4 Drawbacks to Leasing (and Why People Still Do)

Maybe the best way to highlight the benefits of buying your home solar energy system is to talk about what you lose when you lease. Nonetheless, leasing might be the best option for you and your situation, which we'll also discuss.

The sales pitch of the leasing company can sound mighty appealing: Just sign the contract and they will handle the financing, line up an installer, and issue you a service plan. What you get out of the deal is a lower cost of energy, low enough that even after making the monthly lease payment you should still save money compared to before solar. But the simplicity and lower up-front costs come at a price.

4 Drawbacks of Leasing

1️⃣ The main reason you wanted solar panels is to save money, right? Well, if you lease, the savings will be modest. When you lease a solar energy system instead of buying, you don't qualify for the big federal energy tax credit, nor for any local incentives such as rebates. To the owner go the incentives. Also, your savings can diminish over time due to the escalator clause in many leases, which raises your payments 3 percent a year. You might start out paying 12 cents per kilowatt-hour, but by year 15 you're paying 18.2 cents due to the escalator clause. The idea is that energy from the grid will probably rise more than 3 percent, so you will still be saving money compared to getting your power from the utility—but it's also possible that energy costs will rise slower than the elevator clause, thus eating into your savings.

2️⃣ To maximize profits, leasing companies might design your system with more panels than you want and install them without regard to the curb appeal of your home. Watch their plans closely because when you lease, you give up control of your roof. Be sure the initial design mockup takes your concerns into account, and then be vigilant when the installation gets under way.

3️⃣ While leasing companies boast about their maintenance plans, these plans are rarely worth the paper they're printed on because every probable, real-world scenario has been carefully excluded. For starters, the service plans don't cover equipment problems. And if your solar panels are damaged in a storm, you already have homeowners insurance to cover that. A rooftop solar energy system is usually added to a homeowners insurance policy at no cost, and a ground framework can be added with a rider. Whether you lease or buy the solar energy system, be sure to notify your insurer.

4️⃣ Leases turn off home buyers. Solar energy systems increase the value of a home. That's why they top the list of features you see in real estate listings. But while potential home buyers are attracted to homes with built-in, low-cost renewable energy, few are attracted by the prospect of taking on someone else's lease. Home buying is complicated and stressful enough. If they don't agree to assume the lease, you must buy it out.

The Barbers, homeowners in Clovis, California, told Consumer Reports that after two prospective buyers were scared off by the solar lease, the Barbers reluctantly went forward with an expensive buyout. Andrew Barber said, "I offered the solar company $16,000, which was the total of all the payments for the remainder of the contract." The leasing company, however, insisted on a buyout price of $21,000, and "the company wouldn't budge," he said.

So Why Do People Lease?

The fact is, more people still lease their home solar energy system than buy it. The five biggest reasons are as follows.

• It's either a lease or no system at all. When cash, a home equity loan, or a solar loan aren't feasible to buy a system, leasing becomes the next best option to go solar.
• Helping the environment, not saving big money, is your primary motivation. The planet doesn't care whether solar energy systems are bought or leased.
• You want to see benefits immediately. As with many investments, years must pass before most buyers see a return. However, when you lease, you make a small down payment and then start saving on energy costs right after installation and activation.
• After some number crunching, you realize that your taxable income is such that the federal tax credit would not be much of an incentive, and your state has few other incentives (or none). Look up your incentives fast at Energybillcruncher.com.
• The fact that you'd have to wait until the end of the year to claim and receive any tax credits makes them unattractive to you.

No matter whether you buy your solar panels or lease them, you're getting clean renewable energy at a lower cost. If those are your chief priorities, there's really no wrong way to go solar.