If you have the ability to purchase a solar system outright, I’m jealous.  For most of us, we are offered the options of leasing or financing.  Here are the pros and cons of leasing or buying solar.

 

Leasing Solar

Pros:

  • The entire solar system is usually warrantied for the length of the contract.  If something fails, the leasing company replaces it free of charge.
  • Most companies offer the option to buy the system during the leasing period.
  • No out of pocket upfront costs.
  • Leases can have a fixed price per kilowatt hour for the life of the contract.
  • State tax credits can be put towards lease payments for up to two years.
  • You are not responsible for insuring the solar equipment.  The power company will replace any equipment destroyed in a natural disaster, fire or other accident.

Cons:

  • The lease buyout price, even after five years, is often the same price that the system cost at the outset.  You would not be eligible for federal or state tax credits if buying out a lease.
  • The homeowner does not own the solar installation.  It will not increase the value of your home.  If you sell your home, the buyers would have to take over the solar lease contract in a separate transaction.
  • Lease rates can increase over time.
  • Despite solar panel costs being roughly the same no matter where you live, and the sun being free, solar lease rates vary wildly depending on where you live and the current price of your electricity.
  • You are trading one power company for another, but paying both.  The local power company will usually still charge a fee to keep your house hooked to the power grid.

 

Buying Solar

Pros: 

  • You directly benefit from the State and Federal tax incentives as well as any incentives from your local power company if they are offered.  This can cut the system cost in half.
  • Some states and power companies offer low interest 15-20 year financing programs with no additional fees.  These loans can be paid on your existing power bill.
  • A handful of states allow homeowners to buy, sell or trade Solar Renewable Energy Credits (SRECs).  SRECs are sold separately from the actual power and provide an additional opportunity to profit from your solar installation.
  • When you purchase a solar installation, it is considered a home improvement and can result in a substantial increase in value to your home.  If you sell your home, the solar installation is considered part of the house.  The buyer will be purchasing a home with little to no electric costs.
  • Once the system is paid off, there will be little to no electric costs.
  • Often there are no upfront costs.  Some companies require an out of pocket down payment, while others will include it in the financing.

Cons

  • Many banks offer loans with horrible terms.  Buyers may have to shop out loans with multiple lenders.
  • Homeowners will have to make sure the system is covered on their insurance.
  • Being able to purchase a solar installation may be dependent on your ability to be approved for credit.
  • You still have to pay to be hooked to your local power grid.
  • Any electricity you use beyond what you produce will be billed by your local power company at their current rate.
  • Inverters are usually only warrantied for 10 years, and panels for 30 or more.  Should a component of the system break outside of the warranty the homeowner must pay to have it repaired or replaced.