To Lease or Buy: The Cost of Solar Panels

cost of solar panels

The debate over whether it is better for consumers to buy or lease residential solar energy systems appears to be heating up in states around the country. At the center of the debate is the issue of cost-effectiveness. Supporters argue that leasing solar panels allows homeowners to tap into all the benefits of solar energy, quickly and with little upfront costs. Detractors maintain that buying solar panels is the better option because the much-touted cost benefits of leasing are only temporary and are wiped out in a few years.

Growing Popularity

As of the beginning of this year, over 1,200 cities in a total of 12 states and the District of Columbia permit solar energy companies to lease residential solar panels to consumers. In states like Massachusetts, over two-thirds of the 4,500 residential solar systems that have been installed so far, are leased. The same housing trend is repeating itself in other states that permit solar leasing such as Arizona, California, Colorado and Pennsylvania.

Buying a Residential Solar Energy System

The premise of solar panel leasing is fairly simple. Buying and installing a solar system for residential use can cost a homeowner anywhere between $20,000 and $40,000. Factors that affect the cost include the location and size of the home, the number of solar panels that are required, the direction of the roof and the total kilowatts delivered by the system. Most solar panels for homes deliver between 3 and 7 kilowatts of energy when fully charged. In addition to the initial hardware and installation costs, homeowners also need to factor in permit and inspection costs and the costs associated with maintaining and monitoring the system over its life.

The Solar Energy Leasing Option

In contrast, leasing solar panels for home use costs next to nothing upfront. Many companies that sell home solar panels also lease them out to consumers, often with no down payment requirements. The company that leases the equipment covers the cost of solar panels, installation fees, maintenance charges and all other associated costs. The consumer only pays for the energy generated by the solar system. The costs are typically between 25 percent and 30 percent lower than conventional energy costs. In the event that the residential system generates more energy than is needed for home use, the solar energy company simply buys that energy back and resells it to utility companies.

Pros and Cons of Leasing

While leasing would appear to be the fiscally better choice, many argue that it is not always the case. Consumers that spend money on buying and installing home solar panels can receive substantial state and federal tax credits and clean energy rebates. Often, such credits and rebates can reduce the upfront purchase costs by up to 30 percent, according to some home energy experts.

Several states permit homeowners to also sell any excess energy they generate back to the solar energy company that sold them the systems. The money, or credits, generated from such sales can typically pay off the entire cost of the system in as little as six years. Some states also offer cash incentives off as much as $6,000 per kilowatt of energy generated by a residential solar system. All of this money would go to the leasing company and not the consumer under a lease arrangement.

Such arguments and counterarguments have made it somewhat difficult for consumers to decide whether leasing or buying is the better option when it comes to residential solar energy systems. Regardless of the answer, energy experts say that solar energy is a more cost-efficient and environmental-friendly compared to conventional sources of energy.