Since Renewables have gone mainstream from a few years ago, there has been a surge in different financing models from PPA’s to solar loans and leasing. This is on top of the conventional ownership model. Investing in solar is a big decision to make and one should first identify what your main goals are forgoing the solar route.
A fair amount of homework should also be done so you know you are making the right decision. A typical solar system normally has a lifespan of 25 years and even more. This makes it even more important that you consider all the in’s and out’s of the different options available to you. In this article, we go into looking at what solar leasing actually is and under what conditions it would be beneficial. Then we look at the solar PV system ownership model to understand when this would be an ideal solution.
At the end of the day, one needs to weigh up the pro’s and con’s of both and better understand your reasoning for going solar. A lot of the decision rests though on your current financial goals.
In the US the vast majority of solar leases are actually capital or financing leases. What is a capital or financing lease I hear you say? This is when the length of the lease is more than 75% of the expected life of the solar panels. The lessor usually includes a buyout clause in the contract allowing the lessee to buy the solar system at a discounted rate at the end of the lease.
Another type of lease that technically isn’t a lease is a PPA, this is actually an agreement entered between a property owner and a company that owns and installs the solar panels on the property. The owner of the property then purchases the clean electricity generated each month from the owner of the solar PV system.
One of the major advantages of solar leasing is that you don’t have to come up with a large sum of cash to pay for the solar PV system. Another advantage of entering into a solar PV leasing agreement is that the lessor is normally responsible for the maintenance and upkeep of the system. Although in general solar PV systems are generally maintenance free if quality inverters and panels are used and the installation is done properly. Also, recall solar PV systems generally have a lifespan of 25 years and more.
Some disadvantages to solar leasing are that it’s generally a long term agreement. One would typically sign a 15 to a 25-year contract with a lessor and a lot can change in the fast-paced world of renewables during that time! It can also create difficulties if one has to sell their house before the lease is up. The lessor would generally require the new homeowner to take over the lease but they may not want to or prefer to invest in newer technology.
Under a leasing agreement, you are generally locked into a set monthly price that is adjusted for inflation annually. Energy costs rise and fall as the demand for energy fluctuates and is normally quite volatile. Over a long period of time such as 15 to 20 years, it’s exceptionally difficult to predict where the price of energy is going.
Solar Leasing is an ideal solution if you are more interested in using electricity generated from renewable resources than the financial benefits from solar PV.
Purchasing a Solar PV System
Purchasing a solar system outright offers a great deal more flexibility and options than going the leasing route. There’s always an obvious advantage of having the cash upfront to invest in a solar system as this reduces the overall cost of the investment. Yet, financing through soft loans is also an approach that can be taken if laying out capital is a challenge. When going the financing route, one can expect interest rates in the region of 3 to 8% depending on your credit score.
A lot of states offer lucrative incentives and tax credits when investing in solar. One can expect almost 50% of the overall cost to be shaved off when all the different incentives are taken into account. According to the web site RGS Energy, the state of New Jersey offers some of the most lucrative incentives in the country. A recent ranking exercise completed by Solar Power Rocks gave the state of NJ a scorecard of A and comes first nationally with support for renewables. The average payback period for a standard-sized 5 to 6 kW rooftop PV system has an average payback period of 6 years. Also once can consider using a reputable smaller installer that is able to offer a better deal on the installation cost due to lower operating costs and also offer personal customer service.
Owning a solar PV system outright gives one a lot more flexibility in deciding the type of technology to opt for. The types of solar panels available on the market are staggering and this figure increases almost on a daily basis. Inverters too such as string inverters or micro-inverters. Micro-inverters improve the overall efficiency of a Solar PV system as they limit shading losses. Having options is always a good thing as it will allow you to maximize your solar PV investment. Purchasing your solar PV system outright will also give you the freedom to size the system appropriately according to your needs. When leasing a solar PV system you are generally limited in making choices on the type and size of the system to be installed.
When purchasing or financing a solar PV system, one can also expect electricity cost savings of between 40 and 70%. If you are choosing solar power for financial benefits then purchasing your solar PV system outright is the way to go. You also receive free electricity for the next 25 to 30 years, the average lifespan of a solar pv system. Leasing a Solar PV system one doesn’t get to take full advantage of the financial benefits as the lessor also has to make a return on their investment.
Owning a solar PV system also increases the value of your property and makes a home or business premises easier to sell. After all, everyone wants to be apart of the renewables revolution nowadays!
Owning a solar PV system means you will be responsible for maintenance but consider solar power is already quite a mature technology and if quality reliable panels, inverters, and installers are used then there should be relatively little maintenance. Also, system components such as panels generally have warranties that span 20 to 25 years. Inverters typically have 5 to 10-year warranties.
Own a business? Well as a business if you own a solar PV system then it will be on your balance sheet and there are certain tax advantages to this too such as treating it as a depreciable asset.
Investing in a solar system is a big decision and requires a lot of homework. Before making a decision on whether you should purchase or lease a system, take stock of what your goals are and what your financial limitations are. Every situation is different, and what is best for your property depends on a wide range of factors. By owning a solar PV system one can maximize their financial returns by saving on electricity costs and also have more freedom to decide on the size of the system and what technology to choose.
Leasing a solar PV system is ideal when your primary concern is consuming clean energy but it does limit you in other aspects of choices such as the type of technology that will be used and the size of the system. Leasing contracts also tie up into long-term contracts between 15 and 25 years. A lot can change in 15 to 25 years, technology changes and you also might want to sell your property during the lease period. This adds an extra layer of complexity when wanting to sell your premises. Cash might not always be available for purchasing a solar PV system upfront but tax credits and incentives can reduce investment costs by up to 50%. Then there’s always the option of applying for solar financing through different financial institutions. Rates of between 3 and 8% are typically what one can expect depending on your credit score.