Every day, more and more homeowners across the U.S. are choosing to go solar to power their homes. If you’re wondering whether such an investment is within your reach, a good place to start is comparing the pros and cons of the three options available: “buying” solar power with a Power Purchase Agreement (PPA), leasing a solar power system, and purchasing/owning a solar power system.
The residential solar industry has shifted heavily from PPAs to ownership over the last few years. Ownership has become more and more appealing for multiple reasons, with companies like Blue Raven Solar pioneering the way.
According to SEIA, a PPA is “a financial agreement where a developer… sells the power generated to the host customer…” typically at pre-determined prices.
With a lease, you essentially rent the solar power system for a fixed amount of time while buying a solar power system gives you full ownership and benefits for the life of the system.
Leases and PPAs are quite similar in terms of their pros and cons so for the purposes of this analysis we will combine the two and compare them to ownership. Most solar companies are selling either a PPA or solar ownership.
Make the best decision for you, your home, and budget by learning more about the advantages and disadvantages of these options.
Pros of a Lease or Power Purchase Agreement (PPA)
Using a PPA/lease for your home comes with plenty of benefits that could suit your particular budget and solar energy needs. The primary perk is affordability. When you lease your solar system, you very have little to no upfront costs.
You typically get the equipment as well as its installation at no cost (you don’t own the equipment, the solar company does). You can get the solar system without having to pay anything out-of-pocket, letting you save your money for other household expenses.
Second, with a lease, solar companies maintain, repair, and insure all of the equipment in your system. You do not have to pay for its upkeep nor when it needs to be serviced. You also do not have to cover it with your own homeowner’s insurance policy.
Even with a PPA, you still get to enjoy any warranty or guarantee offered with your solar system. If it fails to perform as expected or if it needs to be replaced, it may be covered under the warranty or guarantee.
Many solar power companies offer warranties that extend 10 to 15 years—or even longer—on their systems. You get to enjoy the systems’ advantages knowing that you are covered in case something goes wrong with it or it needs to be entirely replaced.
Along the same lines, you get free monitoring of your system. Solar companies know that homeowners, even those who lease their systems, live busy lives and may not have time to keep an eye on how well their systems are performing. As such, the companies that offer such leases typically monitor the systems’ performances for their clients.
Cons of a Lease/PPA
Despite the numerous advantages of leasing a solar system, this arrangement does come with several downsides about which you should be aware.
No Tax Incentives
This is one the biggest disadvantages of these types of solar power purchases. You are not entitled to the tax exemptions that come with owning a solar system; the company that owns the panels takes the tax savings. For most people and solar systems, this tax incentive is typically worth $10,000-$15,000, which is quite a significant amount for the average homeowner.
Splitting the Savings
Second, you are entitled to receive only a portion of the energy savings on your utility bills. This is because you are agreeing to pay a built-in price escalator for the power you are purchasing which can significantly increase in price after 25 years.
Moving Can Be Complicated
Finally, you cannot take the system with you if you move out of your house. You may have difficulty selling your home because you will have to find someone who is willing to take over the lease payments in addition to buying your house. Typically, this complicates the sale and may limit the buyer field.
Pros of Owning a Solar System
No Buyout or Prepayment Penalties
Since you own your system, you are not subject to a buyout or prepayment penalties in case you want to cancel your agreement. This perk lets you pay for your system however you choose and in whatever manner best suits your budget.
You Keep the Savings
With ownership, you are entitled to ALL the energy savings that come with installing a solar system on your house. Compared to a lease/PPA, you reap all of the benefits of the power produced by the solar system and can enjoy having them applied to your utility bills.
You can build up equity in your system similar to how you build equity on your home. Typically, homes with solar power systems appraise for higher values, and you can sell your home without having to find someone willing to take over lease payments.
When you buy or finance your system, you get to make predictable and steady monthly payments on it. You are not subject to built-in price escalations like those that come with a lease or PPA. You can budget accordingly and avoid unpleasant markups when you purchase your system outright because your payments are fixed.
You Get the Tax Credits
Finally, you are entitled to claim several helpful tax deductions each year. The IRS devised a program in 2005 that encourages the use of environmentally friendly energy like solar power in people’s homes. 30% of funding for your system is provided by the federal government through your tax credit. Most put the savings to their loan, but you can do whatever you want with this credit.
Many states also have a tax credit, in addition to the federal credit. Search the Database of State Incentives for Renewables & Efficiency (DSIRE) here to find incentives in your area.
Cons of Owning a Solar System
Owning a solar system has few downsides you should be aware of, mostly having to do with the tax incentives.
Understanding Your Tax Incentives
Under the Energy Policy Act of 2005, homeowners who have these systems on their homes must meet several qualifications in order to claim those exemptions. Those who don’t pay enough in federal taxes each year will not qualify to collect the full 30% tax credit at once. However, this rolls over for 4 years, so over the course of time you can get it all, but some incentives may take time to pay out the full 30% anticipated.
Maintenance Is up to You
If you purchase a system, it is your responsibility to maintain it. Almost always, there will be manufacturer warranties and guarantees, but you will be responsible for the overall care of the system.
Solar panel maintenance isn’t complicated, but we highly recommend you purchase your system from a company that is going to stand by their work and help you along the way. Blue Raven Solar will continue to work with you long after installation, and if you need your panels serviced, call customer service and they’ll send a technician out to help.
The IRS has not yet fully determined what kinds of properties in addition to typical homes you can install these systems in order to qualify for the full 30% tax credit. They have yet to reach a decision about whether to allow deductions on systems installed on energy storage facilities, carports, solar canopies, and roofing.
However, most companies like Blue Raven Solar will help you determine if your home is qualified for solar and if you can receive federal tax credits.
Should I Lease or Buy My Residential Solar System?
When you decide it’s time to add a solar system to your home, determine whether a PPA, leasing or ownership is the best option for you. As mentioned above, many people have realized that ownership is the product with the most advantages and many solar companies have transitioned to selling rather than leasing or provide PPAs to their customers.
If you work with a full-service solar company, they can guide you through the entire process of going solar, from determining if your home qualifies, estimating how much power your system will generate, and most importantly, how much money you will save over the life of the system, which for many people can be tens of thousands of dollars.
At Blue Raven Solar, we take care all of the details of going solar, so if you’ve been thinking about it, give us a call and let us help you determine what option is right for you.