Solar Leasing is usually not a great deal compared to owning your own system
I recently posted the three estimates we received when considering adding solar power to our home. The third company primarily sold solar leases, which is viewed as a cheaper way to switch to solar power. I was excited to learn how the solar power lease works and I would love to let you know what I learned.
Overall, if you can afford your own system you will save a lot more money that way. That said, you can lease a system with $0 down. Just because you can does not mean it is the best option, however. The solar leasing “deal” relied on the cost of energy increasing at a fairly high, consistent rate, over the next 20 years. As we just saw with the housing bubble, nothing is sure when it comes to inflation (although costs seem to go up more reliably than investments).
Out of the three companies that I got an estimate with, the solar leasing company had the lowest producing modules (only producing 360 kWh's per year vs. 400 and 449 for the other two companies) and used a whole-home inverter instead of the new micro-inverters. Although it is cheaper to install a whole-home inverter, micro-inverters allow you to size up your system if you need to in the future and if a panel or inverter goes out it doesn't take down your entire system. With a whole-system inverter your photovoltaic system is only as good as your slowest panel. Despite this, their purchase price for the system was the most expensive of the three companies, making the lease look even more attractive. They also claim, that you will save more money by purchasing a prepaid lease from them than owning it because they only calculated 20 years savings with owning, even though the modules and inverters from the other companies came with 25 or 30 year warranties. When I told the solar leasing company I had decided to purchase the system instead he said “just keep in mind, when you have to replace the inverter sometime in the next 20 years, and you will, you will spend thousands of dollars because inverters are not warrantied.” I promptly looked this up and both the other companies offered a 25 year warranty on the inverters.
The solar leasing company offered me three different plans:
- The first had the lowest initial year cost, but inflation was built in
- First year $744, Twenty year cost of $19,800
- The second had a higher first year cost, but your costs always stayed the same
- First year $965, Twenty year cost of $19,300
- The third was a prepaid lease, you pay more upfront for a lower cost throughout the life of the lease
- First year $8901, Twenty year cost of $17,300
Right now I pay $0.1216 per kWh. Here is what that looks like over 20 years:
- “First year cost” of $923, no inflation twenty year cost of $18,500
- 2% inflation – $21,500
- 4% inflation – $27,500
Solar companies like to claim that the cost of electrical power will increase at a 4-6% rate, but you just do not know. I found data on the California energy site that showed the average cost in California in 1980 was $0.0589 and it was $0.1101 in 2005. That is an increase of 2.8%, which is pretty close to “normal” inflation (inflation has averaged 3.2% from 1913 to 2013).
Also, when looking at long-term savings like this it is only human to account for inflation when it benefits us, but not when it doesn't. Looking at the second loan option and comparing it to the 2% inflation rate gives you a savings of $2200, but that savings is in “20-year from now” dollars. A couple other things to point out:
- You are locked into a lease. If you sell your home you either have to buy your way out (pay the rest upfront) or get the buyer to agree to take it over and the leasing company to agree that they will allow your buyer to take it over. That said, a buyer may be willing to pay more for a home that has their electric paid for the next few years.
The third option looks great, until you compare it with our estimates to own a system. The lowest cost equivalent system would cost approximately $16,800 upfront and you could get approximately $5900 back after taxes (total cost of $10900). Your first year cost with the third option is $8900. For $2000 more (if you can wait for tax time) you will have your entire electric bill paid for 25+ years instead of paying another $8400 on a lease in the next 20 years and then losing the system.
***Your numbers will vary depending on your own electrical usage and the companies that are in your area!
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Related Articles:
- Solar IN with Homeowners (solar-inland-empire.com)
- Solar Power: The Hottest New Thing for Homeowners (huffingtonpost.com)
- 75% of California Rooftop PV Systems now Leased (pv-tech.org)
- Solar Micro Inverter to Minimize Power Loss (solarpowerinstall.wordpress.com)
- Living with Five Years of Solar Power (tested.com)
We have grown our system from one panel, an inverter and two 6-volt in series to create our 12-volt system. It has grown to three panels and 12 6-volt batteries. The system is split into two parts so we can use one during the day while the other continues to get a full charge for use at night. We have very simple electrical needs in our small off the grid cabin. It would be nice to have more battery storage at some point, but so far, so good, and much cheaper than a huge system. – Margy