Updated on May 27, 2022.
You've read countless articles about residential solar panels installation and have made up your mind that solar is worth it, and you plan to install a solar system on your home or business.
Congratulations!
An adequately configured and installed solar energy system will return years of financial savings, put actual cash back into your pocket, enhance property value, and add peace of mind knowing renewable energy helps lower carbon emissions.
But, which is better, to purchase or lease solar panels?
There are three fundamental ways to pay for a solar energy system for home.
Dig into the family cookie jar and pay cash, get a bank loan, or lease the system from a third-party power purchase agreement provider.
Let's explore the comparison of these three choices.
What are leased solar panels?
Solar Panel Leases & Power Purchase Agreements
Often referred to as a power purchase agreement, the concept of leased solar panels first became fashionable about fifteen years ago, essentially as a fast way for solar installation companies to close sales as swiftly as possible in California.
The high-pressure solar lease marketing and sales tactic rapidly became successful primarily because leasing often did not require a cash down payment (or possibly a minimal down payment), nor did leasing involve tying up assets into a home mortgage loan.
What are the pros and cons of leased solar panels?
On the shiny surface, a solar lease appeared to be one of the best ways of paying for a solar installation. However, this is not the case. Leasing a solar panel energy system has complications one should be aware of.
First, you do not own your system. And, you give away all rights to your 26% federal tax credit. But wait, there's more; the leased solar system as a whole, now owned by a third-party leasing company, can be repossessed if you miss payments too.
When leasing a solar energy system (rent to own), the entire system belongs to the leasing company and not to you at all.
In principle, you are allowing the leasing company to permanently attach racks of solar panels, inverters, and other equipment to your house's roof and property, and you rent solar panels in exchange for a moderately lower electric bill each month.
One also usually relinquishes property rights of entry to the leasing company, meaning the leasing company may come to your home at any time to examine or show off the system to new prospects.
Solar panel leases can seem enticing because the salesperson presents a single point of signature for both the cost of the system and the installation of the components. But don't be misled. The truth is, the leasing company will own the system, not you.
Remember the solar ITC 26% federal tax credit you've read about obtaining from the US government when purchasing solar? Where does this tax credit go for leased solar panels?
Excellent question, because when you are leasing your solar energy system, the tax credit now belongs to the leasing company, not to you either. That's right, by renting a solar energy system rather than buying it means you relinquished a tax credit that would have equaled 26% of the entire cost of going solar.
Since an average residential solar system can cost about $15,000 to $20,000, this means you could be leaving about $3,900 to $5,200 of savings on the table for the leasing company to apply to their tax liability. Yep, they got that money too. What do you get?
You get left holding a lease payment due each month. And, those payments seem never-ending, usually between 15 to 25 years. And, leased solar systems are known to complicate the negotiations for selling the home in the future.
There are certainly solar lease arrangements which are beneficial, save money and operate professionally.
Just be sure to investigate deeply into these programs and understand the terms well before signing.
Is a solar lease worth it?
Bottom line, a homeowner who leases a solar system saves far less than someone who buys a system with cash or a loan.
Moreover, leases may include conditions that can further diminish savings by increasing payment amounts by 3 to 5 percent each year, ultimately reducing savings over time to nearly nothing.
Therefore, the cost and hassle of a solar lease make this choice for adding a solar energy system challenging but probably worth it. But, read the agreement closely.
Buy or lease solar panels
Purchasing Residential Solar by Secured and Unsecured Loans
There are two main types of solar loans: secured loans and unsecured loans for purchasing home solar panels in Florida. An asset, typically your home, guarantees a secured loan.
Secured solar improvement loans tend to have lower rates, with the APR usually falling between 3-7%, and more recently as low as 1.99% from reputable banks and loan institutions offering highly competitive programs.
Shop around for loans because interest rates can be as low as .49%.
Home equity loans and HELOCs (Home Equity Lines of Credit) are the most popular loans when purchasing a solar energy system.
