Owning Solar

Over the last 7 years, the majority of homeowners purchased their solar system. The main reason is because of tax incentives. The Federal Tax Credit (FTC) is a great way to save money when buying solar. Before 2020, people that purchased a system got a 30% tax credit from the government. The FTC is now phasing out. This year, people that buy solar are eligible to receive a 26% tax credit. Not everyone qualifies so it’s best to first consult with a tax advisor.  They’ll determine if you’ll be able to get a credit, which will be mailed to you. If you don’t qualify, that means you owe taxes and the credit will contribute to what you owe to the IRS.

Another reason why buying makes sense is the Return on Investment (ROI) you get. When you own solar, it will pay itself off between years 8-10 after purchase. Your ROI is based on the amount of money you save from not paying the utility company. Cool! The idea is to have solar power offset as much utility power as possible. Schedule an appointment to see how much utility power your home can offset with solar. When owning solar, you basically have no electric bill. The savings goes back into your wallet. By the 8th or 10th year, you’ll break even from the accumulated savings.  Every year afterward is completely free energy!

When deciding to own, you’ll either pay the full purchase price upfront or finance and make monthly payments with principal and interest. When financing, the lender will offer 5, 10, 12, 15, 20, 25 year payment terms. The interest rates (based on FICO) for the 5 year term begins at 2.99% while rates for 25 year term range between 7-10%. While some people are able to pay the solar outright, most prefer to pay monthly. Keep in mind that you’re still paying interest so at the end of the term you may have paid more than the original cost. The upside to financing is that there’s not pre-payment penalty. So if you’re able to pay it off sooner, go for it! When shopping for solar, just be sure to know who’s financing our loan. Some lenders may add a lien to your home.

Cash vs. Finance vs. PPA vs. Lease

Leasing Solar

Leasing solar has gained more attention in recent years. Today, leasing is the most popular option because it offers a $0 up front cost. When purchasing solar, either you’ll pay the full price or (if financed) you’ll pay the tax credit you received to the lender. Lenders are going to give you 18 months to pay them your tax credit in order to keep your monthly payments low. Otherwise, they’ll increase your monthly payment. When choosing a lease, you’ll only pay a super low monthly payment for the solar. The payment terms range between 20-25 years and are broken down into a monthly kilowatt (kWh) rate. In other words, the lease program is exactly like how you pay the utility company for their power. The main difference is that you’re paying at a much lower rate.

Leasing a solar is a great option if you’re not able to qualify for the tax credit or if you want the most minimal monthly payments possible for electricity. Another advantage why leasing is a great option is the warranties and protections you get. When you own solar, it’s your investment. So you’re going to want to be on top of the system’s performance. Solar companies that sell you a system usually don’t maintain the system’s performance. They just include the manufacturer’s warranties in their contract.

With a lease, the solar company has ownership. In the lease agreement, they’ve made promises on the solar system, so they have the burden to ensure it’s performing at the level that you agreed to lease it at. If for some reason, the system fails to produce the amount of energy that’s been promised by the solar company, then you’ll be reimbursed or credited for the difference you had to pay for utility power.

Most homeowners think that leasing solar means to be in debt but that’s not the case. There’s no debt or lien since it’s easily transferable. So if you happen to sell the home, it’s not required to pay off the full cost.  The new buyer will simply take over the payments just as they would with the utility company.

The Power Purchase Agreement

The Power Purchase Agreement (PPA) is another type of lease option. Rather than paying the same monthly payment over a 20-25 year period, with a PPA you just pay for the amount of power the system produces. Because solar generates electricity from the sun, a solar system’s production is seasonal. Meaning that generation is low during the winter and high during the summer. With the PPA you’ll be paying less power in the winter time and you’ll pay more for power during the summer time.

Both purchase and lease have their own benefits and features. If you’re unsure whether to lease or buy, consider the following factors:

• How long are you going to live in the home?  If you’re planning to go solar and move out in 5-7 years, then go with the lease. By that time, more homes will have solar anyway because California State Law (Renewable Energy Act) requires it!
• Maintenance Preference. If you like to be on top of your system’s performance, then purchasing is a better way to go. If you prefer another company to handle all and any issue that may arise from the system in the future, select the lease option.
• Most cost saving option. If you’re looking to pay the cheapest price for solar right from the get-go, lease. If you’re patient and want to be free and clear with any energy costs by year 8-10, buy or finance the solar system.

When I discuss options with homeowners I ask them to think about how they intend to get a new car. Solar is similar, in a way. Like a car, it depreciates value, requires maintenance, comes with warranty, and has wear and tear over the years. Regardless of which option you go with, the key is to know how much you’re going to save with solar vs. what you’ll be paying the utility in the long-term. The long-term savings will be tremendous versus the cost you’d pay the utility company over the same amount of time. If you like to get a cost-analysis or breakdown of how much you can save with solar, schedule an appointment.

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