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Hidden Surprises of Zero-Cost Solar

Kyle Ritland

August 2021

AbuBakar - solarAs the summer heat drags on and your electric bill keeps climbing, making the switch to solar is a tempting proposition. Maybe you’ve even done a little research and seen the flurry of solar ads promising “Zero-Cost Solar” or similar messages that seem a little too good to be true.

Let’s be clear right out of the gate. Solar is not free. There are no incentive programs that result in free solar. While there are government tax incentives that can help to offset as much as 26% of a solar purchase through an end-of-year tax credit, the “Zero-Cost Solar” offers are typically little more than a solar lease program.

Now, there’s nothing wrong with a lease, especially if you want to avoid any startup costs. As long as you have good credit, you generally pay little to no money to get started, and then you commit to a monthly payment for the lease term. Obviously, that payment should be less than what you’re paying on your monthly power bill, which is a function of how good the leasing company is at optimizing the system design to meet your needs.

Of course, as with most things in life, when something sounds too good to be true, tread with caution. In reality, leasing a system comes with several hidden costs and liabilities, many of which you may not discover until it’s too late.

In the spirit of being fully transparent and honest solar advocates, let’s take a look at some of the common misconceptions behind leasing and those "Zero-Cost Solar" promises.

 

You’ll Probably Still Have a Utility Bill

One of the most common misunderstandings about leasing solar is just how much you’ll save and what you will pay every month. While it’s true that a properly designed PV system will reduce your total monthly spend, you’ll still be connected to the grid for nighttime power. You can help to offset the nighttime energy purchase by overproducing solar energy during the day. The excess solar energy you send back to the grid is credited to you. Earn enough credits, and you can offset the energy you need to purchase at night.

Obviously, this is a delicate balance that is affected by seasonal weather, as well as any changes you make to the property, such as adding a pool or an electric vehicle. A lease contract is generally 15-20 years. It’s difficult to predict weather fluctuations possible household additions, or utility rate changes over such a long timeframe. And since most lease agreements limit your ability to add panels or alter the system’s original design, it’s very easy to outgrow a lease. You’re pretty locked in, and you’ll probably wind up paying both bills (Solar Lease and Utility) at some point along the way.

 

With a Lease, You’re Not Eligible for Tax Incentives

There are some amazing federal and state incentives that can dramatically reduce a solar investment. But if you lease, these incentives aren't available to you.

Along with the federal tax credit covering up to 26% of the cost of your solar purchase, Arizona offers up to $1000 in additional tax credits. Combine all these perks and you can end up saving more than 1/4 of your total investment costs right up front. But these incentives are only paid to the owner of the system. If you choose to lease a system, you are not the owner. As such, all of those lucrative kickbacks will go to the leasing company, not to you.


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If You Sell Your House, You Might End Up Paying

A solar lease typically has a term of 15-20 years. If you decide to sell your house before the lease is paid off, you’ll need to find a buyer with a stellar credit rating who is willing to take over the lease. If your buyer is unwilling to commit to years of remaining payments, or if your buyer doesn’t qualify to take over the lease (this can sometimes happen, even if they qualify for the home loan), you will be stuck with paying off the remainder of the lease in one lump sum, which is typically much higher than market value.

Equally important is that leased systems do not add any value to your home’s listing price. On the other hand, our experience shows that an owned solar energy system can bring between $1,000 - $1,500 per kW installed from an appraisal standpoint.

If you think you might sell your home in the next 5-20 years, you’re better off exploring a cash purchase or a more traditional loan that will offer fewer restrictions down the road.

 

Be Wary of PPAs

While much rarer than they were a few years ago, many leasing companies also offer something called a Power Purchase Agreement (PPA). As with a lease, you’ll want to consider the long-term costs and restrictions of this option very carefully.

kolnik - installWhile a standard solar lease is essentially a rent-to-own arrangement (including the traditional balloon payment at the end of the lease), a PPA is essentially an agreement to purchase your power from a third party, who install and own the solar panels on your home. As with a standard lease, you have no up-front costs, and your repairs and maintenance are covered. With a PPA, you only purchase the power produced by your system. The downside of that is that your costs can escalate, depending on the going rate your utility company charges per KWh and the terms of the PPA agreement.

Like a lease, PPA’s also have similar restrictions for system additions, and extra complexities if you decide to sell your home during the contract term.

 

The Better Alternative: Buy Your System and Start Saving Now

While the upfront price tag on a solar system for your home may look intimidating at first glance, the long-term benefits vastly outweigh the up-front cost. Purchasing your system means you get to keep 100% of all state and federal solar incentives. It also means you’ll have much greater freedom to add panels, or a battery down the road as your needs change. And since you own the system outright, when you want to sell your house, you not only don’t have to worry about the potential liability of having to pay off or transfer your lease, but you have an asset that adds tremendous value to the price of your home.

It’s also worth mentioning that a great many solar lenders offer affordable financing options that lead to ownership, and many don’t require a down payment. We generally recommend that you finance only the balance after the 26% solar tax credit is applied. This approach allows you to take full advantage of this lucrative federal incentive in the first year.

Between competitive financing and various incentives offered by government and local utilities, you may find that the cost of entry is much lower than expected. Our expert Solar Integrators can help you navigate these options and guide you toward the system and financing options that are right for your home and your budget.

 

No matter how you cut it, there’s no better alternative than owning your own solar system. And with tax credits quickly ramping down over the next 18 months, there’s no better time to make it happen than right now. Contact us for a free quote and get ready to go solar now.

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