What are the pros and cons of solar loans?
Paying for a solar energy system with a loan is reasonable because the money saved by having solar panels is substantial.
Sure, solar panel systems can have high upfront costs. However, one can frequently make money back in savings within an average of four to seven years of installing the solar energy system.
You can measure the amount of money saved by comparing the ongoing monthly utility bills against the cost of the loan.
Yes, you continue to receive a monthly utility bill even with an installed solar system because your system will remain grid-tied to the utility company.
Meaning, you are consuming energy from both the utility company and from your panels, often determined by the time of day.
But, the amount of money you pay the utility company significantly decreases because your utility energy consumption reduces drastically.
The exact amount of savings will depend upon the initially calculated kilowatt offset when purchasing the system. Adding backup Tesla Powerwall capacity consisting of battery banks can also improve performance.
For example, a home in Gainesville or Jacksonville, Florida, with an average monthly electric cost of $200, including a shingle roof of typical tilt, no shading from trees or other obstacles, may experience as much as $48,912 savings over a 30-year timeframe.
The following chart demonstrates that over 30 years, with the average inflation rate of 3.5% included, the cost of power with solar is about $3,600.
Translating to an average monthly energy cost of only $10. Thus, a $190 savings each month for 30-years!
Using the same example above, a system size of about 9.24 kW will offset 95% of the utility costs when using a solar panel calculator.
Second, using a national average price of $2.60 per watt for solar panels, the system's total cost is about $24,024. Armed with this information, let's calculate a 120-month loan at 1.99% interest.
The monthly loan payment is $221. The total interest paid is $2,489, a total of $26,513 for the system.
Now let's subtract the 26% federal tax credit of $6,893.from $26,513. This calculation immediately reveals the actual total cost of this solar energy system is now $19,620.
Continuing to calculate with averages, we can determine the monthly cost of this solar system for a period of 30-years. $19,620 divided by 30-years and then divided by 12 months reveals an average monthly cost of about $54 for the loan. Or, cash savings expressed in this manner;
Estimated 30-year cost of energy (from example) — $53,026
Minus total system cost with loan interest — $26,513
Minus 26% federal tax credit — $ 6,893
Rough Estimated savings with a loan — $19,620
Our example home's estimated $19,620 cash savings demonstrate that paying for solar panels with a loan can still return substantial money savings.
However, your calculations may differ because of market prices and personal credit scores, so be sure to investigate your loan thoroughly. Purchasing a solar panel energy system by loan appears to be worth it.
Paying Cash For a Solar Panel System
The good news is that paying cash for your solar panels is often the best option for regaining your investment and seeing quicker returns.
One of the most significant reasons to pay cash for your solar panels is the lack of interest costs.
Applying our example home above, paying cash would provide the most savings, both immediately and over the entire lifespan of the solar energy system—as much as $50,000 in 30-years.
Without question, buying a solar panel system is definitely worth it.
Leased solar panels on a house roof
Anyway, is it better to lease or buy solar panels?
Leasing solar panels versus buying may seem tempting, especially when a salesperson pressures for the signature.
However, buying a system through a loan or paying cash will provide much higher returns and far more significant savings.
Start calculating your solar system size and savings by contacting a PPM Solar representative today.
Your representative will personally answer all your questions and provide you with financial options for installing the system and collecting savings from the sun today.
PPM Solar is the right choice for installing the highest quality solar power system for your home or business. Having installed more than 750 solar systems in Florida, you can rely on our design and installation expertise!
It is important to note that farms, agriculture, and some grants for solar energy businesses have the occasional option to apply for the Rural Energy for America Program. Also known as the REAP Grant, this federal grant from the USDA can cover up to 25% of the cost of a new solar PV system. Only agricultural producers and rural small businesses are eligible to receive funding via REAP.
The objective of this program is to promote energy independence throughout the United States by making clean energy more attainable to the private sector.
Contact PPM Solar today for a commercial solar quote.