The popularity of the residential solar lease has increased dramatically in the last several years as residential solar migrates to the mainstream. Big financing companies have been aggressively marketing these leases and a great deal of media attention has followed. It is a truly exciting development for the industry and prospective buyers since it expands the market to include many who might not have had the means to do so before now. As a result, many prospective buyers are now faced with the choice: Is leasing right for me or should I buy my system outright?
HOW DOES A SOLAR LEASE WORK?
In a typical leased scenario, the financing company owns the solar system as well as all the incentives associated with it, while the homeowner gets the solar energy that it produces for the duration of the term. The financing organization typically contracts with the homeowner for a 10 year monthly payment that is less than the monthly savings from solar, producing a monthly savings from month one for the homeowner. At the end of the term, the system is usually available for purchase at “fair market value”, but there are various options available for acquiring the asset. In addition, the homeowner can buy down the monthly payment by putting down some cash up front as a down payment. As would be required for any type of lease, the customer must have good credit.
THE DETAILS ARE COMPLEX, BUT THE BOTTOM LINE IS NOT…
Should I lease or buy? Well, it’s not as complex as you might think. In the majority of cases, if you can afford to purchase the system outright, your return on investment will be much greater than if you lease it. Why is that? A system owner who can leverage all of the available incentives can expect an ANNUAL return on investment of 10 – 15%. That is quite a return in today’s economic climate with an uncertain stock market and savings accounts paying less than 2%. If you choose to lease your system, the available incentives are going to be leveraged by the leasing organization, allowing them to profit significantly from the deal, even after they factor in your monthly energy savings from solar.
THEN WHO SHOULD CONSIDER A LEASE?
If you don’t have the cash to buy your system, then consider other sources of financing like a home equity loan or some other low interest loan that is well below 10%. Many installers offer 6-12 months “Same As Cash” financing to allow the buyer to capture most of their incentives before having to pay for the system. If these avenues are not available to you, but you still have good credit, then leasing might be the best route. Another reason to consider leasing is your tax liability. If you don’t have a federal income tax obligation because you annual income is not large enough to take advantage of the 30% federal tax credit then leasing is definately for you – but do remember, you have until the tax year of 2016 to use up your federal tax credit – even if it’s only a portion each year.
Incentives do vary…