The final installment of this lease blog attempts to compare a direct purchase of a solar electric system by way of a long-term loan vs. a zero down lease option. Please note, the numbers in this blog are strictly estimates, actual direct purchase numbers and lease terms will vary considerably depending on the household and system.

This analysis looks at 20 years of system operation in an attempt to have a direct comparison with a 20 year lease term.

First, the assumptions:

• Median Arizona household income in 2008 -- $51,009. Married filed jointly at a 15% federal tax rate + 4.24% state tax rate = 19.24% combined tax rate
• 5 kW system
• 1716 kWh per kW a year output guarantee for direct purchase using TFS modules and installation techniques. 1634 kWh per kW for the third party lease company.
• $2,500 inverter replacement cost at year 15
• Avoided cost rate of $0.10 per kWh
• Annual lease increase for zero down lease plan 2.5%
• 730 credit score

Zero Down Loan vs. Zero Down Lease

As can be inferred by the name, both the zero down loan and the zero down lease options require nothing paid upfront.  Since both financing vehicles are long-term commitments, a credit check is necessary. There are two important differences between a loan and a lease. First, a loan has a fixed monthly payment and a lease has a monthly payment that increases 2.5% annually. Second, with a lease, maintenance of the system, including the inverter replacement, is taken care of; however, inverter replacement is not covered in a loan.

So how do they compare?

Initially they look about the same. They both save the customer money starting at day one.

The solar loan has a payment that’s slightly higher, but that is offset by higher system production.

If you were to take the loan option, what will happen in 20 years when you consider the annual payment escalator and an inverter replacement? Under a 2% historic inflation rate here is what you get:

Lease Savings	Loan Savings
$ (1,05.00)	$ 2,471.52

 

The downward bend in lease savings is due to the 2.5% lease escalator outpacing inflation. The large dip at year 15, when you look at the loan savings indicates an inverter replacement.

 

So what happens if you have a higher inflation rate?

Loan Savings	Lease Savings
$ 5,915.68	$ 1,696.78

As mentioned in the previous blog, there are prepaid leases which require a large upfront payment similar to a cash purchase. The prepaid lease option does not come with an annual lease increase and can yield significant savings. However, for customers with solid credit and little upfront capital, a long-term solar loan can be a very attractive option.

Check out the other blogs in this series:

Solar Leasing: Who is it good for?  Part 2 of 3

Solar Electric Financing: Zero Down Loan vs. Zero Down Lease: Part 3 of 3