Written by: Contributor | Best Company Editorial Team
Last Updated: July 13th, 2020
For most of the solar industry's 140-year history, solar-harnessing technology has only been available to the environmentally conscious elite. But for the past decade, residential solar companies have been clamoring for the business of the everyday consumer - and solar energy has never been more widely available, or more affordable.
The sudden increase in competitive solar energy companies has not only driven down the price of solar energy, but it also correlates to the steadily climbing number of state and federal incentives for making the switch. If you've been wanting to add solar panels to your home or place of business, it's important to be aware of the purchasing options available to you.
Leasing/PPAs vs. Buying/Solar Loans
Generally, people go solar in one of two ways: they either lease their solar panels, or buy them. As making the switch to solar is both an economic and an environmental decision, your choice to either lease or purchase your home solar system will greatly depend on your financial and sustainability goals.
(For more information on the best solar companies near you and their pricing options, check out our Top Recommended solar companies)
The Solar Lease
Leasing is a popular option among solar enthusiasts. It gives lessees the opportunity of acquiring a solar system for as little as $0 down. Leasing is the best option for you if you match any of the following descriptions:
- You care less about receiving financial benefits for making the switch to solar, but are primarily interested in the environmental benefits of using a renewable resource.
- You have a relatively small tax bill that would erase the tax credit benefit for going solar.
- You are either unwilling or unable to make a sizable cash investment for a solar system.
- You don't want to be responsible for the care and maintenance of your solar system.
- You have a credit score above 700.
Power Purchase Agreements (PPAs)
In addition to solar leases, customers can also finance their solar system through a power purchase agreement, or PPA. The main difference between solar leases and PPAs is what you're paying for: lessee will pay the leasing company for the solar equipment, and the energy is essentially free; meanwhile, PPA users pay for the energy at a set price per kilowatt hours.
Other important differences between solar leases and PPAs are as follows:
Solar Leases vs. PPAs*
If you plan on leasing or entering into a PPA, you should be prepared for a lengthy contract, sometimes up to 20 years or more. And depending upon your current homeowners insurance policy, leasing out a solar system could leave you with higher insurance premiums (though, this is not always the case. Sometimes solar leases can actually decrease your premiums. Check with your insurance provider before signing your lease).
Purchasing Your Solar System
Although solar systems are considerably cheaper now than they were 10 years ago, they are still expensive, ranging between $10,000 and $20,000 for a full system. Potential buyers should also be aware that solar systems are also an investment, complete with real returns. Purchasing a solar system is the best option for you if you fit the following descriptions:
- Your main interest is in maximizing the financial returns on your solar system investment.
- You either have the cash on-hand or can borrow to pay for the system upfront.
- You are a business that could treat the solar system as a depreciable asset.
- Your tax bill is greater than the accompanying tax credit.
- You want to increase the resale value of your home.
Buying a solar system is a great way to invest in your home, but it's important to remember that years can transpire before you see any noticeable returns on this investment. And, as you are the owner of the solar system, you are also responsible for its care and maintenance. You will also be responsible for the installation cost, which can be quite expensive.
The Solar Loan
In addition to purchasing your solar system upfront, you also have the option to finance your system through a solar loan. Solar loans are very similar to any other home improvement loan, paid off in monthly installments and assigned a specific interest rate. Loans for your solar system are either secured or unsecured. Secured loans use the home itself as collateral, while the riskier unsecured loans charge higher interest rates and no collateral:
Solar Loan Options
Home Equity Loan
FHA, Title 1 Loan
Because the monthly payments to your solar loan tend to be significantly less expensive than your ordinary electric bill, going the solar loan route allows you to immediately start saving money on your utility bill. A wide variety of institutions offer home solar loans:
- Local and national banks
- Utilities companies
- Solar panel manufacturers
- Credit unions
- Specialty finance companies
- And more . . .
Even though the cost of solar is half what it was a decade ago, thus making it easier for institutions to offer solar loans, not all solar loans are created equal. Potential borrowers should do their homework before signing their solar loan agreement.
Questions to Ask Yourself before Going Solar
How much Money Do I Have On-Hand?
Residential solar panels are expensive, about $10,000 to $20,000 if you're purchasing the system outright. So if you have that much on-hand, or are able to finance that amount through a solar loan, then purchasing the system is the better option; if not, you should consider a solar lease or a PPA.
Can I Use the Tax Credit?
If you plan on purchasing a solar system, you should also consider the accompanying tax credit that comes with it. This tax credit will generally reduce your tax bill by about 30%. If your tax bill is significantly larger than the tax credit, the benefit is clear and you should buy your system; but if your tax bill is smaller than the credit, there is no benefit, and you might consider leasing instead.
Who will Maintain My Solar Panel System?
Buying your own system means that you are solely in charge of its care and maintenance. And although solar systems are largely low-maintenance, making repairs yourself can be both costly and expensive. On the other hand, leasing your system
What Is My Credit Score?
If you plan on purchasing your solar system, your credit score will not matter so much; however, if you need a solar lease or a solar loan, your credit becomes a lot more important. A credit score of 700 or greater will usually help you secure a solar loan or lease.