Several companies are offering leases on solar PV systems these days. The deal goes something like this: they install a system on your roof, promise to maintain the system, and charge you a fairly low lease rate that increases by roughly 4% per year for the next 15 years. You get all the energy the system generates and if you use more than the system provides, you buy it from the utility company. Sounds pretty good, doesn’t it? Well, it depends.
First of all, let’s consider the unique nature of your solar PV system. For most homeowners, it will be the only appliance on your property that actually puts cash back in your pocket every month. Not only that; you can bet your last fluorescent light bulb that it will actually generate more cash over time.
Why? Because increasing population and fuel prices will continue to drive your energy bill skywards. Your own solar energy will increase in value along with prevailing utility rates.
If you purchase today, you will reach a point in the not-so-distant future where the Federal Tax Credit (30% of system cost, paid as a tax credit) and the cash value of the energy you generate will pay for your system.
However, if you lease the system, the rebate and tax credit will be claimed by the leasing company, not you. You are also locked into a 15 year contract with a company that may or may not still exist that far down the road. And maintenance is minimal and can be done by the homeowner with very little effort.
On the average, the payback period for a solar PV system is between 5 and 7 years. It can also depend on your average energy bill. The higher the bill, the faster the payback.
Why is that? Because if you are like most energy customers, you are on the basic E1 rate schedule. Your utility company sells you a certain amount of cheap energy every month and from there the rates rise steeply. The lowest rates (Tiers 1 and 2) have not gone up in the last 10 years. As a matter of fact, they have gone down slightly. These rates do rise periodically but it is uncertain by how much since they are kept low to benefit low-income households and to reward frugal users. The higher rates (Tiers 3, 4, and 5) have doubled in the last four years, and are set to increase significantly in the coming years. A solar PV system is great for cutting those top three tiers out of your bill. Own the system and you own the whole cost benefit.
So, buy or lease?
Here’s how it plays out in rough terms:
- If you expect to pay taxes for the next 5 to 7 years and your electricity bill is $120 per month or higher, you are likely to be much better off owning your system.
- If you don’t pay taxes and your energy bill is below $120 per month, you will probably do OK with a lease. You will see an approximate 4% increase in your monthly charge each year, but this will hopefully not be much more than the real increases in energy rates.