As an installer who sells systems I’m naturally biased. But I see a false equivalence in much of the Lease vs. Buy conversation out there. I’ve written about it before, but a question I saw on the Internet made me think about it again.
A homeowner wanted to buy out his solar lease. He was quoted a buyout at around $30K, but he figured the equipment was worth maybe half that amount. From a material standpoint, I bet he was correct. But when I did the math the $30k seemed just about right.
Why? Because when you buy out a Lease (or Power Purchase Agreement aka PPA), you are NOT buying the equipment, you are buying the cash stream. In short, the lease company doesn’t see that system as so many panels, an inverter and racking – it sees it as a nearly guaranteed cash flow for the balance of the lease/ppa term.
So what is that cash flow composed of?
To keep it simple, when you lease, the company gets to keep the 30% federal tax credit and any tax deductions (they are a business, so the expense is a deduction). They’ll also get any state solar incentives and of course the money the homeowner is paying for the electricity they are getting.
When you look at the details it is true that the PPA or Lease saves you a little money on electricity “for nothing” (other than giving up your roof for 20 or more years), but it also lets the leasing company take the lion’s share of the benefits. By my calculations, a leased system breaks even for the installer in 3 to 5 years. After that, any money you pay to the lease company is pure profit.
One of the ways lease companies convice people to lease is to tell them, “We” take care of all the maintenance”, but as we’ve often noted there is little maintenance required for a solar system. In fact, there is little that can go wrong and the kinds of things that do go wrong won’t cost you nearly as much as as what the lease costs you.
In short, most of the systems we sell today net out to cost our customers between $0.04 and $0.08 per kW hour for the entire life of their system. Sometimes even less. Conversely most PPA / Leases come in closer to 16 or 18 cents per kWh and often include an escalator that increases that rate over time.
So yes the PPA or Lease can be the right deal for some, but in our experience most people who qualify for one of those offers will also qualify for a loan. Why would you pay 14, 16, 18 cents more per kW hour if you could avoid it?
If you’re not sure what’s right for you, ask us to visit. We’ll run some numbers.