Should You Lease Solar Panels?

A couple of days ago, I read an article on My Journey to Millions by Evan about how he is considering leasing solar panels.

The arrangement is such that another company, Vivint, ponies up the cash for the equipment and Evan would agree to buy energy from them instead of his electric company. On the surface it sounds like a win-win. Evan would pay less money per month and he doesn’t have to come up with $20,000 or $25,000 for equipment. Presumably it pays off for Vivint too, because, well, let’s just assume that they are pricing electricity at a point that it is profitable.

(Before I go any further, I think “leasing” is the correct word as I’m not sure if he’d own them after 20 years. It could be a rent-to-own situation.)

The article particularly caught my attention because a few months back, I also explored saving money with solar power.

My research was mostly dedicated to buying the solar panels. “Research” may be too strong a word. Truth be told, I didn’t venture off of my keyboard. I realized that one of my first steps would be to determine the age of our roof. If it is old then it doesn’t make much sense to put solar panels just to pull them down again. It looks like our roof is old enough where I put the research on the back-burner.

However, should I have explored leasing as well? While I pitched it as a win-win above, I’m a little skeptical if it optimal. As I said above Vivint wouldn’t offer it unless they making money. So if I could find a way to fund that equipment myself, I could enjoy the benefits of a greatly reduced or perhaps even zero electric bill.

Let’s start by presuming that we don’t have a spare $25,000 in our bank account, which is fair considering we have activated “ultra-frugality mode”. And for sake of argument let’s presume that $25,000 is a fair cost of the system (it could be more). I’m also going to use some of Evan’s numbers for how much he pays for electricity (around $170 a month).

Let’s start with the tax credits. As Evan explained Vivint would take the $7,500 federal credit and he’d get to keep a $500 state credit. However, if you bought the panels you’d get to keep both, well presuming that your state offers a credit. I did a little quick look-up and it seems that the federal credit is 30%, which does turn out to be $7,500. Because we are talking about a tax credit instead of a deduction, the value is a full $7,500. Since I don’t know if your state offers a credit, I’ll conservatively assume there is none.

So now we are paying $17,500 for our system. That’s still a lot of money and you have to wait for the tax credit.

This is where a little of my past experience helps. This past year we put in a central air-conditioning system that was around $15,000. We found that they offered 0% financing for a year. If we can do this for the solar panels it helps buy time for the tax credit to kick in. In addition, during this time we wouldn’t be paying for electricity so we could funnel the $2000 we spend a year on it to paying down the bill. Our $25,000 system is now a $15,500 system.

Unfortunately, I can’t seem to come up with any other ways to lower it from there. However, we spread the payments out just like we do with our current electricity bill. Our local bank is offering a Home Equity Line of Credit (HELOC) at a 3% interest rate. Using the this helpful loan calculator we see that it will take 107 payments to pay off the loan – just about 9 years.

If you lease the solar panels over 20 years you save right away, but this way you’d get 11 free years of electricity presuming a 20-year lifespan. The efficiency of the panels probably get worse over time. In year 20, they probably don’t produce the same amount of electricity as they do in year 1. However, since electricity will likely be more expensive in year 20 than in year 1, it may be possible to save the same amount of money.

I found another article covering the types of calculations that need to be done to determine if it’s right for you. It’s helpful in that it covers some of the basic, important calculations that I glossed over such as, how much electricity we actually use. The numbers in the article’s example are much, much bigger, perhaps reflecting more expensive systems from a few years ago. An expert there suggested that a good payback time is between 5 and 10 years, so this estimate would fit right into that range.

One thing that Evan and I share is living in the northeast. According to these government solar maps it is pretty much the worst for solar power. So if it looks feasible here and is better just about everywhere else in the continental United States (sorry Alaska readers), it seems like many people should be jumping on board, right?

So why haven’t they? The only thing I can think of is that the cost of solar power is getting cheaper every year. You wouldn’t want to commit to a laptop for 20 years would you? I see it as kind of the same thing.

So what do you say? Lease or buy solar power? Have you looked into it? Can we use it to eliminate one of our necessary expenses? Can I get through this whole article without mentioning the awesome environmental benefits? Nope, but I came very close.