How Does Leasing Solar Panels Work in Arizona?
As the technology that uses renewable resources becomes more in demand, you’ve probably considered harnessing the power of the most consistent renewable resource: the sun. However, many people can’t afford the upfront costs of solar panels, so what options do you have?
At Solar Solution AZ, we provide residential solar solutions in Arizona. Our technicians suggest leasing solar panels. But how does leasing solar panels work in Arizona? Read on to learn more about this option.
What Is a Solar Lease?
When people lease solar panels, they enter into agreements with solar companies. The companies collect monthly payments while the leassee uses the panels on their properties. Solar leases enable you to harness solar power without paying out of upfront.
How does leasing solar panels work in Arizona? Different solar companies use varying terms for their agreements. Most leases can last 20 years or more.
Like renting an apartment, leases usually include regular maintenance in their terms. You may also pay more with each year’s lease.
Pros of a Solar Lease
Solar panels offer your family numerous benefits. Like many people, reduced energy costs probably attracted you to solar panels at first. Since your home doesn’t use the energy grid, you don’t pay for fluctuating electricity expenses.
You also have power regardless of storms or other natural disasters. As long as your solar panels remain intact, your household can continue with business as usual. Other advantages of a solar panel lease include:
- No costs upfront
- The solar company takes responsibility for any maintenance and upkeep of the equipment
- Predictable lease payments
- Leases last almost as long as a solar panel’s lifespan
A solar lease offers various attractive perks. If you want to make your home more energy-efficient, solar panels get you off to a great start.
Cons of a Solar Lease
While solar panels offer a fantastic, green solution for most homes, they also come with a few disadvantages. For example, you can’t rent solar panels while earning solar tax incentives. Any tax credits allotted for solar energy go to the owners of the panels, so the money goes to the solar company from which you lease.
Other disadvantages include:
- Your lease payments can increase each year.
- Solar panel purchases offer better long-term investments than leases.
- Leased solar panels may cause difficulty if you wish to sell your home.
When you enter into any lease agreement, you take calculated risks. The benefits should outweigh the risks. Do the math to learn whether you’ll benefit more from making a purchase later or leasing right now.
What Does It Mean To Lease Solar Panels?
Solar leases allow homeowners to rent their solar equipment instead of buying it. The solar electricity produced by the solar panels supplies power to the house, and the homeowner makes a monthly lease payment for the solar panels. Even though the solar panels are installed on the property, the homeowner doesn’t own them.
There are some financial benefits of leasing solar panels, which have made them a popular option for certain homeowners.
Startup Costs Are Lower On Leases
Often, homeowners can get a solar panel system for
Drawbacks Of Leasing Solar Panels
Although there are benefits of solar lease agreements, there are also some drawbacks.
Leasing Company Gets To Claim Rebates And Incentives
Because the leasing company owns the solar system, they can claim the federal solar tax credit. not the homeowner. The tax credit is worth 30% of the total system cost if installed before 2032.
If the solar energy system costs 16,000, the value of the tax credit in 2022 is 4,160, so it’s an impressive tax incentive. Likewise, if there are other local, state, or utility incentives, the homeowner will typically not qualify.
Reduced Long-term Savings
Although the lower upfront cost of entering a solar lease is very appealing, the long-term savings are also usually lower. If the homeowner buys the solar system, it will pay for itself with the utility bill savings over time. However, for solar leases, the homeowner will need to make payments for the lifespan of the solar panel system.
No Increase In Home Value
Numerous studies show that installing solar panels boosts home value. However, this only applies when owning and not leasing the solar panels. If the homeowner sells the home, owning solar panels can make a big difference in the sale price.
. Because the high upfront cost of solar panels is a common hurdle that makes solar power unaffordable to many, solar lease agreements bypass this issue.
Moving Or Selling Your Home Won’t Be A Deal Breaker
Although the details vary by the solar provider and the lease agreement, solar leases commonly have clauses for moving. Typically, homeowners can transfer the lease to the new home buyer.
However, there are often credit requirements, and the buyer may need a certain minimum credit score. In some cases, potential buyers might be concerned about assuming the lease and the associated monthly fee. Occasionally, the home seller will need to buy out the solar lease if the new owner is unable or unwilling to take it over; this would mean the interested buyer would own the panels outright after purchasing the property from the seller.
Homeowner Isn’t Responsible For Solar System Repairs
With a solar lease, the leasing company that owns the photovoltaic (PV) system is responsible for repairs and maintenance, not the homeowner. This is generally good news unless the leasing company is very slow to make needed repairs.
