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Decided to go solar but can’t figure out whether to buy or lease solar panels? The choice you make will dictate whether a solar system pays off in spades or you’ll just barely break even. In this article, we’ll explore the benefits and downsides of your options.
Key takeaways
You have three options: pay upfront, take a loan, or lease a solar system. Let’s go over them one by one and analyze pros and cons.
Buying solar panels is the least complicated option. You pay the whole cost of the panels and equipment, plus shipping and installation costs. You don’t have to bother about any extra costs, but you do have to pay the entire price of the solar system at once. An existing solar panel system is easy to expand, if needed. The array capacity is generally only limited by available roof space. Not every homeowner can justify buying a solar panel system with cash, and here is where a loan or lease can help you out.
Regular loan – 12% APR
Solar loan – 4-7% APR
There are two types of solar panel loans available – a regular consumer loan and a specialty clean energy loan. The difference is that the latter one usually offers a longer period and a lower rate. A regular loan comes at about 12% annual percentage rate (APR), while a solar loan is about 4-7%. The longer the period, the higher the rate.
The third option is leasing a solar system. An installation company comes, installs the panels, maintains and repairs them, and bills you every month for their use. The panels are installed on your roof, generate electricity for your home, but belong to the company.
Solar panel leasing used to be popular some years ago because solar projects were extremely expensive. Since then, the price of solar panels has dropped, so there are not so many people interested in leasing now.
Power purchase agreements (PPA) are somewhat similar to leasing. This is an arrangement where a third-party developer installs, owns, and maintains a solar energy system on your property. You agree to buy the electricity generated by the system at a fixed rate, usually lower than traditional utility rates.
With a PPA, you pay for the electricity generated, typically per kWh. With a lease, you pay a fixed monthly fee regardless of how much electricity the system produces. PPAs are about buying energy; leases are about renting the equipment.
What scares homeowners most about solar panels is that they’re really expensive. How much would you have to pay to start using solar power?
A brand new solar system can cost anywhere from $10,000 to $30,000, depending on its size and complexity. Batteries in particular increase the cost of a PV installation by up to 50% and more. While the upfront costs are high in that case, there are no follow-up payments. Besides, there are ways to bring the expenses down with the help of solar incentives.
All states in America offer the Solar Tax Credit, a financial incentive with which you can reduce your solar system costs by a third. It’s a big advantage: if you chose a $10,000 system, it will cost you $7,000, and if you chose a $30,000 system, it will cost you $21,000. Each state also offers its own solar incentives in the form of tax credits, rebates, and tax exemptions.
In case of a classic loan, you don’t need anything except to meet the loan eligibility requirements. But every month you will have to pay a fixed amount, something from $100 to $250, depending on the loan terms. The good news is that you’re also eligible for the Solar Tax Credit and the state-wide incentives.
The terms of ‘green’ loans for energy-efficient upgrades, such as solar panels, depend on the bank that offers them. The interest rate is lower but some banks require you to pay a certain percentage of the upgrade cost. For example, you provide 50% of a solar system cost and you get the other 50% from the bank for, say, 10 years with 5% APR.
$50 to $250 – average monthly lease payment
In case of a solar system lease, you normally don’t pay anything upfront. Monthly lease payments can range from $50 to $250, depending on the solar system’s size. Solar lease contracts typically last between 20 and 25 years, which is comparable to the lifespan of the panels themselves. The solar system lease agreement may also include a so-called escalator from the original fee, mirroring the rising electricity costs. This means that your lease payment will increase each year by 1% to 5%.
When people install solar panels they expect to save money, primarily from not paying the bills. The profits you get from solar panels also depend on whether you own or lease a solar system setup.
Average current monthly electricity usage in the US is about 900 kWh, according to EIA. The average electricity rate is about 17 ¢/kWh, according to the US Bureau of Labor Statistics. So you spend about $150 per month and $1,800 per year on electricity.
The average size of a solar installation in the US is 7 kilowatts. The reason for this number is that an installation of this size fully covers electricity consumption for ordinary homeowners in southern states where using solar energy is widely adopted. A 7kW system would produce about 30 kilowatt-hours per day in California. This amounts to 900 kilowatt-hours per month. Bigger houses, especially with an EV in the garage will require a bigger system.
Net metering allows solar panel owners to send excess electricity they generate back to the grid and receive credits on their utility bill. These credits can offset the cost of electricity drawn from the grid when solar panels aren't producing enough power.
For the sake of simplicity, let’s assume a homeowner can nullify their bill with a 7kw solar system. Real life is more complicated. Net metering terms vary across the states, the system can produce more than you need in summer and less than you need in winter and doesn’t work at night. Still, assuming that your bill is $0 and you save $1,800 per year with a solar system, let’s see your profits when you purchase or lease a 7kW solar system.
A 7kW solar system may cost you somewhere between $15,000 – $25,000, including hardware, shipping, installation labor, and permitting and inspection fees. With the 30% Solar Tax Credit, the final cost of a system comes to about $10,000 – $18,000.
