U.S. states with solar leasing (as of Feb. 2010): Arizona, California, Colorado, Connecticut, Massachusetts, New Jersey, Oregon, Texas. Conventional wisdom holds that it’s better to buy a solar system than to lease one.
It isn’t that simple.
While buying might be better for some people in some circumstances – mostly for people with lots of money stashed away somewhere to spread across multiple purchases, one of these being a solar system – for many people who have little to no money saved, solar leasing may well be a better option.
The main problem with the buying solar is better argument is that it often fails to take into account the whole financial picture of the prospective buyer. In other words, it fails to address the following:
Would the $10,000 to $20,000 (or more) a solar system is going to cost me save me more money /put me in a better long-term financial position than if I do a solar lease AND — here’s the kicker – I put the $10,000 to $20,000 toward a different large purchase which I am either already financing or will have to finance in the future.
Buying vs. leasing:
Five things to consider 1. Cash. Do you have the cash on hand to buy a solar system outright? If yes, you probably will want to buy the system (see reason No. 4 below for why it’s “probably” rather than “definitely”). 2. Financing. If you do not have the money on hand to pay cash for the system, how will you finance it? And how much will taking out a loan add to the total cost of the system? If you have to borrow a large amount of money to buy a system, solar leasing may well be a better option for you. 3. Cash flow. If you do have cash on hand for a solar system, consider whether paying cash for the solar system will affect your cash flow for other large (potential cash) purchases, for instance, an electric car. 4. Your whole financial picture. Crunch the numbers on the $10,000 to $20,000 (or more) you will need to have on hand in order to buy a solar system outright in terms of alternative uses for the money. For instance, would you be better off financially if you lease a solar system and use the $20,000 to pay down your home mortgage more quickly? 5. Is solar leasing available? As of Jan. 2010, in the U.S. solar leasing is available in parts of Arizona, California, Colorado, Connecticut, Massachusetts, New Jersey and Oregon. If solar leasing is not yet available where you live, do some research to figure out how soon it might arrive in your area before you make the decision to buy a system .
The two biggest purchases for most people are: a) a house; b) a car. The vast majority of us take out a loan to finance each of these two big-ticket items.
However, there are other large purchases most of us typically finance. Home improvements, such as a new roof, repainting the house, a new furnace, hot water heater, etc., comprise the most obvious of these. Home appliances such as a fridge, washer and dryer and dishwasher are also prominent.
For the record, I am not against buying a solar system per se. And I don’t necessary believe leasing is better. I’m simply trying to show that the buy-vs.-lease question is both complicated and very context dependent.
OK, let’s address – and challenge — the arguments typically made in favor of buying a solar system as opposed to leasing one.
In essence, many of these arguments are the same argument made over and over. That argument goes like this: It’s better to buy the solar system because you’ll own it and owning is better than renting.
You’ll own the system, Take 1. Counterargument: Don’t forget about the cost of the solar inverter. If you own the system this means you’ll have to replace the solar inverter somewhere between years 12 and 15 – to the tune of thousands of dollars. Solar lease companies like SunRun and SolarCity will pay for the replacement of the inverter under a lease. It’s interesting to note that as far as I know, most solar companies do not include the cost of replacing your system’s inverter when they project the long-term energy savings you’ll realize if you buy a solar system. This seems fundamentally misleading to me, and it will be the subject of a future article at SolarChargedDriving.Com.
You’ll own the system, Take 2. Counterargument: You own it, you have to fix it. Owning the system means if anything goes wrong, beyond the warranty coverage of your solar company, it will be up to you to fix it. On the other hand, solar leasing companies like SunRun and SolarCity maintain the system for you during the entire run of your lease.
You’ll own the system, Take 3. Counterargument: Taking out a loan to buy a solar system is expensive. Owning the system means you will have to scrape together thousands of dollars to buy it. If you have to borrow any of that money, you will be paying interest which, if your loan is large enough, will undercut much of the savings you might have realized had you not been forced to take out a loan.
You’ll own the system, Take 4. Counterargument: Saving the cash for a solar system can cost you. You might own the system – but you may well have paid a heavy price to save up the cash to plunk down on it. For instance, right now we’re sitting on a mountain of student loans my wife took out to get her master’s degree. We’re also sitting on significant credit card debt. Of course, we have been lucky in that we’ve been able to roll this debt from one zero-percent card to the next for quite awhile. Additionally, we’re sitting on a large mortgage. Hopefully, you’re not sitting on a big student loan, or on credit card debt – though the average American carries a $10,000 annual credit card balance.
Basically, we would seem to be ideal candidates for a solar lease. However, we committed to buying a system (to be installed in June of 2010) several months before solar leasing arrived on the scene along Colorado’s Front Range, where we live.
