Owning Residential Solar Beats Leasing

Effective energy policies, economies of scale and new technologies have achieved something remarkable: Solar energy production is now at the scale and cost necessary so that it is affordable for everyone.Leases and PPAs were an ideal solution for the solar sector in the recession, with energy bills continually going up but without accessible loans and equity. As prices drop and savings increase, it makes sense to invest in a solar power system rather than leasing one. The overall cost of purchasing a system now averages 50% less than leasing, with a payback period as low as three years. And with builders and developers offering standard solar systems in their new communities, the trend toward solar is expected to continue.

Even with many solar rebate programs administered by states and utilities evaporating or facing overhaul, the case for solar remains strong in many areas where grid pricing rises 5% each year. The case for solar system installation is further backed by trends toward energy conservation, resulting in fewer solar panels needed and, subsequently, less installation cost for homeowners.
Financing favors ownership

Innovative financing options make the current solar landscape appealing. These options are further enhanced by the significant reduction in price of solar, giving homeowners a better value for their money. But with the advent of price drops throughout the industry, leasing just doesn’t make sense anymore.

“If the cost of rooftop panels is cheaper than what the retail rate of electricity is, there’s a savings on [the homeowner’s] bill every month, and it’s those savings that allow him to fully recover the investment,” says Robert Borlick, an independent energy consultant. He notes that while solar leasing companies do provide value to customers, the long-term savings are not nearly as significant as those found with ownership.

Additionally, the cost of photovoltaic solar panels has plummeted by more than 97% since the Carter administration, fueling an innovative and entrepreneurial industry within the economy. With such a drastic decline in pricing for solar PV, the picture becomes even clearer for the case toward ownership.

Homeowners who choose a solar lease or a PPA lose many of the benefits that purchasing the system provides, including the federal 30% investment tax credit, renewable energy credits and any local incentives. These incentives are forfeited in exchange for a low upfront or zero-down option. Even more, there are several examples calculating the total cost of a 20-year lease versus purchasing the system.

Comparing the cost of electricity with a leased system to one that is owned, it is clear that such an arrangement costs twice as much where electricity is concerned. Further compounding the cost is the annual escalator built into solar leases. For example, the average utility rate in New Jersey is $0.18/kWh and will only increase in the future. Add an annual escalator – which acts like a compounding interest rate – of 2.99%. What does this look like in the long run? A solar lease that starts at $0.18/kWh with a 2.99% escalator will eventually reach $0.31/kWh at the end of the 20-year term.

However, with solar ownership, the electricity cost $0.07/kWh to $0.08/kWh is fixed. The numbers conclude that owning solar provides homeowners with the cheapest electricity that is locked in, with all tax credits and rebates remaining with the homeowner whether the system is purchased or financed.

Cost savings aside, there are many more considerations that make the decision to convert to solar electricity simple. This includes an overall return on investment (ROI) that could prove to be better than traditional investment vehicles such as stocks, bonds and certificates of deposit (CDs).

Buying and selling simplified

Once paid off, a solar power system can add tremendous resale value to a home. According to a 2013 survey conducted in California by Lawrence Berkeley National Laboratory, data collected from 2000 to 2009 pinpoints a defined trend of solar homes selling for a higher premium than non-solar homes statewide. The researchers concluded that each 1 kW increase in rooftop solar system size added $5,911 to a home’s resale value. “Our analysis offers clear support that a premium exists in the marketplace; thus, PV systems have value, and their contribution to home values must be assessed,” the survey report states.

Another reason for considering why owning is better than leasing is that solar leases can complicate the sales process. This is due to the lack of clarity on what a solar lease entails and how it affects homeowners in the long run. However, it’s easy for homeowners to understand how solar system ownership cuts the cost of power by 50% and adds to home equity.

Return on investment

The dramatic plunge in the price of solar panels since 2009 is attributed to a global solar manufacturing oversupply. In turn, this has contributed to a drop in the price for solar equipment of 50%, making it less expensive in today’s post-rebate world. Factor in the federal tax credit that reduced the installation price 30%, and solar has become very affordable. In many cases, it is actually priced better than a utility on average price per watt.

“Residents of the top states in the [Geostellar Solar Index] can see their investment would be completely paid back in four to six years, and then receive free energy worth five times that amount,” says Mark Wirt, a senior analyst with Geostellar, publisher of the quarterly index that analyzes the profitability of investing in rooftop solar in the U.S. Most people know that electricity rates aren’t getting any cheaper. Because of this, the ROI for a solar electric system will continue growing as the electric companies continually raise rates.

To help homeowners decide on whether or not to invest in a solar electric system, a comparison of the cost per kilowatt-hour for solar versus the price per kilowatt-hour being paid to the electric company (this is an average in tiered rate structures) can be quite effective. On the plus side of this is that calculating costs and savings with solar can be done on a per kilowatt-hour unit basis using simple division. From there, demonstrating lifetime savings and payback time frames becomes very easy.

Though solar design professionals do have to take into consideration several factors to determine actual production and savings potential, it is important to remember that the historic electricity rate has been increasing. According to skyhighenergy.com, electricity increases on an average of 4% to 7% a year across the U.S. This means that a bill that is currently $200 a month could be as high as $300 within 10 years. By going solar, homeowners are locking in their rates and can see the offset savings continue to grow as the utility rate increases over time.

Solar generates wealth

“In much of the country, the Geostellar Solar Index shows that homeowners can actually generate more wealth with solar panels than stocks, bonds, CDs or other investments,” says David Levine, founder and CEO of Geostellar. “The index’s findings show residential solar power is not only viable, it’s a wise investment.” The Geostellar Solar Index indicates that, in a total of 33 states, solar offers better ROIs than 30-year U.S. Treasuries, which have a current yield of 3.7%. It also points out that in 43 states, solar offers better ROIs than five-year CDs, which typically return only 0.75% annually.

“The wide spread between solar and conventional electricity in some markets has created broader opportunities for third-party financing and zero-money-down offers, where institutions become co-investors with the homeowner, providing upfront money and participating in the yields,” Wirt says. Leases, however, offer no yields, and customers lose many of the benefits like the tax credit and the short payback. Plus, they are locked into a 20-year agreement with minimal savings. This is significant, because purchasing a system now pencils out to about 50% less than leasing it over the long term.

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