company to enroll in net metering, and because they own the panels, they reap most of those benefits, not you.
The Disadvantages of Buying Solar
When you buy a solar panel system, any monitoring and maintenance are your responsibility. You must keep an eye on your system to ensure it functions well, and if there is an issue, you have to pay to have it fixed. That said, some companies, like Palmetto, offer real-time system monitoring and maintenance plans to help with that process and save money on any solar maintenance needs.
Higher Upfront Investment
If you want to purchase a solar panel system, you need the necessary funds in your bank account, and even with the federal solar tax credit, the costs can be sizable.
If you don’t have the full amount to pay cash, you still have the option of securing a solar loan. Even then, you typically need to be in good financial health to qualify for a solar loan, and unfortunately, that is not the case for everyone.
More Insurance Coverage Needed
To protect your solar energy system, you may have to increase your property coverage. That can mean higher premiums, which can increase your budget if you aren’t prepared.
The Advantages of a Solar Lease
No Upfront Cost
One of the big advantages of leasing solar panels vs owning is that the solar installer bears the full cost of installation. Once you accept their terms and conditions, they will install the solar panel system on your roof at little to no upfront cost.
No Tax Liability Needed
To get value out of the federal solar tax credit, you need to owe federal income tax, so that the amount you owe can be reduced through the credit.
If you don’t have enough tax liability to take advantage of the tax credit, it may make more sense to lease your solar power, since the solar company can capture the value of that credit, and pass along some of that savings as reduced monthly payments.
No Maintenance Cost
Since the solar company retains ownership of the entire solar system after installation, they are fully responsible for ongoing monitoring and maintenance costs.
Lower and Greener Energy Bill
Leasing solar helps you save on your utility bill. When you use clean energy from your solar power system, you draw less power from the electricity grid, which means you're using fewer fossil fuels.
The Disadvantages of a Solar Lease
Reduced Savings Potential
A big disadvantage of leasing vs buying solar power is the long-term savings opportunity. Since you pay the solar company every month for the length of your lease, you will save money on your energy bills, but it’s typically not as much in the long-term compared to owning the panels yourself.
Tax Credits and Other Incentives
The solar company enjoys the tax credits and other incentives for installing solar, not you. They may pass along some of that value as lower monthly costs, but they’re still going to keep some of it for themselves.
No Increase to Your Property Value
Since the solar installer owns the solar panels, your home doesn't get any additional value out of having them on your roof.
Can Scare Off Potential Home Buyers
Once you enter into an agreement with a leasing company, you will have to involve them in the decision-making process if you decide to sell your house before the lease is up.
In most cases, you will have to buy the lease out to make it easier to sell your home, or the person interested in buying the home will have to assume the lease. Some potential buyers will be reluctant to assume the lease, which can increase the amount of time it takes to sell your home.
The Advantages of a Solar PPA
Little to No Upfront Cost
Once you reach an agreement with the PPA company, they start the installation process without you paying upfront costs. You get to start using renewable energy right away and start saving immediately as well.
No Need For Tax Liability
Much like a solar lease, a solar PPA may make sense if you can’t get value out of the federal solar tax credit through a reduction in income tax. (For example, if you’re retired and have no income, or are on an annuity.)
The company that manages your PPA can get tax credits for your system and can use some of the value of that incentive to reduce your monthly payments.
Zero Maintenance Costs
The responsibility of maintenance and repair of the solar panel system remains with the installer. They monitor the system and fix any issues, so you can continue to use solar power in your home without worrying about ongoing maintenance
Reduced and Cleaner Electricity Bill
You will lower your energy bill with a solar PPA. The electricity created by the solar panels means you’re paying less to the utility company to use their electricity. And because solar panels create green energy, you’re using fewer fossil fuels from the electricity grid.
The Disadvantages of a Solar PPA
Lower Long-Term Savings
You pay for the energy you use from the solar panels for the length of your PPA. While you will save money compared to not having solar panels, the amount you save typically isn’t as much as if the panels were yours, especially once you have passed the solar payback period.
Solar PPAs often span the entire length of the lifespan of solar panels, which averages 25 years. During that time, it can be difficult and/or expensive to end your PPA agreement if your plans change.
Selling Your House Is More Difficult
A solar PPA can make the process of selling your home longer and more complex. This is because you can't just pass over that agreement when selling your house without including the solar company in the decision-making process. Thus, potential buyers may not make an offer on your home if they are unhappy with the terms and conditions set by the solar installer.
No Tax Credits and Incentives
The solar company gets the tax credits that typically go to the homeowner. Even if they use those tax credits to lower your payments and pass along some of the savings, they’re still going to keep some of it for themselves.
This monetary benefit is one of the biggest reasons people go solar, as it can help lower the cost of going solar significantly.
Lease vs Buy? That is the Question
Is it better to lease or buy solar panels? When it comes to the decision of leasing vs. buying solar power, you should consider three things: budget, timing, and ownership.
- Budget: If you don't have enough money and/or you can’t get a solar loan, then leasing a solar system is a viable option, as you pay little to no upfront cost.
- Timing: With any investment you make, you typically expect to achieve something at the end of that process.
- Ownership: When you lease, the solar installer retains ownership of the system. If you wish to have total control of what happens to the solar panel system, then you must purchase it.
If you’re still not sure whether buying or leasing is right for you, talk to the solar experts at Palmetto to help you evaluate your options and make the right decision.
Leasing vs Buying Solar Panels
The choice between buying vs leasing solar power is something that you have to answer for yourself, based on your own home and budget, and it helps to understand all of your options before making that decision.
Both a solar lease and a solar PPA enter you into a solar contract you must abide by for the duration of the agreement. With a solar lease, you pay a fixed amount every month for the entire lease period, and a solar PPA has you paying a fixed rate per kWh for the electricity you use. In both cases, the solar installer retains ownership of the system and is responsible for monitoring and maintenance.
If you wish to enjoy the full benefits of your solar panel system, including increased savings, higher property values, and greater control, you should consider buying your solar panels outright. You can either buy it in full upfront with a cash purchase or finance it through solar loans.
If you’re thinking about going solar and want to maximize your benefits, then contact Palmetto today. Our experienced solar professionals can walk you through your options, explain the entire process, and take care of all the details on your behalf. You can get started today by using our Free Solar Design and Estimate tool to find out what system size is right for you.