Residential Solar Leasing
Residential Solar Leasing. What you should know, what you should ask.
Residential Solar Leasing
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|Residential leasing started in Oregon in 2011. (Leasing has been used for years in the commercial market, but its entrance into the
residential market is new this year.) Already, within its first year,
leasing has claimed significant market share, and this trend is expected
So How Does it Work?
||In either case, whether you own or lease the system, you keep the State
tax credit. If you were to purchase the system outright (with or without
a loan), you would also get the Energy Trust incentive and the Federal tax credit. Under a lease or a
PPA, the leasing company would keep all the incentives other than the State tax credit. The leasing company is also
able to take the depreciation value of the system.
Make sure the leasing company gives you documentation of the system
cost, and applies for precertification (this is new in 2012). The
contract must have a minimum duration of 10 years to qualify for the
State tax credit.
Own or Lease?
Own - You buy it, claim all the incentives and tax credits, and maintain it and keep it forever.
- Payment Options
Roughly half of owned systems are purchased outright with cash, and half are financed with loans. Most loans are home equity lines of credit.
Lease or Power Purchase Agreement (PPA) - The company offering the lease or PPA buys the system and owns and maintains it, and claims most of the incentives. You pay the company to use the system.
- Lease vs. PPA
Lease - Homeowner makes monthly payments based on the cost of the system. Those payments are offset by lower electricity payments.
PPA - Homeowner does not purchase the system, but rather purchases the electricity produced by the system (presumably at a lower rate than offered by the local utility).
Types of Leasing Companies
||Full Service Shops
- These companies provide everything: financing, design, installation, monitoring, and repair
|| Stand Alone Financing Companies
- These companies partner with local installers
- These companies offer leasing through a network of authorized dealers
Typical Lease Terms
- 15-20 Year Contract
- Equipment Lease or Power Purchase Agreement
- Buyout Option
Lease Payment Options
- $0 upfront + monthly payments
- Some combination of upfront payment and monthly payments
- 100% prepaid with no monthly payments
|Monthly payments are like a loan, but different in 2 ways:
- You are paying for a service, so someone else is taking care of the system for you
- You are not paying off a loan, so you do not own the system at the end of the contract
How do I decide if solar leasing is right for me?
- Do I have cash or home equity? If not, then purchasing the system is not an option. Incentives are good now, and may not be for long, so consider a lease or PPA.
- How is my credit rating? You will need this for anything other than a cash purchase (a loan or a lease).
- Do I want a long term contract? What does it mean to enter into a 20-year agreement? Are you comfortable with your options if you decide to sell or rent, need to replace your roof, add a second story, etc., or if the company doesn’t survive?
- Am I going to sell my home? Do you think you will be able to sell the new homeowner on assuming the lease, or will you need to purchase it? As more systems are installed, people will become more and more familiar and comfortable with solar and understand its value.
- Do I want to deal with maintenance? Do you want someone else to take care of everything and keep your system running?
I able to claim tax credits? Most of the incentives are in the form of
tax credits. If you don’t owe enough in taxes to use the credits, leasing
is a good option.
Read the Contract!
We can not stress enough the importance of reading your
contract thoroughly! Here are some things to look out for:
the contract be amended? Make sure there is no provision in the
contract that could allow your rates to be adjusted mid-term.
escalation rate. Be careful of locking yourself into a high escalation
rate. Nationally, average annual electricity rate increases have been
of term provisions. What happens when the contract is up? Is buyout
optional or mandatory? Is there a renewal rate? If they remove the system,
what are the guarantees that the roof will be adequately restored?
guarantee. What if the system underperforms? Who takes that risk? If
there is a performance guarantee, what will you have to do to make sure
you get the promised value?
Who is insuring your system, and against what is it insured? Who is
responsible for repairs and replacements, and under what circumstances?
- Sale of
Home. If you sell your home, what happens to the system? In most
cases, the contract transfers to the new owner. What if the new owner does
not want to sign the contract, or does not pass the credit check? If there
is a purchase option, how will the cost be determined? Is there a penalty
for early removal?
repair. What happens when you need to replace the roof? Must you hire
the same company to remove and replace the system? Do you contact the
local installer or financing company? How much notice must you give?
responsibilities. What are you responsible for doing to hold up your
end of the contract and ensure that you get full value of the system? Must
you maintain insurance? Report outages? Keep a live broadband internet
connection? Notify the leasing company of planned changes?