Differences Between Leasing And Buying Solar Panels
The owner of the solar system impacts a variety of factors.
The hefty upfront expense of installing solar panels could be a compelling reason to lease instead of buy. However, many banks, credit unions, and solar installers offer financing. In some cases, the homeowner can get solar panels for zero down. Also, if the loan is a home equity loan, the interest may be tax deductible.
Often, the maintenance and repair costs are lower when leasing a solar panel system, but this does depend on the solar warranties. When buying, the solar system comes with warranties, but these vary significantly between solar panel installation companies. Solar equipment, like the panels and inverters, also have warranties from the manufacturer for up to 25 years, but they don’t usually cover labor.
In addition, the solar company usually offers a labor and service warranty for a certain number of years. Occasionally, some solar installers offer warranties for 25 years, but this is somewhat rare. Labor and service warranties between 2 and 10 years are more common.
With solar leases, the leasing company is responsible for all repairs. However, if a homeowner buys a solar power system with long warranties, they will have similar coverage.
Ownership Of The Panels
Another huge difference is PV panel ownership. When leasing the system, the homeowner only owns the power generated. When buying, they own the panels and solar power. However, that also means that it is the homeowner’s responsibility to insure them, which could cause a slight increase in their insurance premiums.
If you compare the total energy savings with the utility company over the life of the solar system, solar homeowners will almost always save more money if they own the panels instead of leasing them. This is because monthly lease payments can last for around 20 – 25 years, but the payback period of a solar system is usually 6 – 10 years.
FAQs About Solar Panel Leases
Let’s look at some common questions your customers may have about solar leases.
Solar Lease Vs. Purchase Power Agreement?
With a solar lease, the homeowner is leasing the equipment and the payments are fixed. With a solar power purchase agreement (PPA), they payments are based on the solar power production and there is a cost per kilowatt hour of power. Therefore, the homeowner will often pay more in the summer if solar electricity production is greater and less in the winter.
Are There Solar Lease Requirements?
Yes, solar leasing companies have requirements for homeowners. Typically, they must own the home and have a certain minimum credit score. There may also be requirements for having a minimum monthly electric bill.
Leasing vs Buying Solar Panels (2023 Cost Differences Tips)
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Dan Simms worked in real estate management for five years before using his experience to help property owners maintain their own homes. He got his master’s degree in English Literature and Creative Writing, and he now enjoys sharing his knowledge about homeownership and DIY projects with others on Today’s Homeowner. When he’s not writing, he’s usually outdoors with his wife and his dog, enjoying mountain biking, skiing, and hiking.
Roxanne Downer is a commerce editor at Today’s Homeowner, where she tackles everything from foundation repair to solar panel installation. She brings more than 15 years of writing and editing experience to bear in her meticulous approach to ensuring accurate, up-to-date, and engaging content. She’s previously edited for outlets including MSN, Architectural Digest, and Better Homes Gardens. An alumna of the University of Pennsylvania, Roxanne is now an Oklahoma homeowner, DIY enthusiast, and the proud parent of a playful pug.
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Solar panels are expensive, and not many people can afford to purchase a rooftop solar system outright in cash. Many homeowners look for solar loans to help them pay off their solar panel purchase over time, while others choose to lease panels from a solar company, relinquishing ownership in exchange for less responsibility — and fewer savings. If you’re not sure which option is right for your home, this is the article for you.
Below, we’ll cover the main differences between leasing and buying solar panels, focusing on overall cost differences and lifetime savings potential.
If you’re ready to get started, click one of the below buttons and we’ll pair you with a top solar installer in your area that will help you navigate the options with solar financing.
What Are the Key Differences Between Leasing vs Buying Solar Panels?
Here’s a quick look at the main similarities and differences between leasing and buying solar panels.
Leasing solar panels is a way to invest in solar power without having to lay out a large sum of money upfront. It makes rooftop solar power more accessible to people on tight budgets at the expense of long-term savings. When you lease solar panels, you don’t own them, so the energy they produce doesn’t belong to you. That means you can’t take advantage of solar incentives or net metering programs, and you won’t enjoy increased home value since the solar panels aren’t technically part of your home.
Key to Buying Solar Panels
Buying solar panels requires more initial capital but rewards you with greater savings over the course of your solar system’s life. People who purchase their solar panels — either outright in case or via a loan — can offset the high upfront cost by taking advantage of local and federal solar tax credits. Additionally, buying and installing solar panels increases the value of your home, making it possible to recoup most of your investment should you decide to sell your home down the road. Solar panels also make your home more attractive to potential buyers, which makes it easier to sell your home in a competitive market. New owners get to enjoy the lowered electricity costs of a home with solar panels without the hassle of buying and installing them, making homes with rooftop solar especially attractive to first-time home buyers.
