Leasing solar panels can be an option for homeowners who want to avoid paying the upfront costs for solar. Leasing means allowing a solar installer to install a solar system on a property, and the home or business pays a monthly lease fee for a fixed term of years to use the solar system. This type of solar purchase is prevalent overseas, like in the USA, but as Australian solar systems are so much cheaper - it is less popular here.
While leasing has benefits, including no upfront cost, no responsibility for maintenance, and stable electricity costs. A few drawbacks include reduced savings compared to buying the system outright, not owning the solar system for a while, long contract terms, etc.
Ultimately, the decision depends on whether the homeowner wants to be dependent or independent and whether they can afford the upfront costs.
Should I lease solar panels or is it better to buy them outright?
Many solar buyers confront this dilemma: How do I reduce electricity costs from a solar power system without bearing the upfront costs of buying one? A method of getting solar without buying it is solar leasing.
In this case, the solar company installs the solar system on the roof of your home or business, and they or an associated leasing company will own that solar system.
This company then leases the solar system back to you for a specified period from around 5 to 20 years. You will then pay the company a fixed monthly lease fee for the use of the solar electricity from the solar system for the agreement term.
Alternatively, it may be charged as a Power Purchase Agreement (PPA) where you pay the lease company a fixed rate per kWh of electricity generation for the term of the agreement. These repayments of power purchase rates should be lower than the electricity rate you would otherwise be paying. Therefore you will save money, being the difference in the market rate for electricity per kWh and the monthly lease repayment divided by the kWh consumed from the system.
The benefits of solar leasing
While many people go for a straight cash upfront purchase or finance, there are several benefits of going for a lease agreement for solar. First, solar leasing may be a viable option for you, especially when you do not have the money upfront to purchase. The benefits of doing this are:
- No up-front cost – As the system is leased, it can be done without any upfront cost to the home or business having solar installed.
- Maintenance – Maintenance costs are the responsibility of the leasing company for the life of the lease. So the home or business owner is not responsible for maintenance or repair costs even after the warranty period. This reduces the risk to the home or business and secures savings while reducing costs.
- Lower cost of energy produced – As the price per unit of electricity or monthly lease payment is fixed, it secures growing savings for the owner of a leased solar system. Increased electricity prices over time mean growing savings. So even if you only “own” a leased solar system, this will reduce the risk of rising electricity prices to your bottom line.
- Solar is a long-term investment with an expected operational life of 25-30 years. So, a financial decision that saves money in the short term (leasing instead of buying) may cost you opportunities in a long time. Of course, this doesn’t mean leasing solar is wrong. Still, it’s essential to consider all the factors before deciding, as purchasing solar outright could deliver more money into your pocket.
- Ownership – The household does not own the solar system. Another company has ownership and, therefore right of access to your property to maintain and manage it.
- Contract conditions and long-term – Solar leasing is under a formal contract with legal terms and conditions that give the leasing company rights. Additionally, the term of the agreement can be from 5 years up to 20 years, which can be restrictive due to changing market conditions. For example, what happens if you want to sell your home or business premises? The new buyer will have to take over the leasing contract, or you will have to purchase the system at that point and pay out the leasing contract.
What about the savings?
- The return on investment and overall savings can be lower. In addition, by leasing the system, the leasing company is taking some or, quite often, a large part of the savings so leasing will reduce the long-term savings potential of the solar asset.
- A lease on a solar system on the roof may reduce or increase the property’s value. The jury is still out on this one. Consider that the potential buyers do not want to take over the solar lease, which could complicate the property sale.
- Fixed costs – Particularly for the power purchase agreement, where you have to pay for all electricity generated, you may be forced to pay for the electricity you do not use, which, if the system is not sized correctly, could cost you money.
When will the lease suit my circumstances?
Solar leasing may be an option for businesses that avoid owning or purchasing the asset for accounting purposes. In addition, solar leasing is more likely to suit those with high energy needs and seek to save on funds for capital purchases.
Overall, the financial benefits of buying a solar system outright outweigh those of leasing solar panels. However, the final decision is up to the home or business owner. Leasing may be a good option for those who don’t want to take out a loan or can’t afford the upfront costs but still looking for a reprieve from high electricity prices. Ultimately, both options provide a renewable energy source, but it depends on whether the homeowner wants to be partly dependent on the leasing company or fully independent.