The True Cost of “Free Solar”— Leasing versus Ownership

When I was growing up my father used to say “If it is too good to be true – it probably isn’t.”

To many people, the upfront cost of a solar system is the initial barrier that is difficult to overcome when considering making the switch to producing your own energy with a residential solar power system. Solar companies compete not only to give customers the most cost effective solution for a solar power system, but also to provide customers with the least financial impact in the immediate future. Zero-money-down options provide homeowners with the opportunity to obtain a solar system for virtually no upfront cost, essentially “Free Solar”. This is a very powerful concept when considering whether a solar power system is right for your home, but it is important for homeowners to understand the fundamental differences between “Free Solar” with a lease agreement versus ownership through a solar loan.chartfreesolar2

“Free Solar”

“Free Solar” is becoming an increasingly popular way to describe solar power installations that require no money down.  The concept of “Free Solar” gives homeowners a fantastic opportunity to take immediate actions to improve our world and gain financial benefit with little to no risk on their own part. This term is generally associated with solar-leasing agreements, but there are other factors when considering a solar installation that provide homeowners with zero down solar power installations.

Solar-Lease

A residential lease provider allows you to have a solar system installed at your home without paying up front for installation.  The lease provider will charge you a monthly rental fee that escalates annually. Solar leases allow homeowners to go green with a solar system that will generate clean and renewable energy throughout the years, while also keeping monthly payments lower than or equal to the market utility rate.  While this may seem attractive to potential homeowners who balk at the initial investment in ownership, “free solar” lease programs end up costing you more and undermining the true value of a solar system— Energy Independence. The escalating monthly payment of a leased solar system, typically 3%, means that you end up paying more over the life of the system than you would have purchasing the system at a static interest rate.  While avoiding the upfront costs may be enticing, this will be more costly over time and denies you the financial benefits to ownership.  Lessees forfeit the 30% federal tax credit, any state incentives available, as well as SREC (Solar Renewable Energy Credit) sales to the solar lease provider.

Solar-Loan (Ownership)

Whether you purchase a solar power system outright, add the cost of a system to a home equity loan, or obtain a loan from a third party solar-loan provider the outcome is the same – Ownership. Solar ownership may come in all shapes and sizes, but ownership through a solar loan allows the homeowner to retain the idea of “Free Solar”, while still preserving all of the benefits that come along with a solar power installation.  These benefits include a 30% Federal Tax Credit on the total cost of the system, SREC sales (roughly $350-$1700 annually, varies by state and system size), and any state incentives available to you (check your state here).  In a solar lease scenario, all of these financial bonuses that increase the value of the investment and reduce payback time will be recouped by the lease-provider instead of the homeowner.  A recent study also determined that ownership of a solar system increases the value of a home by an average of $15,000. Rather than being rewarded for the extra value added to your home through ownership, lessees will face early cancellation fees or negotiating a lease transfer agreement with the new owners should you sell your home within the lifetime of the solar system. Financing a solar system gives homeowners the ability to maintain a fixed payment schedule and term of loan. Solar loans offer similar monthly payments to a solar lease program, but the difference is those payments eventually end (with plenty of life left in the system).

True Value of Solar

The true value of a solar system— aside from clean, renewable energy— is energy independence.  Owning your own solar system allows you control over how much energy is purchased from your utility company.  While a lease will avoid an initial upfront cost, you do not gain energy independence on a personal level.  There are many ways to lower an electric bill that don’t involve solar, such as installing energy efficient lighting and appliances or simply limiting your existing energy usage.  Solar ownership, however, means you are no longer at the mercy of your utility company.  You are your own power plant and have essentially pre-purchased 25 years of energy!  Ownership effectively hedges against rising utility costs, while lease payments increase annually to keep up with rising utility costs.  Instead of breaking the utility company chains, lessees are beholden to both the utility company as well as their lease provider.

“Free solar” may seem like a cheap way to go solar, but will end up costing you in the long run. As my dad would say – “There is no such thing as a free lunch.”