Let’s say that the system initially costs $20,000: it is a very good system, perfectly installed, with high-quality panels and maybe even battery storage. Using the Solar Tax Credit, you bring down the cost to $14,000. If you pay upfront, there are no follow-up payments. Assuming that a solar system earns you $1,800, you’ll find that your profits over 25 years will amount to roughly:
$1,800/year × 25 years - $20,000 + $6,000 = $31,000
What’s missing here? We didn’t factor in the degradation of solar panels, seasonal changes in production, possible maintenance, repairs and equipment replacement. Neither did we include the annual increase in electricity prices which amounts to roughly 2%. Besides, we used the average electric rate across the US. In places with lower bills panels earn less. States with high electric bills may provide higher savings. In some areas, you can benefit from selling RECs.
Let us do the math for you
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Calculate your PV systemLet’s say we get the same 7kW solar system but this time using a loan. We’ll borrow $20,000 to make the purchase and we’ll get $6,000 back through a 30% Solar Tax Credit. This time though, we’ll also have to pay an interest on top of it.
Let’s assume you took a ‘green’ loan with an interest rate of 5%. The loan is issued for 10 years. Your monthly payments will amount to about $210. Let’s calculate your potential savings:
$1,800/year × 25 years - $210/month × 12 months × 10 years + $6,000 = $24,800
Still looks pretty good. What if we increase the years to 25? The monthly payments will amount to roughly $115. The profits will amount to roughly:
$1,800/year × 25 years - $115/month × 12 months × 25 years + $6,000 = $10,500
Green loans are available only in certain banks and they usually have upfront costs that you still have to cover. What if we took a standard loan with 12% interest rate? When the loan is issued for 10 years, your monthly payments will amount to about $290. Let’s calculate your how much you’ll be saving:
$1,800/year × 25 years - $290/month × 12 months × 10 years + $6,000 = $16,200
If you take a loan for 25 years at 12%, the monthly payments will amount to roughly $210. The calculations will look like this:
$1,800/year × 25 years - $210/month × 12 months × 25 years = -$18,000
As you see, taking a standard loan significantly lowers your profits to the point where you can even end up in deficit after 25 years. Still, ‘green’ loans can make this method profitable for homeowners.
The long-term savings from leasing a solar system directly depend on the difference between your electric bill and monthly lease payments. If you save $150 per month by not paying for electricity but pay $150 per month for leasing a solar system, then your earnings are at zero at any point. The system is technically more expensive for you because you don’t get access to Solar Tax Credit — but then again you don’t purchase it. Electricity prices tend to increase over the years but this may also get balanced out by increasing lease payments that mirror the rates.
Solar panels live a very long life – from a quarter to a third of a century. But what if one day you want to move?
4% – is how much solar panels increase the value of your house
Solar panels increase the cost of your house by 4% on average. If you want to sell a house with panels, you can sell it for a higher price. If you want to keep your panels, you can take them with you, but you’ll have to pay extra for taking the panels off the roof, transportation and installing them again at a new place. Remember that older panels won’t be as efficient as before.
When you purchase solar panels through a loan, the situation is more complicated because you have obligations to the bank. You will either have to repay the loan balance yourself, transfer the loan to the new homeowners if they agree, or take the solar panel system with you to your new place of residence.
If you terminate contract earlier, you may be requested to pay a penalty
When panels are leased, it gets tricky. The house may be yours, but not the panels on it. The lease agreement is concluded for a long term, so you will need to either pay the balance of the amount and, perhaps, a penalty for early termination of the contract, or transfer it to the new homeowners. Usually, they are not very happy about such a dowry to their new house.
If you want your panels to live a long and happy life, you need to take proper care of them. Who will be responsible for it depends on which option you choose.
In case of purchase, you take care of the panels yourself — or sometimes, the solar installer takes the responsibility of maintaining the system. There isn’t much to do — you just have to keep the system clean and check the equipment every few years. If a system needs expanding, you take care of it yourself.
If you lease your panels, you don’t have to bother at all – your panels will be serviced by the solar company. All you have to do is call them. They can even monitor your panel system’s performance themselves and contact you if something goes wrong. Make sure the terms of maintenance are well-defined in your lease contract.
Numerous threads on Reddit only confirm that the topic of financing is hot. Most homeowners are not comfortable with leasing solar panels:
Can confirm that we and many we know who are buying / recently bought homes were immediately turned off by homes with solar lease contracts. They often had terrible terms, and were contracts we would have never signed. Pushed us away from a few homes – Mediocre_Airport_576
My wife and I loved this beautiful house in Gilbert, AZ but the only flaw was the damn lease. $70/mo. Goes up $2/mo each year. for 20 years. And you still have to have an electricity from the utility company and pay them – frumpydrangus
When choosing between taking a loan and paying in full, opinions were divided. Some thought that it was better to pay all immediately and start getting benefits:
I don't understand why you wouldn't pay cash. If paying cash isn't taking away from meeting other expenses why take a loan and pay ~50% more in the long run? – oledawgnew
While others believed that a low-interest loan is not such a bad idea, even if you have the money:
Personally, borrowing at ~3% is always a no-brainer assuming you can handle the payments. I value having cash on hand more than not having any debts (again, assuming you can handle the payments)... – OakLegs
So, should you buy or lease solar panels? The answer is clear: the purchase is the most favorable option, as you don’t have any overpayments and maximize your savings. The benefit of the loan will depend on the loan terms, and sometimes it can be worth it. As for leasing solar panels, this option seems to be the least popular. Your benefits are minimized and it only makes sense in states with high electricity bills.
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Years of experience in translation and a love of nature help Julia find the right words to encourage going solar. She joined the team in 2023 and is happy to make her contribution to a greener future.
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