Whether you buy a system or lease it, going solar is one of the best ways to save on electricity bills. That said, the financing option you choose influences a number of factors, including the costs, maintenance responsibilities, terms, savings, and the return on investment (ROI) of your solar panel system.
The main distinction between buying and leasing a solar PV system comes down to ownership: if you buy a solar panel system, you own it, either outright (if purchasing with cash) or after repaying your solar loan. On the other hand, if you lease the system or sign a power purchase agreement (PPA), a third party owns the equipment on your roof.
So, which is the right option for you? Unsurprisingly, it depends on your financial goals and preferences! Let’s break down the main differences between the two options.
A quick note about third-party ownership options
Interested in a solar lease or PPA? Keep in mind that not all companies offer these types financing solutions–and in some cases, they can’t provide those options even if they want to. Solar leases and PPAs are not legally permitted in some areas of the country. Confirm that your chosen provider offers the financing option that you want most!
Purchasing a solar panel system with cash or financing with a solar loan is your best option if you…
- Want to maximize the financial benefits of installing a solar panel system;
- Can take advantage of federal and state tax credits (i.e. have sufficient tax liability);
- Plan to install on a business, and can realize tax benefits by treating the solar panel system as a depreciable asset; and/or
- Want to increase the market value of your home by installing a solar panel system.
A solar lease/PPA is your best option if you…
- Want to avoid any responsibility for maintenance or repairs for a solar panel system;
- Are ineligible for federal or state solar tax credits; and/or
- Want to go solar, but prefer not to take out a loan or outlay cash to do so.
Compare and contrast: buying and leasing solar
Between the two options, there are practical differences in cost, maintenance, terms, and overall savings.
Installation cost
Key takeaways: You can both own and lease with $0-money down. If you lease your system, you won’t be eligible for tax credits and other incentives.
Solar loan/cash purchase
- Solar power systems can cost $15,000 to $30,000 before rebates and incentives.
- If you finance with a loan, you can get a solar panel system for little to no money down.
- Rebates, tax credits, and other incentives can reduce the total cost by up to 50 percent. For rebates in particular, solar installers commonly manage the paperwork and adjust your purchase price to reflect the net amount.
Solar lease/PPA
- You can get a solar energy system for little or no money down.
- You don’t qualify for tax credits, rebates, or incentives – those belong to the third party owner of the system.
- What you pay the third-party owner over the duration of your lease/PPA will likely be more than the cost of buying the equipment outright
Maintenance
Key takeaways: solar panel systems require minimal maintenance, but when maintenance is required, it is the responsibility of the system owner – either you (with a cash purchase/loan) or the third-party owner (with a lease/PPA).
Solar loan/cash purchase
- You own the system and are responsible for maintaining it. Note that solar equipment is durable and carries warranties, so you won’t have much maintenance to worry about.
Solar lease/PPA
- The solar company owns and maintains the solar power system.
Financing terms
Key takeaways: you can find solar loan options with terms as short as five years, and as long as 20 years. Leases and PPAs typically last a minimum of 20 years.
Solar loan
- Typical solar loan terms range from 5 – 20 years. Once you finish paying off your loan, you own the solar panel system outright.
- Interest rates typically range from 3 percent to 8 percent, depending upon a number of factors including your FICO credit score and term length.
Solar lease/PPA
- Solar leases and PPAs are generally for either 20 or 25 years, at which point you can renew your agreement or purchase the system outright for at market value price.
Savings/ROI
Key takeaways: people who own their solar panel systems typically save more money than those who finance with a solar lease/PPA.
Solar loan/cash purchase
- By owning a solar panel system, you can save between 40 percent and 70 percent on electricity costs over the lifetime of your solar panel system. Whether you fall on the higher or lower end of that scale depends on your location and the incentives in your state.
- After making back the cost of your solar panel system, you receive free electricity from your solar energy system throughout its life span (25+ years). Every bit of electricity you generate from your system helps decrease what you owe your utility company.
Solar lease/PPA
- Solar leases can help you save between 10 percent and 30 percent off your utility’s electricity prices, depending on your property and the incentives available to the third-party owner of the system.
- The solar electricity you generate isn’t “free” – you will pay the third-party owner of the system for these benefits throughout the duration of your lease/PPA.
Start your solar journey today with EnergySage
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