Besides helping you to make the best solar decision for you and your family, it is interesting to work through the purchase/loan/lease analysis. This is timely for us at Photon Solar Power. The traditional leasing programs have been changing due to IRS tax rulings and the fact that the 1603 Tax credit (was officially retired by the end of last month). The effect has been rising lease rates (prices) from the solar companies that have created their business model from financial engineering of the 1603 credit along with the accelerated depreciation. Photon has been monitoring this situation and the marketplace to enable us to offer the best solutions to our clients .
I am not personally a big fan of the lease, mainly due to the following reasons:
You don’t own the equipment initially, third party does, therefore there is a limited selection of options what are leasable.
Complex legal agreement between you and the leasing company that most people dislike with an installer and manufacturer in the middle.
Leasing companies are having increasing issues with IRS with applying commercial depreciation “loopholes” for residential PV equipment. Some of these larger leasing companies are bleeding money and may need to restructure their business models, especially with the added effects of the expiration of 1603 tax grant.
We have seen and heard that lease rates (pricing) are going up largely due to the section 1603 Federal Tax Grant has expiration, even though equipment prices are still declining.
The Buy-out after 7 to 10 years will need to be based on Fair Market Value (FMV). Does your contract have that nailed down to an exact amount? Some that we have seen are open ended, the greater of two values not yet defined.
In my opinion, the best way to analyze this is to compare lease vs. loan. The benefits of the loan are:
You will own the equipment. You can choose exactly the technology and equipment you want to own.
You will get the 30% tax credit and utility rebate upfront. You can think this as “free money from the government” to make your loan payments. So in your case, for example, for a $33K system you would have approx. $10,000 from IRS & utility to make approx. $200 monthly payments for over 4 years of “free” payments.
No complex legal agreements with third parties with “grey” areas about the buy-out option or removal of the system or warranty.
There will be no warranty dispute issues if there is a problem and the leasing company has gone out of business. If you own the system, you can get the warranty direct from the manufacturer, all the more important reason to pick the best product and one that you best believe will still be around to have an existing entity to warranty the product. As an example, a 125 year old company, Bosch-Aleo would rate as high as any company currently in the marketplace for their ability to be there twenty years down the line.
In addition, the argument of lease offering you more “protection” is one that doesn’t hold water in our eyes. We as the installer are required to stand behind the system for 10 years and with the high quality components from e.g. Bosch and superior inverter/optimizer system from company such as SolarEdge Technologies, the system will be warrantied for 25 years. I believe the leasing companies are required also and intend to warranty their systems, but the advantage that they will do a replacement inverter at 10 years because they own the system and you don’t , doesn’t really have merit.
Finally, I would also like to point out that instead of thinking of “prepaying your electricity” for 8 years, think of it as e.g. 9% return on your money vs. alternative returns. Or you will be paying the (much higher and escalating) utility payments to your utility. If you are able to roll this into your construction loan/mortgage at a lower interest rate, your IRR would be even higher than with a 15-year secured loan that we can offer through our vendor partners.
Photon Solar Power Inc. is a renewable energy services company engaged in the design, integration and installation of solar power systems and other renewable energy solutions to residential, commercial and government customers with headquarters in Escondido, California.