|
Lawson works on the Central Coast as an analyst for residential renewable energy systems.
|
|
Solar Residential Leases vs. Purchasing
by Lawson Schaller
Leases have become very popular in the residential solar market. In the last few years leases have grown to a point that they account for the majority of residential solar installations. However there is a very attractive option to the lease. It is the Power Saver Program — it allows homeowners to take a loan out on their home, essentially a second mortgage. The interest is tax deductible, and the homeowner can take advantage of the 30% Fed Tax Credit for the solar system. In addition to using funds for solar the homeowner can also use funds for installing new hot water heater, insulation, windows, doors, heating or AC and other options also - And 25% of the loan may be used for any improvement!
Basics of the Power Saver
- $25,000 maximum loan amount
- $7,500 minimum loan amount
- 15 year term for all improvements
- 20 year term for renewables only
- Minimum 660 FICO score
- 45% Total Debt-to-Income ratio
- 100% CLTV Max (Combined Loan-to-Value)
- Must be primary residence
- No existing second lien debt
- No foreclosure or bankruptcy on credit report
I have spoken to hundreds of homeowners about solar solutions, leasing, purchasing etc. In my opinion (and many professionals would agree) buying the system outright with cash is often the best option. The second best option, in my opinion, if cash is not available, is to borrow against the home. Then pay the system off as quickly as possible and enjoy the wonderful benefits that solar has to offer.
Many solar systems installed in the last couple of years are producing double digit Tax Free Annual ROI's and with that comes tremendous inflation protection against volatile energy prices.
Primary Advantages of the Lease
The primary advantage of the lease is that the homeowner can have a system installed with little or no money upfront (in the monthly lease program) and start saving on their monthly energy bill in the first month. The Power Saver Program may offer no money out of pocket — federal grants help pay the upfront fees for the homeowner. The lease is a very good fit for people who have no taxable income. If a homeowner has no federal tax bill then the lease company takes the Fed Tax Credit and passes some of those savings to the homeowner. The lease programs also offer a prepaid lease where the homeowner pays the entire 20-year payments upfront. Still the homeowner does not own the system.
Primary Disadvantages of the Lease
1) Homeowner does not own the solar system. There are points in the timeline where the lease can be bought out.
2) Lease terms are often 20 years.
The buyout amount of the lease is unknown and determined at some future date.
3) Because the system is owned by the lease company any alterations or transfer of ownership (i.e. to the next homeowner if one sells their home) must be approved by the leasing company.
Those that favor the lease like to point out that the lease offers production guarantee/warranty, maintenance etc. Any well designed system will produce reliably and predictably for decades. Panel Manufacturer's production warranties are 25 years. So in my view the production guarantee/warranty from the leasing company is of little substance. As far as maintenance goes – well that typically amounts to cleaning, washing/hosing the panels off as needed - lease companies will not wash your panels unless production is severely impacted.
Again, leases do have their place. In my opinion it would be for the homeowners that have no federal tax liability and/or no available cash or ability to borrow against their home (however lease fico score requirements are usually higher than Power Saver). To their credit the lease companies have done a fantastic job of marketing their product. They have helped put thousands and thousands of panels on homes and provided many environmental benefits and modest savings to homeowners. In my opinion they would better serve the solar market if they made all options of acquiring a solar system clear to the homeowner.
If you are considering solar – carefully review all your options for acquiring one and find a reputable quality installer.
|
