There are three different paths to putting solar panels on your roof. You can purchase them outright, you can lease them or you can choose to be a solar utility customer (also known as a power purchasing agreement, or PPA). Each of these three paths has its own advantages and disadvantages. In this article, we’ll focus on the first option: buying your solar panels outright.
More and more homeowners are choosing to own their solar panels instead of using a solar lease or solar PPA option. Although the upfront costs of the purchase option are still quite steep, today there are many financing alternatives at your disposal to ease the pain.
Cost of installation: The biggest hurdle to surmount
Just like with electronic devices, there seems to be one thing that’s certain about solar panels: the price will go down right after you buy them. The decrease in solar equipment costs in the last few years has been nothing short of astonishing. According to various industry reports, solar panel prices have decreased by about 80% in the last five years. The total installation cost (which is much more relevant in our case) has gone down by about 50%. Why the discrepancy? There are many cost elements that are part of a solar PV installation, and the cost of the panels themselves is becoming less and less important when compared to these other items (reducing the other so-called soft costs is something many companies like ours are trying to address through innovative software tools).
Understanding the solar purchase option
Of all the three solar financing options, the solar purchase is the only one that gives you full ownership of the solar panels. You get to benefit from all the financial incentives, such as the available tax credits, and you reap the rewards of your solar electricity until the solar panels finally give up on you around 25 years from now. This all sounds good, but there are a couple of downsides: putting together a financing package and taking care of the maintenance for years to come.
Financing Your Purchase
No matter where your home is located, no matter how much sunshine you’re blessed with, there is one main determinant of whether your solar purchase will be a big success: not overpaying for your solar PV system.
Get at least three quotes
This one is quite straightforward and it applies to any big purchase. Getting multiple solar installation quotes can be quite time consuming, but it’s well worth the effort if it means a better deal. The simple exercise of comparing quotes will help you better understand the advantages and disadvantages of different proposals. It will also help you get a much better feel about your room for negotiation. We can help you with our database of highly-rated installers, where you can search by ratings or distance, and where we can help you get quotes.
Check and double check your local rebates and incentives
Solar energy is getting cheaper and the importance of green incentives is not what it used to be. However, there are still plenty of local and regional programs to take advantage of and you don’t want to miss out on any one of them. Some incentive programs are designed to reduce your out-of-pocket expenses by giving you a rebate right after your purchase. Others are performance-based and they reward you for each kWh of solar electricity your system generates. Here is a list of incentives by state for the USA and by province for Canada.
Don’t miss out on the federal investment tax credit
If you live in the United States, one of the best deals in town right now is the federal solar investment tax credit (ITC) offered to owners of solar energy systems. Both solar photovoltaic and solar water heating systems qualify for a 30% federal tax credit on your personal taxes. This tax credit is in effect until December 31, 2019 and will ramp down to 10% by 2022 before being eliminated completely. While falling installation prices help, the 30% tax credit definitely sweetens the deal further. You can read more about the ITC here.
What are the advantages of owning your solar panels?
This is probably one of the most important differences between a purchase and a lease (or PPA) agreement: the solar panels are now your assets. We often refer to residential solar power systems as a long-term investment and the ownership option unlocks many benefits that are not available with the lease or PPA options. As we mentioned earlier, in addition to the pride of ownership, there are many tax credits, rebates and financial incentives for installing solar panels. In most cases, these financial incentives are only available to the owner of the system. For example, in the case of the solar lease, the leasing company is the beneficiary since they own the panels. If you opt for an outright purchase, then you get to benefit directly from all of these financial incentives.
A second major advantage is increasing the market value of your home. As we discussed in a previous article, the resale value of your home will increase if you install solar panels. Two previous studies estimate this “solar premium” to be in the $20K range. However, these numbers keep changing, so you shouldn’t assume that it will be exactly the case for you.
Another big advantage: there is no “20-year lease term”. In all likelihood, your solar panels will continue to keep on ticking after 20 years (25 years on average). Each additional year of service will be a bonus and increase the financial appeal of ownership. Yes, there is some maintenance work to do, and the occasional equipment replacement. But compared to your car, for example, these costs are going to be less frequent.
OK, sounds good, but what about the disadvantages?
Ownership brings many benefits, but also some new responsibilities: chief among them, system maintenance, roof repairs (if needed) and insurance. With no moving parts, solar panels are quite easy to maintain and with the occasional spring cleaning to remove any built-up grime, they should continue generating electricity without any problems. You will probably need to change your inverter once or twice during the useful lifetime of your solar panels, but this replacement cost is also quite reasonable. Cost aspects aside, these extra tasks will be added to your to-do list. Since the system belongs to you, you will be responsible for making the most of your investment, by squeezing out every possible kWh of electricity from those panels.
Another consideration is insurance. Most reputable solar installers have insurance coverage to take care of any damages to your roof during the installation. In the unlikely event of a damage after the installation caused by the solar panels (for example leaking caused by faulty caulking of the bolt holes), you should make sure that there is still some form of insurance protection.
Overall, ownership will give you a few more headaches than leasing the solar panels. However, the financial benefits may reward you handsomely for these additional responsibilities. But how do you know if these rewards are sufficient to make ownership your best bet?
Why does it seem cheaper to lease than to own?
When a solar installer presents you with various plans and installation options, most homeowners are surprised to see that the solar lease is generally the cheapest option with the lowest monthly payments. There are two main reasons for this: one, your monthly payments only cover the lease term (which is generally shorter than the actual lifetime of the panels) and secondly, there are distinct tax advantages that the leasing company enjoys (such as the ability to depreciate the value of the solar panels in their tax return). In contrast, when you purchase the system outright (with or without a bank loan), you need to finance the entire value of the solar panels, not just the value attributed to the lease term. Consequently, the financing need is higher, as well as your monthly payments. To really understand the numbers, you can check out our Buy or Lease Calculator and see the impact of changing certain variables, such as interest rates, term of lease etc.
The purchase option is a great one for those who can postpone immediate financial gratification for the benefit of much bigger returns down the road. And in any case, from the moment the panels are installed, you can start enjoying your newly produced solar electricity!