Should I Lease or Buy a Solar Energy System?

lease vs buy solar energy system purchase

Major Difference Between Leasing or Buying Solar Panels

The primary difference between buying or leasing a solar PV system is around ownership. Ownership is significant because you can take advantage of the federal tax credit, and an increase in equity to your home. A lease allows you to take advantage of immediate savings with $0 upfront costs. You also don’t have to worry about the hassles that can come with owning a system since someone else is guaranteeing that your panels are running efficiently.

Therefore, the primary question comes down to, are you looking to maximize your ROI (return on investment), or would an additional $30/mo in your pocket make a difference? If you’re looking to maximize your ROI, owning the system is the way to go. It now depends on whether you want to purchase it outright or purchase it through financing. If you are looking to capture immediate savings, getting a PPA / Lease allows you to pay $0 down and immediately start saving 30 – 50% per month on your electricity bill.

Quick Tip: If you buy a solar energy system, either outright or after repaying your solar loan, the most crucial difference is that you own the solar energy system.  If you lease the solar energy system or sign a power purchase agreement (PPA), a third party owns the solar panel system.

Benefits of Both Owning and Leasing

Just like with a car, the choice between buying and leasing is a tough call, but in both scenarios, you will save money. By adding a solar  energy system to your home or commercial building, you can: 

  • Consume the power you generate at a significantly lower cost per watt.
  • Earn utility company credits for sending unused electricity back to the grid
  • Reduce your use of fossil-fuel-based electricity and prevent tons of carbon from entering our planet’s atmosphere each year

Specific Benefits of Owning

Quick Tip: For those looking to maximize their ROI

  • By owning your solar energy system, you will maximize the financial benefits of installing a solar panel system. There is no better way to leverage additional capital than to invest it in the purchase of a solar energy system.
  • Increase the market value of your home or commercial property by installing a solar panel system.
  • Be eligible to reduce your federal and state tax liability through the federal investment tax credit.

Quick Tip: (Commercial Property Owners) Could potentially further maximize their ROI by taking advantage of tax benefits by categorizing the solar panel system as a depreciable asset. We recommend that they always check with their professional tax consultant first to ensure they qualify and that it matches their goals.

Specific Cons to Owning

  • High Upfront Cost Investment
  • 5-7 Year breakeven for a purchase
  • Must own long enough to see the savings

Specific Benefits of Leasing

Quick Tip: For those looking for immediate savings with no upfront costs.

  • Go solar with nothing out-of-pocket, typically $0 down!
  • See immediate savings by reducing your electricity costs by 30% – 50%
  • PPA and most leases are guaranteed to be fully transferrable
  • Only a 2.9% annual increase in electricity costs vs. 4-6% from your utility company

Specific Cons of Leasing

  • Can’t buy the system until after you’ve been leasing for 5 years or more
  • No tax credit benefits – already baked into the savings

Solar Buy vs. Lease Comparison Table

Ownership You own the solar PV system and get to keep it as long as you want. You don’t own the solar PV system. You get to take advantage of the benefits but must either return it or purchase it at the end of your lease.
Up-Front CostsTypically a $1,000 initial deposit as a down payment. Varies on the. type of lease but $0 down payment options are available.
Monthly PaymentsLoan payments are typically higher than lease payments since you’re paying off the entire purchase of the solar energy system plus interest and other finance charges. Lease monthly payments are almost always lower than loan payments. It should also be a lower monthly payment to pay for your electricity than from your utility company.
Future ValueThe solar PV system will depreciate, but its cash value is yours to use as you’d like, and it will increase the equity of your home by an average of 34%. The future value doesn’t affect you financially, but you also don’t get any benefits around improve home equity or a federal and state tax credit.
Early Termination (e.g. moving)You own it. You can sell or get rid of your system at any time. Typically 100% transferrable. After 5 years of leasing, you typically have the option to purchase the system if you’d like.
End-of-TermN/AMost leases are 100% transferrable.
Adding a Solar Battery SystemYou can add a solar battery system at any time. It depends on the leasing company, whether they will allow for a solar battery storage system to be added in the future.
Performance MaintenanceThe homeowner should do periodic checks to ensure that their system is performing. With leases, the performance of the system is monitored and guaranteed by the leasing company.

Deciding Whether to Lease or Buy

A solar purchase is your best option when you:

  • You’re looking to maximize the equity in your home
  • Looking for the best return on investment
  • Eligible to receive the financial benefits of the income tax credit
  • Have a credit score under 650, but have access to capital
  • Looking to increase the value of your home or business without increasing your property taxes

A solar lease/PPA is your best option when you:

  • Don’t want to worry about the responsibility of maintaining or repairing your solar panel system.
  • Want to reduce your electricity costs by 30% – 50% with zero out of pocket
  • Looking to create a predictable, lower electric bill and start saving immediately
  • Aren’t eligible for the Solar Investment Tax Credit (ITC) benefits.

Buying vs. Leasing Pre & Post Solar Installation Differences

As you go through the solar installation process, there are a few differences that you will experience whether or not you decide to buy or lease. It can impact everything from the overall cost of going solar to the maintenance of the system after your solar energy system is operational.

Lease vs. Own: Before Solar Installation Differences

Solar Purchase (Own)

  • For Purchases using Cash
    • Provides a $1,000 deposit to the installer
    • 80% of the balance is due on the day of the installation
    • 100% balance payment is required before PTO (Permission To Operate)
  • For Purchases using a Loan
    • Customer applies for a credit check if they are getting a loan
    • Receive approval from the loan company for the amount

Solar Lease/PPA (Lease)

  • For Solar Leases & PPAs
    • Customer applies for a credit check
    • Receives approval from the solar company to purchase electricity from them

Lease vs. Own: Post Solar Installation Differences

  • Lease & PPA Process
    • Customer applies for a credit check
    • Receive approval from the solar company you’re purchasing the energy from

Solar Purchase (Own)

  • You own the solar energy system and are responsible for monitoring the performance and maintaining it.
  • Depending on your solar installer, your purchase may not include a customer portal or application to track your solar system’s performance.

Solar Lease/PPA (Lease)

  • The solar leasing company owns and maintains the solar power system. This means that they are also responsible for the underperformance of the system.
  • Most leasing companies provide a free customer portal or application that tracks the performance of your solar energy system.

Solar Purchase and Lease Terms

Solar Purchase (Own)

  • 100% of the balance payment is required before PTO (Permission to Operate)

Solar Loan (Own)

  • Loans are generally available for 10 to 25-year terms
  • Interest rates range from 3% to 8%
  • Dealer fees are typically around 5-15%

Solar Lease/PPA (Lease)

  • Solar leases and PPAs are typically for 20 to 25-year terms
  • With a PPA, you have the option to purchase the system after the 5-year mark, at which point you can buy the system outright.

Deciding whether to own or lease your solar energy system

Going solar has never been easier, but one of the hardest questions to answer is deciding whether you want to own or lease your system. Every person’s situation is different, and what is best for your property depends on a wide range of factors. Forme Solar, is proud to be a beginner’s guide to going solar, and you can be assured that we can help you walk through the full range of factors that will determine whether or not owning or leasing the system makes the most sense for your home or commercial property.