Leasing Solar Panels: Benefits and Drawbacks (2024) – MarketWatch

Going solar is a beneficial home upgrade from a financial standpoint. High-quality solar panels have a lifespan of over 25 years, and your payback period can be less than five years in places with high electricity prices. However, the upfront cost of solar panels and installation can be high. For example:

Leasing solar panels is just one of several financing options. There are many ways to get solar energy for your home, each with pros and cons.

Cash Purchase

Assuming you have the capital, paying the full price of your home solar system upfront is an option. This method allows you to skip the interest payments associated with a solar loan and all the monthly fees charged under a solar lease. A cash purchase results in the highest long-term savings compared to other purchasing options and means you own your system immediately.

Although you pay off your system immediately with a cash purchase, you will still have to wait a few years before breaking even. As a quick example, assume you purchase a 5 kW solar system for $16,350:

• You claim the federal Investment Tax Credit (ITC) for the first year you own your panels, equivalent to 30% of your total system cost. In this example, the credit is worth $4,905, reducing the net cost of your solar system to $11,445.
• With abundant sunshine and an electric tariff of 20 cents per kilowatt-hour (kWh), this system should produce around 8,000 kWh per year and yield $1,600 in power bill savings.
• Considering $1,600 in annual savings, the simple payback period is slightly over seven years.

However, the best residential solar panels include product warranties of up to 25 to 30 years, which means you benefit from clean energy for a long time after breaking even. That said, you must be willing to wait out the payback period if you purchase a solar panel system in cash.

Solar Loans

A solar loan covers your upfront costs, and you can pay over time using part of your monthly savings. If you can get a low-interest rate, the monthly loan payment will normally be much lower than the lease payment for an equally sized solar system. You can also find solar loans with zero down payment, which means you get positive cash flow from the first month.

Solar loans are viable when you can get attractive interest rates, and monthly payments are much lower than your power bill savings. You also own the solar panels right away, which means you are entitled to any cash rebates and tax benefits available. If you don’t have access to a low-interest financing option, a solar panel lease may be a better option.

Power Purchase Agreement (PPA)

A solar power purchase agreement or PPA is similar to a lease in that you pay a provider a monthly fee to use solar panels. However, there is an important difference in determining your monthly cost:

• A solar PPA does not have a fixed monthly fee. Instead, you are charged based on how much electricity your panels generate. Typically, this rate is lower than the local electricity tariff.
• For example, if the local tariff is 20 cents per kWh, a PPA provider may charge you 15 cents for every kWh of energy your system produces.

A solar lease charges you the same monthly fee regardless of electricity generation, while a PPA has a variable fee depending on the power you use. Under this arrangement, you may pay more during the summer when your solar panels are more productive, and less during the winter when the amount of sunlight decreases.

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