Is it better to purchase solar panels or to rent them?
Several companies now offer leasing options, so you do not have to put down the $20,000-$30,000 to buy solar panels for your home.
Dear Consumer Advisor,
I like the idea of saving money and the environment with solar panels, but I’m not sure whether I get enough sun- or use enough electricity- to make the panels pay off. How do I figure out if whether or not solar power makes sense for me? Is it better to purchase the panels or to rent them?
Sincerely, Sunny Ornot
Just ten years ago very few homeowners installed solar panels, motivated mostly by environmental goals. Today, many people hope that home solar will be cheaper than buying electricity from their utility. Several companies now offer leasing options, so you do not have to put down the $20,000-$30,000 to buy solar panels for your home.
In determining whether solar is a cost effective investment for you, here are some things to consider at the outset:
- Take a good look at your utility bill. Remember that California utilities charge higher prices for kilowatts used above the “baseline” for your area. Solar has the biggest payoff if you are in the above-baseline pricing tiers, most likely because you have a very large home and/or use air conditioning. While it is difficult to give a “rule of thumb,” your monthly electric-only bill (make sure you exclude gas) should average at least $75.
- Make sure your roof does not need to be fixed or replaced first. You don’t want to pay for solar panels, and then pay to have them removed if your roof needs replacement or repairs in five or ten years.
- Have you made all the major energy efficiency improvements you can? Do everything possible to lower your usage before making a decision.
Savings Tip: The more electricity you use, the more sense solar makes.
More and more companies are offering solar leases, so we’ll take a closer look at those in this column.
There are two main options for leasing solar panels. One is a “PPA” (power purchase agreement), in which you pay the solar company an agreed-on price per kilowatt-hour for the energy you use. The other is to “rent” the panels from the company, and receive credit on your electric bill for the energy the panels produce. Generally, both arrangements lock in prices for about twenty years at either a fixed monthly price, or an escalating annual price.
The attractiveness of a PPA is easier to evaluate. Just compare the PPA price (cents per kilowatt-hour) to theaveragemonthly price you pay your utility over the course of the year. The solar company should calculate your average price from your utility bill data.
The savings from a “rental” arrangement with a solar company may be harder to pin down. Make sure your solar company tells you the “price per kilowatt-hour” based on the guaranteed solar production and your total costs (any prepayments together with monthly payments).
Beware of these pitfalls when leasing solar panels:
Lease companies will offer you detailed charts of future monthly savings with attractive pricing and returns calculations. But these assumptions are based on projected increases in electric rates that may or may not occur.
Savings Tip:Companies often forecast benefits based on assuming utility prices will increase by over 4% per year. Ask them to calculate the benefits assuming a smaller price increase of 2% per year.
Beware of any adjustment for inflation (the so-called “discount rate”) included in your estimate. Some solar companies do not account for the impacts of inflation at all (no discount rate), which make future benefits of solar appear much greater.
Leases with no production “guarantees”
Under a rental agreement, solar companies should offer to pay you a certain amount per kWh if the system produces less power than forecast. With a PPA you only pay for the electricity produced, so this is not an issue.
Your lease or PPA should include maintenance of the panels, and cover costs for replacing the inverter prior to the expiration of the lease or agreement.
What happens if you sell your home? Usually, if you have monthly payments to the solar company, a buyer has to agree to take those over, or you have to “buy out” your solar contract. These various trade-offs will need to be part of the sale negotiations.