In any case, even if you’re not sitting on top of a student loan/credit card debt mountain like us, you’re almost certainly sitting on a giant home mortgage.
What if, instead of saving $20,000 to plunk down on a solar system, you used that money, over time, to pay down your mortgage more quickly, thereby reducing interest costs on your home loan? I haven’t done the math on this, but it seems to me that the buying-solar-is-(always)-better proponents haven’t either.
Here’s another scenario, what if, instead of saving $20,000 for a solar system, you lease a solar system instead, and you put the $20,000 you’ve saved toward buying a new electric car, which, of course, with the solar system you lease, you can fully, or partially, solar-charge?
Again, as far as I can tell, the buying-solar-is-(always)-better folks don’t look (much) at the broad financial picture. For most of us, this picture includes a large home mortgage with substantial interest payments as well as the reality of having to borrow money to buy a car.
You can write off home equity loans, and other types of loans, on your taxes. Counterargument: In this economic environment many people have no home equity. Thanks to the housing crash, our home – and quite possibly yours – is worth less than what we paid for it. Cross out the home equity loan possibility for us, and maybe for you too.
You’ll lose the Federal Tax Credit and won’t benefit from utility rebates as these will be pocketed by the solar lease company. Counterargument: It might cost you more than it’s worth to buy a system in order to get these rebates. If you buy the system, you’ll get the rebates and tax credits, and if you lease, you won’t. However, if you lease, you won’t have to find a way to scrape together five, eight, 10, or 20 thousand dollars together to put down on a solar system. And, as I’ve already noted, for most of us, saving for one item comes at the expense of almost inevitably means having to finance another one.
You “own” the electricity generated by the system. Therefore, you will save more in the long run than if you do a solar lease. Counterargument: Not necessarily. Long-terms savings might not be bigger if you buy. It depends — depends on how much you have to borrow to buy the system, how big the system it is, what the terms of your solar lease are, etc.
You won’t have to buy back the system at year 15 at a price disproportionate to the actual value of the system at that time, a price which fails to adequately take into account how much money you have paid over the years while leasing. Counterargument: You could continue leasing (and anyway, a solar lease is better than firing your electricity with Dirty Coal) First, you could continue to lease the system at this point. Second, as far as I can tell, leasing is similar to paying your current electric utility a monthly bill. But – and this is a hugely important but! — instead of paying someone to produce your electricity with Dirty Coal, you’re paying someone to do it with Clean Sun. Furthermore, you’ll pay less per month to do the solar lease than you do to get your Dirty Coal fired electricity.
In some ways, going with a solar lease is like the status quo – only it’s better because: a) you save the environment; b) you feel good about what you’re doing; c) your money doesn’t go to Dirty Coal, and, if you also solar-charge an electric car, your money doesn’t go to Big Oil either; d) you save money; e) you don’t have to save lump of cash at the outset while potentially overlooking your other debts – home mortgage, car loans, student loans, credit card debt, etc. in order to get that lump of cash together.
A solar lease makes it hard to sell your home to someone who doesn’t want to take on the lease. Counter-argument: Isn’t a solar system on your roof supposed to be a plus when selling? I’ve seen this argument in a number of different places. It makes no sense. The same folks who argue that a solar system you purchase outright adds value to your home and makes it more attractive to prospective buyers are the same people who contend that having solar panels on your roof suddenly becomes a liability if the panels are leased. Either a solar system adds value to your house or it doesn’t. I think it’s pretty clear that it does, whether you purchase it or lease it. Yes, of course a prospective buyer of your home who comes into your solar lease will still have a monthly electric bill. But chances are good that it will be substantially lower than his or her coal-fired neighbors’ electric bills. And there’ll be the green satisfaction for the prospective buyer as well. Finally, it’s also possible for the seller and/or the buyer to purchase the system at the point when a house is being sold.
The solar buying vs. solar leasing question all comes down to your whole financial picture. Basically, it boils down to this: Will the savings you realize by buying a solar system with cash you’ve saved up be greater than the costs you incur because you now no longer have that cash to spend on other things – like a car, your home mortgage, etc. When you add these factors to the equation, it seems to me that in many — not all — situations a solar lease is likely to be a sounder economic decision than buying a solar system outright.
It certainly would seem that leasing would be better, economically speaking, in our own situation, again, one in which we’re sitting on tens of thousands of dollars of student loans (at about 7% interest) and a big amount of credit card debt (at 0% interest right now) while we “save” money to buy a solar system we signed on to buy three months before solar leasing became available in Colorado.
Then again, for us (or, at least for me), going solar has never really been mostly about the money. It’s always been much more about the environmental and political factors.