By Mandy Ellis

Switching to solar energy can seem like a confusing process where homeowners may not understand the implications of their two financial options: buying and leasing.

To choose, you need to know your financial outlook, property situation and what you hope to receive out of the system.

“If you’re educated, you’ll feel empowered,” says Ruben Ugarte, senior director of business development at Horizon Solar Power in Temecula, Calif., “Consumers with quotes who aren’t educated, don’t move forward or save money because they can’t make a decision.”

Before deciding to buy or rent solar panels, review the pros, cons and financial commitments to see which direction is ideal.

Buying solar panels

Pros

If you purchase solar panels, you own the system and increase home value while enjoying tax credits and rebates, power overproduction credits, stable monthly payments and consumer-friendly financing. Buyers also see a return on investment while cutting their monthly expenses.

“The system is yours, typically lasts longer than it’s warrantied, and in Texas, the value of your array is added to your home’s value, but you’re not taxed on it,” said Lucy Stolzenburg, executive director of the Texas Solar Energy Society in Austin, Texas.

Cons

Micah Breeden, chief financial officer at Allterra Solar in Santa Cruz, Calif., says even though the prices have decreased, upfront cash costs of solar energy systems could still be a shock to homeowners. Additionally, some agreements offer incentives and bonuses, but they’re not consumer friendly, plus you want options since there are different rates and terms.

“There are some scummy contractors out there, and the repercussions for doing poor work are slim,” said Stolzenburg, “If the utility offers a rebate, there’s some oversight on the contractors, but if they don’t, there’s not a lot of protection for homeowners.”

Financial Analysis

“The big thing is getting the tax credit, which can be 30 percent of the cost of the system,” said Breeden, “And there are many financing options with good interest rates, no pre-payment penalties and you can pay down your loan to reduce monthly payments.”

Although solar system costs have decreased, they’re still expensive investments that can set cash buyers back $15,000 to $20,000. However, customer-friendly financing is making solar energy more affordable, with zero money down, terms of 10 to 20 years and interest rates of around 3 to 6 percent. After the loan is paid off, the system is yours, and through the process, you’ve cut utility bills and improved home value.

Solar panels on the roof of a home
Before deciding whether to buy or rent solar panels, talk to your solar installer about the financial implications (Credit: Chris Kantos/Flickr)

Leasing

Pros

Leasing provides a more hands-off solar experience where the installer handles insurance, maintenance and performance. The only cost is the monthly payment, which means signing a Power Purchase Agreement (PPA) to buy power at a fixed rate or a lower rate over 20 to 25 years. If the system doesn’t perform as anticipated, the installer will sometimes compensate you, and if you’re not eligible for the tax credit because you rent instead of own your home, leasing may work better, says Breeden.

Cons

“There’s a lien on your home, and any refinancing or selling of the property means having the lien temporarily removed, transferring the lease to the new buyer or buying out the lease,” explained Ugarte.

With leasing, you don’t own the system or receive tax credits for relying on solar energy, and the 20-year agreement includes monthly payments that typically increase annually. “In some leases, like year six or seven, you can buy out the lease, saving you about 40 percent,” said Breeden, “But you have to know when that is, notify the company within 30 to 90 days before the date and plan for buying out.” You can occasionally buy the system for fair market value at end of term as well, but that means more costs.

Financial Analysis

Lease payments may start out saving money, but since they typically increase an average of 2.9 percent annually over 20 to 25 years, the last payment years can be expensive, says Breeden. Although homeowners can buy out their lease or purchase their system for fair market value at certain points, those additional costs can be too high to take advantage of.

Bottom Line

Experts say get educated, secure different estimates, ask questions and, if possible, buy your solar panels rather than lease them. “Don’t lease unless you have to, as it’s not in your best interest,” says Breeden, “Buy the system so you own it and get the tax credit, and if you don’t have the capital, get solar financing, with good interest rates, no pre-payment penalties and the option to reduce monthly payments by paying down your loan.”