Owning vs Financing Solar Panels

Here you can compare Owning vs Financing your solar panels. With the many leasing offers available today promising "No Money Down," it is natural to wonder about anyone offering free money.

We have found that the best way to compare owning against financing or leasing a solar power system is to use the TOTAL VALUE OF PAYMENTS METHOD. This approach takes into account the 25 year warranty period or even longer expected lifespan of solar panels. Here are the simple steps to compare your options.

Current Electricty Costs

Start with an estimate of your current electric utility costs for 25 years. Use your average monthly electric bill and remember to add annual price inflation. The national average inflation rate for electricity is 4%, but it can be higher in some locations.

Solar Costs

Next, use a cash payment estimate for the equipment and installation costs. This is the cost if you buy the system with cash. Be sure to deduct rebates and tax credits that will reduce the expense for a total net cost to you.

Total Payments Cost

Now calculate the total value of monthly payments for a loan, lease, PPA or other financing program over the entire contract term, often 10, 15 or even 20 years. If the program has a residual value buy-out or "rate escalator", be sure to include this in your payment calculation. Don't forget the possible complications should you choose to sell your home.

Compare Owning vs Financing

Last, compare the difference in totals for the three steps: 1) 25 year cost of paying the utility, 2) the 100% cash cost, and 3) total payments with a loan, lease or PPA.

You should find that buying the system with cash will provide the greatest long-term savings. The next best option is to finance using a simple loan that includes the benefits of ownership. The last option would be to lease or not have ownership of the system, primarily because your monthly savings are smaller and you will not receive rebates or tax credits.

Other Financial Incentives to Consider

There are several other incentives that can be used to offset the expense of using solar power. These programs vary by location. First, SRECs or Solar Renewable Energy Credits use an open market auction that allows you to sell the value of the power produced by your system to a third-party.

Next, if your utility provides credit for extra energy you produce, then it is using NET METERING. Under this program, the solar panels typically produce more energy than you use during the day, the extra power is sent back to the grid and your account is credited. At night you use the gird like always, but the use is charged against the credit built up during the day. At the end of the month, you receive a "Net" utility bill for the difference. You will NOT receive money back from the utility or get paid for your power.

Finally, a FEED-IN-TARIFF or FIT is similar to net-metering, except you could receive money from the utility and get paid for the power you produced. FIT programs are not widely available in America, but they are possible in some cases of large utility or commercial power production.