Weighing the Solar Options: Leasing vs. Financing vs. Owning a Solar Electricity System, Part 1 of 3
As the solar industry seeks to reach more and more people, new financing options are being created to help homeowners overcome the upfront cost of solar. This blog entry is one of three that will attempt to demystify the benefits and trade-offs of the three main paths to get solar on your roof: leasing, financing, and upfront purchasing.
This first entry will serve as a high level introduction, the second part will explore the details of each lease model, and part three will provide a financial comparison of leases and loans.
We can begin by comparing renting a house to taking out a mortgage and finally to buying a house with cash. When you rent a home, you make monthly payments that go to the owner of the home. The owner takes care of any maintenance, you get the benefits of living there, and at the end of the lease agreement you are not any closer to owning the property than you were when you first moved in. When you take out a mortgage for a house, your monthly payments build equity in the home and you are put on a path to ownership, but you have to take care of maintenance. Buying the home out right takes a lot of capital and you still have to maintain the home, but you essentially live in the house for free.
Moving back to solar, the charts below provide an overview of the benefits and hurdles of each model:
*Transfer issues between new owner – If for some reason the party buying or renting the house does not meet the leasing company’s credit standards, then the originator of the lease may have to buy out the lease.
**Payment of two bills required - Whether you lease or finance your system, you will have to make a monthly payment to a leasing company or a bank. This is in addition to still having to pay (although a lower amount) the monthly utility bill.
***Tax liability needed – In order to realize the full federal and state tax credits, enough income to generate a tax payment is required. The owner has 5 years to generate enough tax liability for the state tax credit and until tax year 2016 for the federal tax credit.
Check out the other blogs in the series: