Think like an Investor: It is usually more appropriate and advantageous to treat a solar (PV) energy system                                        as an investment. A solar energy system is an asset. If you lease, then you do not have this asset on your                                          balance sheet (it has not increased your wealth). Rather, a lease is just another expense you pay to use                                              someone else's asset.

 

                                     Installing a solar energy system will help lower your utility bills. Those utility savings can help offset lease                                              payments, possibly lowering your overall monthly expenses. But in most cases you may be better off owning                                          the solar energy system, even if you use a loan to procure the system. When you own the solar energy                                                system it is your investment and utility savings act like dividends; earnings on your investment.

 

With ownership you gain wealth through property appreciation: a solar energy system is an investment in your home which increases your property value. Also, with ownership you may realize additional "windfall" profits via carbon credits (SRECs), performance-based incentives and income tax advantages. Choose a lease and you only get utility savings, and a lease may actually diminish (hurt) your property value.

 

One other tremendous advantage is you may be able to swap your present mortgage insurance for a new solar system. If you owe more than 79% of the value of your home you are paying mortgage insurance. For many folks this expense is $125-$350 per month. This is the money you pay every month to protect the bank, the bank is the beneficiary of the policy but you pay the bill without any benefit to you. When you add a solar system the value of your home will usually appreciate 75-80% of the install price. Based upon your down payment and how much the home has appreciated this increase in equity will usually take you below the 79% threshold and eliminate your mortgage insurance. In almost every case the cost to finance the solar system monthly is less than what you are presently paying for the mortgage insurance. Not only is the saving of the cost of the mortgage insurance less by reducing it or eliminating it entirely, you also receive the utility savings and your solar finance payments interest is now tax deductable. It’s like giving yourself a $3.00-$4.00 per hour raise.

 

In today's market, solar energy systems can be one of the best long-term investments you can make. It's more like investing in a Bond, rather than a Stock. And a "bond" that can provide great, long-term dividends and earnings -- potentially as secure as a AAA corporate bond but with higher yields (profit). Equate an investment in a solar energy system to a AAA bond because in most cases the risk of ownership is very low (like a AAA bond): your homeowners insurance should cover the potential for damage and generous (typically 25 year) equipment warranties should cover the risk of any major equipment failure. Please be aware that the price of your home owners insurance will probably go up $5.00-$10.00 per month.

 

Ask yourself this basic question: Do you use a lease to procure other investments like stocks or bonds or real estate? How about your Air Conditioner or Pool?

 

 

Pay Now or Pay More Later

Many leases are promoted as "no money down" methods to go solar. And the prospect of installing solar for "no money down" may be enticing. But be aware of the lease costs and liabilities that could come back to bite you -- a solar lease may limit or negate any financial advantages you could have gained by investing in a solar energy system with your own cash or a well-structured loan (also available with no money down). In fact a well structured loan package combining a 12 month same as cash interest only loan followed immediately by an “Efi Refi” mortgage will not only allow you the opportunity of a no money down loan, it will also be in many cases cash positive when taking into account rebates and tax savings.

 

Invest in Solar and Accumulate More Wealth, as Compared to a Solar Lease

Cash flow Comparison (typical): The following graph shows the significant wealth that can be created by investing in a solar electric (PV) system via cash and/or a loan. In this comparison committing to a solar lease results in a 40% reduction in cash gained. A solar lease drops accumulated cash savings from over $100,00 to about $60,000 over the life of the solar electric (PV) system. That's money moved away from you to the leasing company's pocket ("Wall street"). It is the leasing company that made the "investment", not you. By signing a lease you become the source of the leasing company's profits.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Here is a summary of residential finance options, with typical effects of cash, loan and lease methods. Of course everyone's particular situation varies. But if you are being promoted a solar lease please consider these factors as they may apply to your particular situation:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Return on Investment: Leases limit your ability to realize profits from utility savings. Often solar leases have annual "escalators" that cause your lease payments to increase over time (i.e. your electric costs continue to climb). Unless utility rates rise faster than your solar lease payments you will realize diminishing returns with a solar lease. Leasing company profits are "built in" to a lease - this is profit shifted from you to the leasing company.

 

"Fix" Your Energy Costs - Leases and Lease Escalators work against you: If you purchase your solar electric (PV) system with cash and/or a loan your payments for that investment are "fixed". This means the cost of producing solar electricity does not change over the life of the solar energy system. With a Lease escalator, the cost of your solar electricity is rising over time. Therefore lease payment escalators work against you: the cost (expense) of your solar electricity is rising over time with a lease. This diminishes your cost advantages and becomes more like the utility energy you are trying to displace with solar energy.

 

Historically utility rates have inflated at or slightly above general inflation rates (3%-4% average over 10 years), and in many markets utility rates have actually had Deflation (gone down). If you sign a solar lease this is long-term financial commitment. So ask yourself, how likely is it that utility rates will rise significantly faster than lease payments over those many years of lease payments (typically 10-15 years). For a benchmark comparison, think about the upper fringes of what consumers tolerate -- medical expenses have risen at about 5%-6% (annual average) over the past decade (about twice that of consumer price inflation). So how likely (or unlikely) is it that utility rates will rise faster than this? or faster than historical averages of 3-4%? Always check the assumptions used by the lease salesperson to see if they are reasonable:

 

The single most important factor is the utility inflation rate assumed in the lease model. If it is more than about 4%, do some homework: the Energy Information Agency and Bureau of Labor Statistics provide independent reports on energy prices and inflation rates. Your utility company will also have data detailing how their electric rates have changed over the past decade, or longer. Use this as a guide: solar is a long-term investment, so reference long-term rate inflation trends, not short-term spikes.