Published on December 7, 2022
A Solar Lease is one of the options for “third party ownership” where the system is owned by the leasing company and typically installed with no “up front” costs. In a solar lease the customer typically pays a set monthly rate for your solar panel system, but receive free electricity from the panels that offsets the monthly cost of the lease. Solar leases are allowable in many States, however, not all jurisdictions allow solar leases.
There are two types of leases for solar energy – Capital Leases and Operating Leases. They function very differently and the customer’s financial situation, as well as State regulations, are important when choosing which one will work best for the customer.
Capital LeaseWith a capital lease, the Lessee (customer) is able to capitalize on all the tax incentive and depreciation benefits that come with solar. However, the monthly payments are typically higher than an operating lease option. At the end of the lease term, the lessee has the option to buy the system from the Lessor (developer).
Operating LeaseWith an operating lease, the Lessor owns the solar system and the Lessee makes a monthly payment to the Lessor. In this scenario, tax incentives and depreciation benefits go to the Lessor. This lease option is best for a customer that cannot utilize the tax benefits that come with a solar system. The Lessee can decide to purchase the solar system or renew the lease terms when the operating lease expires.
Power Purchasing Agreement (PPA):
A solar power purchase agreement (PPA) is a financial agreement where a developer arranges for the design, permitting, financing, and installation of a solar array on a customer’s property. The developer sells the power generated to the host customer – typically at a fixed rate that is lower than the local utility’s retail rate. Payments within a PPA agreement are based on the actual energy produced by the solar array every month. This lower electricity price serves to offset the customer’s purchase of electricity from the grid. The developer receives the income from the sales of the electricity as well as any tax credits and other incentives generated from the system. Customer’s entering into a PPA who wish to claim the “green attributes” of the solar energy will need to negotiate with the solar developer to retain the solar Renewable Energy Credits.
PPA’s typically range from 10 to 25 years during which time the developer remains responsible for the operation and maintenance of the system. Some PPA agreements will also offer an early “buy out” clause which enables the customer to purchase the solar array for a predetermined price or fair market value.
Similar to a solar lease., the customer typically pays nothing for the installation or maintenance of the solar system, which will be owned by the solar company. In a PPA, you pay for the electricity produced by the system directly. This electricity typically costs less than the electricity provided by your utility, so customers typically save money as soon as the array is operational.
Benefits of PPA’s for Solar Customers
No or low upfront costs: the developer is responsible for the design, procurement, installation, and inter-connection of the array with all of these “up front” costs being integrated into the terms of the 25 year PPA agreement period. Typically, this results in an agreement that saves the customer money as soon as the array is operational.
Reduced energy costs: PPA’s provide a fixed cost of electricity for the duration of the agreement. Under these agreements, a PPA typically defines a fixed annual escalation rate. Typically, the fixed escalation rate is lower than the historic escalation of utility rates, meaning that the savings per kWh under the PPA will likely increase with time.
Limited risk: the developer is responsible for the system design, procurement, installation, and all operating and maintenance through the life of the agreement.
Leveraging of incentives: Developers are typically positioned to maximize the use of available incentives like tax credits and tax depreciation value. This is particularly true for non-profit or public clients like government entities. The reduced project costs resulting from the leveraging of incentives is usually shared with the customer in the form of advantageous PPA rates.
Potential increase in property value: Studies by Berkeley Lab, The Appraisal Journal, and the National Renewable Energy Laboratory and others have indicated that solar arrays typically increase property values. Within a PPA structure, the benefits of a PPA can be transferred with the property, maintaining the attractiveness of on-site solar for future property buyers.
Which Approach is Best for You?
Purchasing a solar panel system with cash (or loan) is your best option when you…
- Want to maximize long-term value.
- Are eligible to reduce your federal and state tax liability through the federal investment tax credit.
- Are a business, and can realize tax benefits by treating the solar panel system as a depreciable asset.
- Want to increase the market value of your home by installing a solar panel system.
A solar lease/PPA is your best option when you…
- Want to eliminate up-front costs.
- Want to avoid the responsibility of maintenance or repairs for a solar panel system.
- Are ineligible for federal or state investment tax credits from your investment in a solar panel system.
- Do not want to wait until the following year to receive the financial benefits of tax credits.