Should You Buy or Lease Solar Panels?
Last Updated February 16, 2024
By Michael Jones
Michael literally wrote the book on solar (it’s called The Homeowners’ Guide to Going Solar) and has been a solar consultant for over four years.
One of the most common questions we get when talking with customers about solar energy is whether it’s better to buy or lease solar panels. In fact, many customers come to us with preconceived ideas as to which way they should go, often based on bad advice they’ve received from a friend or a family member.
The answer to the question is almost always, “it depends”, which may sound like a dodge but it really is the correct response.
In this article, I won’t be directly advising on whether it’s better to buy or lease solar panels, since every customer’s individual circumstances are different. Instead, I’ll share with you the questions I typically ask my customers before I advise them on the best way to go.
Remember there isn’t any right or wrong way to go solar. Just what’s right or wrong for you. And we often don’t know the right way until after we’ve gathered enough data to make an informed decision.
But before we dive into those questions, let’s first clarify a few essential terms.
Solar Lease vs Power Purchase Agreement
It’s common for people to use these terms interchangeably, which often leads to confusion. They are similar to one another, but the differences between them do matter, so we should take a moment to explain them.
In a solar lease agreement, you’re essentially renting the equipment at a fixed monthly cost that primarily depends on the system size – just like when you lease a car.
A Power Purchase Agreement (PPA), on the other hand, involves no cost for either the panels or their installation, but you pay monthly based on how much electricity the system generates – just like when you purchase electricity from the utility company. Since the amount of power your solar panels produce will vary from month to month, so should your monthly bill.
Except that recently companies such as Sunrun have introduced a ‘levelized PPA’. Here the solar company still charges for the electricity the system generates, but divides the estimated annual production into twelve equal payments so the customer’s bill is the same each month.
This has the effect of making the PPA seem even more like a solar lease but the distinction remains. Leasing implies renting solar panels while a PPA is an agreement to purchase power.
Since leases are not common on Cape Cod and PPAs are very common, I’m going to default to the PPS term for the purposes of this blog post.
Cash vs Solar Loan
If you decide to purchase your solar panels, you’ve got two main options when it comes to paying for them. You can either pay for them with cash out of pocket or opt for a solar loan to spread out the cost.
Paying in cash is the most straightforward and hassle-free way to go solar. But not everyone has that kind of money lying around, especially if your home needs additional work before you can install the panels. A new electric panel or roof repair could tack on several thousand extra dollars to the cost. And if you’re paying cash, those are extra costs coming straight from your pocket.
That’s where solar loans come in, providing terms that cater to solar’s unique needs. What’s more, any home improvements you need can just be rolled into the loan.
You can expect interest rates in the 2.99% – 7.99% range, with loan terms from 10 to 25 years. Naturally, your credit score will impact your ability to secure a loan and determine what interest rate you’ll have to pay.
Keep in mind though; financing might bump up the system’s price tag thanks to dealer fees, which are loan origination fees that lenders add to the cost of the loan.
7 Questions to Help You Decide
Now that we’ve covered these definitions, let’s dive into the crucial questions you should consider before deciding if you should buy or lease solar panels.
1. How Old Are You?
My very first solar customer was an 86-year-old lady from Buzzards Bay. She was keen on switching to solar primarily for environmental reasons, yet she hoped to pocket some savings too. But a purchased system that might only start paying for itself after 5-8 years wasn’t likely to offer her the quick financial benefits she needed at that age.
If you’re further along in life, opting for a PPA is likely to be your best bet. For the younger crowd, well, it depends on…
2. How Long Are You Staying in Your Home?
The average American moves house every seven years. That could suggest you’re either eyeing a move soon or you’re planted where you are for the next several years.
Is your growing family bursting at the seams in your current home? Or maybe your kids are college-bound, and an empty nest looms on the horizon?
If you’re thinking of selling your home in the foreseeable future, a solar PPA might be wiser than buying. Otherwise, you’ll just be paying cash or taking on debt just to purchase panels that’ll largely benefit someone else.
