As much as you might want to, you can’t go solar overnight. However some companies make it seem you can, offering simple-sounding options to pay for the system. Since going solar is a long-term investment, I thought I’d lay out the three different methods typically offered, so you can be informed when you sit down with a salesperson.
Going Solar? Learn How To Pay For Your System - Buy, Lease, or PPA
SunPower by Alternative Energy Systems
Photo above: Ian Harck, Solar Design Consultant with clients at the new SunPower® by Alternative Energy Systems Solar Design Center in Chico, CA
I always wanted to go solar. As a kid, I created a solar water heater for my first science fair project. A solar calculator held a prized spot in my bookbag. I keep a solar-paneled USB power bank perched in my sunny window should my phone need a charge. And while I’m definitely an environmentalist, I honestly love saving the money.
So the idea of investing in a solar system for my house naturally fits my lifestyle. But which way allows me to obtain the most beneficial system for my house affordably, adding value without the headaches?
When I first moved to my neighborhood in 2013, people knocked on our door a couple times a week to solicit interest in their company’s solar offerings. After a month, I had collected enough handouts and door hangers to rival any pizza delivery joint near a college campus.
I collected many of them as I’m the family researcher when it comes to making big decisions about home improvement. Yet I wanted to know more without feeling committed. So I dug into the details a little to see how one went about going solar for their home.
Choosing the solar you need means considering your home’s requirements for the present as well as over the next 20+ years. In this case, I’ll be focusing on the financial options for acquiring a solar system.
The big three
Solar companies typically offer three ways for you to get started with a residential system:
- buying the system, cash or loan
- leasing the system from the company
- setting up a power purchase agreement (PPA) with the company
Buying your system
Simply put, buying solar offers the most value for your investment. You can opt to buy a system by paying with cash or finance the system through the solar company or your bank. Many people find opening a home equity line of credit (HELOC) works the best for them. When you buy or finance, you own your system.
Buying a system adds the most value to your home. It also provides the best return on investment when it comes to your energy rates. The system is yours, you are able to modify it if you need to in the future, and you receive the maximum tax benefits of owning the system. Selling your house with solar installed typically increases the value as you own the system.
Buying requires cash or financing at the onset, and essentially locks your energy rates in for the life of your equipment. In a sense, you’re buying in bulk and your costs don’t go up over time. Purchased systems increase the value of your home the most when you sell.
Leasing offers a way to wade into going solar if you want to reduce your bill in the form of low-to-no upfront costs and reduced dependence on your utility. The leased equipment belongs to the company, not the homeowner. The energy generated is yours to use.
Leasing a system means your monthly payment is for the system itself, which are set by the provider that stay flat through the year. Since the equipment is not yours, you typically do not retain the ability to receive the tax credits in a home install. If you sell your house, your lease may be transferable, and if not, you can buy-out the system and sell it to the buyer.
Leasing requires little or no upfront costs and comes with a negotiated flat monthly equipment rate. Leases are different from provider to provider: some leases are subject to an annual escalation rate, some have different terms (10-20 years), and some are transferable.
Power Purchase Agreement (PPA)
When you’re researching leasing versus PPA, you’ll often see them coupled together. While you don’t own the system in either scenario, that’s often where the similarities end. With a PPA, the equipment belongs to the company and instead of a monthly payment for the system, the homeowner pays a negotiated price for the energy produced, which typically varies from month-to-month.
When it comes to PPA, you have essentially provided the roof or yard of your home to a company, in exchange for reduced energy rates you pay them. This means you have little say in the system installed, you can’t claim the tax credits, and the provider may decide you don’t qualify because your property’s energy potential doesn’t benefit their investment.
PPAs are an agreement that you buy the all the energy the system on your property produces. If your personal energy needs decrease, you’re still on the hook for the full amount. Terms may not be negotiable and this arrangement requires the buyer of a home to accept the agreement, making it the least attractive of the three if reselling is a consideration.
It’s important to know what option for acquiring a system is likely to work best for you before going with a particular plan. Buying is best if you have the financial maneuverability and leasing works well if you don’t have the money to put down and prefer an essentially flat monthly rate. PPAs, however, take all the control away from you and provide you with a variable monthly bill.
Since joining SunPower® by Alternative Energy Systems, I’ve learned that we don’t offer PPAs when it comes to residential installations. The drawbacks in obtaining a system via a PPA are far greater than if you opt to lease or buy, as mentioned in the article above. We want to make sure you carefully consider your options before committing to a home upgrade that should last decades.
About the author: Stephanie Bird has lived in the North Valley for most her life. She enjoys hiking levees with her dog Libby, amateur storm chasing in her Prius, and breaking down the finer points of music over Tapas Apocalypse. She has a BS in Nutrition and a DIY in home improvement.