11.4% Return on Investment Anyone?
Home Solar Power: Lease vs. Purchasing
To PPA (Lease), or not to PPA? Willsolar Shakespanels would be proud we're discussing this. Here's the basic deal. If you choose to lease your panels, you benefit from no out of pocket costs and an immediately reduced total electricity payment. Because of this, many regard this option as a no-brainer, since there isn't any downside to think of. The only hiccup you'll start to experience is when you consider the long term financial benefit of owning the solar panel system yourself.
In many situations, if you can afford the outlay or can easily secure financing, the cost of the install becomes an investment with a return outpacing even the strongest performing mutual funds.
In addition, there's significantly less principal risk, since the energy credits you will be producing are tied to the sun coming up in the morning instead of our financial markets!
Additionally, if you go the PPA route, you must forfeit all the credits and performance payments you would receive by owning the system yourself to the solar PPA company (after all, that's how they can afford to give you such a no-brainer proposition in the first place).
This is without a doubt the best option when it comes to percentage return on investment. That’s because it relies on using someone else’s money for the purchase price, which is paid back over time. The cost is similar to a new car loan, but because solar makes you money, it's a tremendous investment. A solar purchase like this will make sense for you if the following is true about you and your current situation:
You can get a home-equity line of credit (HELOC) for $17,500, with a fixed rate of 4% or lower and a 15-year repayment period.
You love making money without much risk
The reason this works so well is that you don’t have to put any money down, but you still get all of the incentives that go along with buying solar. You'll get the 30% federal tax credit and the energy bill savings will start right away. The bad news is your loan payments will be a tiny bit higher than those energy bill savings, so you'll end up spending about $39/month for solar in the first year. That difference will come down each year as electricity prices rise, but your system will keep on producing about the same amount of electricity.
Here’s how the numbers pencil out for a California solar purchase with a HELOC:
Installing a typical 5-kW solar system should start at about $17,500. That's how big your loan will need to be to cover it.
The electricity you'll save in the first year of operation would have cost $1,260, but your loan payments will total $1,553, for a difference of $293, or about $24 per month.
That's not so bad when you consider your tax savings for the year will be $5,250! You'll come out $4,957 ahead in year 1, which should help ease the burden of loan payments for a few years, at least.
The benefits of that early tax break are so great that you'll never actually spend that $5,250 windfall on loan payments. And after the loan is paid off, your profits stack up just like if you bought the system outright. You'll end up with $27,655 in profits over our 25-year example.
On top of the green that will stay in your pocket, your system will mean green for the environment, too. 123 trees-worth, every year!
An outright purchase used to be the only way to get solar, and it's still the option that provides the best dollar-for-dollar returns. The reason it's so great is that you own the system from day one and reap all the benefits.
The Federal tax credit and electricity savings bring your first-year costs way down.
In our example, you put down $17,500 up front, but by the end of year 1, incentives and energy savings will erase a bunch of it. Over 25 years, your system will have produced over $33,000 in income.
But even though that sounds huge, look into the HELOC option too, because taking a loan to buy an income-generating asset means you'll be making money as you pay for it.
Here’s how the numbers pencil out when you pay up front for a 5-kW rooftop solar system in California:
Installing a typical 5kW solar system should start at about $17,500. Don’t worry – even without rebates, your first-year costs will be considerably less than that.
Since the feds calculate their incentive based on actual out of pocket costs, the lack of a California rebate means a bigger federal solar tax credit. Subtract $5,250 (30% of $17,500) for a new price of $12,250.
After the tax credit we subtract your first year’s energy savings, which we estimate to be about $1,260. That reduces your cost after the first year to only $10,990.
You'll be raking in the solar savings every year. So much, in fact, that your shiny new panels will pay for themselves in 8 years, and keep running for at least another 17 after that!
Over the 25-year life of your system, you'll see a total net profit of $33,456, after the system pays for itself.
And don't forget... your home's value just increased by almost $32,000, too (your expected annual electricity savings over 20 years)!
In addition to all that cash (and home value), you’ve created some green for the earth as well by not using electricity from fossil fuels. It's like planting 123 trees a year, every year your solar power system is humming.
When you are ready to Go Solar, Reach Out! We are ready to help and will tailor your solar system to your individual needs.