Sure, going solar might increase your home’s selling price but that’s not always the case. And draining cash reserves or taking on extra debt may make financing that next dream home a little trickier.
3. How Much Power Do You Consume?
The amount of electricity you use is probably the biggest factor in determining the size, and therefore the cost, of the solar system you’ll need. If you’re living alone and your monthly usage is around 300 kWh, then a small and relatively inexpensive setup should cover your needs just fine.
But a home with an average electric bill of $600 a month will need a much larger installation, which could push the cost of purchasing out of reach, and make it more appealing to lease rather than buy your solar system.
When considering usage, it also makes sense to think about your future needs. Maybe there’s an EV in your future, or you’re thinking of installing mini-splits. Maybe the kids will soon be leaving or an elderly parent may need to move in.
These are all things that will have a huge impact on your electricity consumption and may become factors in determining whether you should buy or lease your solar panels.
4. How Much Sun Do You Get?
After consumption, sun hours are the next most important factor in determining the size of your solar system. And again, system size will have a big impact on whether you should buy your solar panels or sign up for a PPA.
Sun hours are the industry standard measurement for how much sun your rooftop gets, factoring in weather patters, shade and what time the sun rises and sets at different times of the year.
As you might expect, a home that gets 1200 sun hours is going to need a smaller system to generate the electricity it needs than one that only gets 800. And the difference in price between those two systems could be the difference between a purchase or a PPA.
5. Is Your Home Ready for Solar?
Before you get panels up on your roof, the solar company will inspect your home to see if it’s fit for solar. Sometimes, this review can turn up issues that need to be sorted out before they can install the system.
Whether it’s an electrical panel upgrade or a roof that needs replacing, there may be some cost involved and this is often where the PPA becomes the preferable option.
No, the solar company isn’t going to pay for your roof replacement, as some shady solar ads might imply. But the PPA does give them the opportunity to offer some creative ways to help with the financing of the roof.
If you’re purchasing the system though, home upgrade costs are either going to come out of your pocket or be added onto the solar loan.
6. What is Your Tax Situation?
Taxes play a big role in deciding if you should lease or buy your solar panels. It’s correct that you can cut down your federal tax bill with the Investment Tax Credit, but that all hinges on how much tax you actually owe.
Take retirees as an example, many of whom don’t have enough taxable income to take full advantage of the Federal Government’s 30% investment Tax Credit. These are tax credits, not tax rebates and they’re often cited as the number one reason people prefer to buy rather than lease solar panels.
But if you’re not able to take advantage of those tax credits, and that number one reason goes away, then maybe it makes more sense to go with a PPA rather than buy.
It’s crucial to have a chat with a tax professional about these matters to see just how much, if any tax incentives you might be eligible for. Never take tax advice from a solar rep, and certainly not one you found online.
7. What Other Financial Commitments Do You Have?
Taking out a solar loan or paying a large amount in cash are hefty financial decisions. They can mess with your credit score, your debt-to-income ratio, and might influence your future borrowing power.
Maybe you have teenage kids heading to college soon, which means there might be college loans on the horizon. Or perhaps there’s a new car in your future that you’re going to have to take out a loan to purchase.
Sometimes it’s smarter not to take on debt unless you absolutely have to, and a solar PPA is a great way to go solar without taking on debt.
Yes, a solar company will likely want a credit score of 650 or higher, but neither the credit check nor the signing of that PPA are going to affect your ability to borrow in the future. The way that paying cash or taking out a solar loan might.
Final Thoughts – Should You Buy or Lease Solar Panels?
The benefits of going solar are clear. What is less clear is whether you should buy or lease your solar panels. There really is no one-size-fits-all answer.
There is no right or wrong way to go solar. Only what’s right or wrong for you.
Ponder these questions while chatting with a solar expert and you’ll be guided toward figuring out if buying or leasing solar panels is the best move for you.
The job of a good solar consultant is to help you to determine if a PPA, a solar loan or cash purchase is the right way for you to go solar. If you’d like an informative, no-pressure chat with either of the Cape Cod Solar Guys, you can contact us here.
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