If you’re wondering whether residential solar falls within your reach, a good place to start would be a comparison of the three most common purchasing options available:
- Power Purchase Agreement (PPA) in which a developer arranges for the design, permitting, financing and installation of a solar energy system on a customer’s property and then the customer purchases power from the developer.
- Solar lease in which a complete package of solar equipment gets installed on a customer's roof at little or no upfront cost and then the customer pays a monthly lease on the equipment.
- Solar purchase in which a customer pays out-of-pocket or acquires financing for the outright purchase and installation of solar equipment which they operate from that day forward.
If the idea of leasing solar equipment that is installed on a property that you own seems strange, you’re not alone. It may seem surprising to learn that until recent years, the residential solar market was dominated by solar leasing and Power Purchase Agreements. It was a combination of factors that made the solar market that way and it’s another combination of things driving the shift where more homeowners are able to purchase solar equipment outright. Two big reasons stand out. First, the price of equipment continues to fall steadily. And second, there are now customer-friendly financing options that make owning solar possible for zero out-of-pocket costs upfront just like with a solar lease.
Combine those reasons with the fact that solar ownership puts tax incentives and cash rebates back in the customers pocket to help pay off the solar financing faster and easier, and it becomes really clear why buying solar is an obvious no-brainer. Still, there are cases where it makes more sense to sign a lease or PPA. So, let’s talk about the advantages and disadvantages of each.
For the most part, solar leases and PPAs share the same set of pros and cons. So for the purposes of this comparison we’ve grouped solar lease and solar PPA into one category and compared them to ownership.
Pros of a Lease or Power Purchase Agreement (PPA)
Going solar with a PPA/solar lease comes with a fair share of benefits and could be a great match for your particular budget and energy needs. The primary perk is affordability.
When you lease your solar system, you get the equipment and installation for little or no cost. You don’t own the equipment, but you do get to save your money for normal household expenses while powering your home life on clean, renewable energy.
2. Low Maintenance
When you go with a solar lease or PPA, your solar provider maintains, repairs, and provides insurance coverage for the equipment. You don’t pay for upkeep or service calls. You also don’t need to include it in your own homeowner’s insurance policy. 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 performance guarantee. Many solar power companies offer warranties that extend 10 to 15 years—or even longer.
3. Monitoring Done For You
Because some solar companies know that homeowners may feel too busy to keep an eye on how well their systems are performing, some PPAs/solar lease agreements include free monitoring of your system.
Cons of a Lease/PPA
Despite the advantages of leasing a solar system, this arrangement does come with several downsides about which you should be aware.
1. No Tax Benefits
With a solar lease/PPA, the solar provider pockets the tax incentives. Instead of deducting 30 percent of the cost of buying and installing solar on your roof—typically $10,000–$15,000—and rolling that massive savings over into your loan, the solar provider gets to do that for themselves instead.
2. Splitting the Savings
With a solar lease/PPA, you only receive a portion of the energy savings on your utility bills. This is because PPAs/solar lease agreements come with a built-in price escalator for the power you are purchasing which can significantly increase over 25 years.
3. Moving Can Get Complicated
If you decide to sell your house and move and you have rooftop solar panels that you don’t own, things can get complicated. Mainly, the solar lease doesn’t travel with you. Instead, you’re limited to only those buyers who will be willing to take over the lease payments in addition to buying your house. Typically, this complicates the sale and limits the buyer field.
Pros of Owning a Solar System
1. You Pocket the Savings
When you own your solar energy system, all the tax credits, utility company cash rebates, and net metering energy credits go into your pocket. Compare that to a lease/PPA, where the solar provider keeps those savings, tax rebates, and energy credits for themselves and gives you only slightly lower utility bills.
2. Instant Home Equity
Take the amount of money a solar array saves you on utility bills over the course of a year—say $600 as a general example—and multiply it by 20—so $12,000 hypothetically speaking. That’s about how much your home value increases when you buy a solar energy system. So, if you wanted to move, you get higher resale value, plus you’d be able to sell your home without having to find someone willing to take over lease payments.
3. Fixed Payments
When you buy a solar array and elect to finance your system, you’re left with low, fixed monthly payments. There are no built-in price escalators like those that come with a lease or PPA. And the value increases as the difference between your monthly payments and the rising cost of electricity grows.
4. You Pocket 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 percent of funding for your system is subsidized 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
1. Qualifying for Tax Incentives
Under the Energy Policy Act of 2005, homeowners who install rooftop solar on their homes, are eligible to deduct 30 percent of the purchase price from their federal income taxes. But there are several qualifications that must be met in order to claim those deductions. Homeowners who don’t pay enough in federal taxes each year will not qualify to collect the full 30 percent tax credit all at once. But the deduction does roll over for four years, so over time, they still collect the full 30 percent deduction.
2. Maintenance Is Your Job
When you elect to buy solar, you also sign up for the maintenance costs. Luckily solar panels don’t need much maintenance. 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.
Get Help From Professionals
If you work with a full-service solar company, they can guide you through the entire process of switching to solar, from determining if your home qualifies, estimating how much power your system will need to generate, and most importantly, how much money you will save over the life of the equipment. Most of the time, the savings amount to tens of thousands of dollars.
At Blue Raven Solar, we take care of all 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.