I’d like to buy a solar electric system but am not sure I can afford to purchase one. Is leasing a system a better option?
I hear this question a lot. Solar electric systems have never been more affordable than they are right now, thanks to record-low module costs, generous federal tax incentives and financial incentives offered by many local utilities. Even so, out-of-pocket costs for a system that would meet the needs of a family of four for at least 30 years could run as much as $15,000 to $25,000 — or even more, depending on available incentives and the household’s annual energy consumption. Not surprisingly, a price tag like that creates sticker shock in a lot of potential customers.
Don’t despair! For those who can’t afford the upfront cost of a solar electric system, one option is to secure a loan so that you can make monthly payments. In some cases, this option can result in payments lower than your current monthly electric bill. And, as you suggested, solar leases can be another good option.
You could potentially lease a solar electric system from any third party, but it would typically be from a company that specializes in solar leases. Two such companies are SunRun and SolarCity, but you’ll want to search online to find what’s available in your area.
In general, two types of solar leases are available. The most common is an operating lease. In this case, the third party (the lessor) installs the system at its expense and is therefore considered the owner of the system. It receives all the tax benefits, such as the current 30 percent federal investment tax credit, and local utility rebates, if any. The terms of lease agreements vary considerably and are often tailored to the finances of the homeowner or business owner (the lessee). Some operating leases require no upfront payment, while others require a small down payment. The cost of maintenance and component replacement may fall on the shoulders of either the lessor or the lessee.
After the system is up and running, the customer pays a monthly fee to the lessor, which includes a lease payment and payment for the electricity the system generates. These payments are typically structured so that the combined cost results in a slightly lower monthly utility bill than the lessee was paying before the installation of the solar electric system. The lease payments are typically designed so the customer’s payments remain stable throughout the lease, but in some cases, lease payments may contain a built-in escalation.
Operating lease agreements often last 10 to 15 years. At the end of the lease agreement, the lease may be renewed, the customer may buy the system at fair market value, or he or she may request the system be removed — usually at no cost.
The second type of solar lease is known as a capital lease or a lease-purchase agreement. In this form of lease, the lessee agrees to purchase the solar electric system at the end of the lease at a price negotiated upfront. As a result, the customer/lessee is considered the owner of the system and therefore receives any tax benefits and local incentives.
Solar leasing can be an attractive investment. Because the cost of solar electric systems, the details of solar leases and available incentives vary significantly, making generalizations about costs is difficult. However, individuals who enter into lease agreements often pay slightly less over the long term than those who finance their own systems through home equity loans. In addition, those who lease systems often pay less than those who self-finance systems by taking money out of savings. Be sure to study your options carefully. Hire an accountant or use cost calculators provided by lease companies to compare leasing a solar electric system with the outright purchase of one.
— Dan Chiras, contributing editor
Above: Leasing a solar electric system can be a great deal. Photo by Fotolia.