 

Sometimes a lease company will offer a utility bill savings "guarantee". But any savings that may be guaranteed in a lease are usually less than you would realize if you owned the solar energy system. A rising lease payment is virtually the same as having utility energy rates that inflate -- not what a solar energy system is suppose to do for you. Purchasing a solar electric (PV) system should be considered an investment that "fixes" your energy prices, not continues to inflate your energy costs.

 

Cost of Capital: Leases can be expensive. If you were to get a loan equivalent to a Lease you could be paying 15% - 20% interest, typically.

 

 

Ability to Gain Income Tax Advantages: If you purchase your solar energy system with a loan, that loan interest is usually tax deductible (mortgage interest deduction). Lease payments, on the other hand, are expenses that are not tax deductible. And the money you will save on your electric bills is money "in your pocket" that could be invested in a tax-deferred account (like an IRA) -- those utility bill savings are usually higher if you own the solar energy system rather than lease. Today 30% of the cost of your system is tied to a national tax incentive and in many states from $1000,-$3000 is also available, For many folks this is over $10,000 in tax benefits.

 

 

Ability to Realize "Windfall" Profits: If you own your solar energy system, this is an asset (an investment) you control. New markets are developing which allow you to sell "carbon credits" (sometimes called SRECs) realized by producing renewable energy. There are also "Performance-based Incentives" (PBIs and Feed-in Tariffs) available which may allow you to earn income from your solar production. However if you sign a solar lease, the leasing company (not you) will most likely be the recipient of any such benefits to earn additional profits from the solar electric production.

 

 

Ability to Sell your Home & Property Appreciation: Leases are long-term financial liabilities. If you want to sell your home during the lease term the buyer will need to assume those lease payments. This may be a hindrance, and perhaps a deal breaker, when trying to sell your home. For this reason, the presence of a solar lease may actually lower the value of your home. On the other hand, if you purchase your solar energy system, it is then an asset that can improve your property value (property appreciation).

 

 

About System Maintenance: During the term of an operating lease, the leasing company is supposed to insure the system operates properly. However this is a benefit of little value (modern solar systems are largely "maintenance free"), and may actually be a liability in the longer term: The leasing company "operates" the solar energy system for 10-15 years (or whatever is the lease term). However the likelihood of solar equipment failing during that term is negligible. Yet for a lease company to maximize its profits, they will minimize the cost of equipment and labor to install and maintain the system. This may mean "cheaper" equipment is being installed. Hopefully this is not the case, but that motivation is there for the leasing company. When the lease term ends, you may be on the hook for that equipment and the leasing company walks away (after you pay more to the leasing company to buy the system at the end of the lease). On the other hand if you purchase your own solar energy system then you have total control over the selection of the equipment (i.e you can pick reputable brands and installers) which may help insure long, reliable system operation, thereby maximizing your profits and financial returns.

 

 

Ability to Realize Savings from future Energy Efficiency Investments: Once you sign a solar lease your home energy bills are largely fixed for the term of the lease (in the form of lease payments plus utility company fees). If you later decide to improve your home's energy efficiency, you will lower your energy use. But with a solar lease your lease payments will not be reduced. So why invest in energy efficiency if you will realize limited, or no, reduction in monthly payments for saving energy? Energy efficiency improvements are one of the best ways to reduce your energy costs, and leases may work against you here. Are you aware of the fact that almost 90% of all existing homes waste up to 40% of their electric bill every month?. Also, a more minor point, but if you go away (perhaps vacation) your electric use should go down significantly while you are away, but you will still need to pay that lease payment.

If you own the system any loan payments you make are made toward your investment (which increases your home equity and owning the system appreciates property value). Also, by owning the system (not leasing), you should find you have more control over modifications to your system, so that its size (production) best matches any changes in energy appetite. For example, you could start with a smaller system and then expand it as may become desired, or invest in energy efficiency measures to reduce your overall electric usage, further enhancing the value of your solar investment. Also, by purchasing your solar energy system, be it with cash and/or a loan, you should have a greater profit margin and thereby find yourself with greater overall control (and financial assets) to meet your changing needs whatever they may become.

 

 

Tip: Most utilities will not pay you for over production -- what is called a "Net Excess Generation" (NEG) scenario. This means if you produce more solar-based electricity than your home uses over a year, then the utility will not pay you (cut you a check) for that excess solar production. This is related to, but different from, "net metering" which is how you can achieve a "$0 electric bill". What this means is that if you reduce your energy use, and the solar system produces more electricity than you can use in a year, then you may realize no financial gain from that excess solar production. Check the rules with your local utility or solar professional to learn how NEG will be treated in your situation.

 

 

Solar Lease in California has posted what we feel is the most comprehensive reasons why not to lease. Its a must read located at http://www.solarleasegoodidea.com/

 

http://www.solarleasegoodidea.com/index-4.html#

 

 

 

For more information and a free financial analysis please call The Solar Mortgage Home Loan Team today. 480-326-9858