The popularity of roof solar panel systems is on the rise, and the fast-growing industry now offers a few different options for purchase and installation. Different ownership models provide different benefits, advantages and disadvantages, so homeowners should do their research before deciding whether and how to install and pay for their panels.
It’s hard not to feel good about solar panels. They provide electricity for your household from a renewable energy source (the sun), at a lower cost than your typical electricity provider. What’s not to like?
Let’s take a closer look at the most popular solar energy panel offerings on the market.
1. Leasing, or Power Purchase Agreement (PPA) – With either of these options, you’re allowing the solar company to install a system on your rooftop at their cost and you’re purchasing the energy (at reduced cost) from them. Your bill is lower than what the utility company would charge you, and you can feel good about using clean energy as opposed to fossil fuels. The solar company owns, services and maintains the system and, assuming fossil-fuel produced energy costs continue to rise, your energy bills will continue to get cheaper in comparison to the standard offerings.
2. Purchasing the system — If you have cash on hand, equity in your home to tap, or want to take out a loan for a system, you can purchase a solar panel system outright rather than enter into the no-cost-upfront leasing model. A typical 5kW system will cost about $20K, including installation. This option creates potential for a return on investment, as you actually own it and the energy that gets produced. Of course, the risk to you as an owner is greater — and you have to maintain and service the system.
Advantages, Disadvantages and Caveats
• Federal Tax Credit –if you purchase a system this year (2020) you get a healthy tax credit for 26% of the cost of system and installation. With the average cost at $20,000, this will mean several thousand dollars in tax savings. With leasing, you don’t get the tax credit.
• Performance payouts from the utility company –this happens when your panels produce more than what you use, and the electric company buys it from you or gives you credit back for it. You’ll benefit as an owner, but not with the leasing model. This is where you get better cost savings and return in the long run as opposed to leasing.
• Upfront Costs – if you want to purchase, you have to have cash or take out a loan. Obviously this is an expense, but the system pays for itself over time once you factor in the savings.
• Insurance – When you own, the risk is yours. If panels are damaged in a bad storm, it’s on you to fix them (or file a claim).
• Service & Maintenance – you’ll always be tied to the grid, and you’ll need a solar company to monitor and provide maintenance from time to time. You’ll need Internet service so they can alert you if the system ever has a problem.
• Lease Commitments & Terms – with the leasing model, homeowners must pass a credit check and sign a rather extended lease – 20 to 30 years – which is typically attached to the house. Homeowners will want to examine this agreement closely and read the fine print.
Solar Panels and Real Estate
Do solar panels add value to a house?
It’s likely that the panels will stay on the house longer than you plan to own it. If you purchase a system, the value in a sense is there, since you paid for it. In some cases the solar company can actually take the panels off and install them at your next house. But it’s probably easiest to leave them with the house, and so you may or may not have to pay them off if you took out a loan to pay for them.
An informal poll of agents tells me that solar panels are thought of as an attractive feature for buyers, but most, at this point, won’t going out of their way and won’t pay a whole lot extra for solar energy power. You can be sure they’ll be reading the paperwork involved and curious to know what the risks/rewards are — so you’ll want to keep meticulous records.
As for leases, the solar company tells me that lease transfers to new owners happen all the time, and it’s just a matter of the new owner passing a (non-stringent) credit check with a 650 score or higher. This sounds great, but some homebuyers may be hesitant to assume a long-term lease for a fixture on the property.
Real Life Story
I’d been hearing a few rumblings, from lenders and agent friends, about solar panels, which is what prompted me to research it. One agent shared her story of ALMOST purchasing a house in Maryland, which had a 30-year solar panel lease on it. After reviewing the lease, she found that the energy costs were scheduled to increase over time. She was not comfortable with the terms and so she backed out of the home purchase; the seller took the house off the market — presumably to deal with the situation and make the house marketable again to buyers.
From my research it seems that not all leases are bad, and, in a market gaining popularity and competition, there are more options to choose from. The best arguments for the lease option are low upfront costs, reduced risks of ownership and lower energy bills. But from an investment standpoint, the better energy savings and eventual return are achieved with purchasing.
As with any long-term commitment, you’ll want to do homework, get to know the offerings from competitors in the industry, and make sure not to lock into a bad arrangement that could threaten the sale-ability of your house.