Knowing When to Lease or Buy
The highly competitive marketing climate offers an abundance of choices from solar companies. Over the past year, additional options have come along, enabling consumers to benefit financially in ways other than straight purchasing a photovoltaic (PV) system. One such choice has been the proliferation of Power Purchase Agreements (PPA). While there is little doubt that “going green” is wise and viable, being aware of certain facts can keep consumers from making imprudent choices or falling into financial traps.
PPAs are the latest wrinkle in marketing PV systems. It is essentially a leasing plan under which you substitute the solar company for the utility company as the provider of your energy. The premise is that payments are supposedly lower than what the utility company would charge you and that payment increases would be manageable. Up-front costs could be “zero down” (with escalating payments up to 4 percent each year), “some money down” (e.g. $5,000, with lower non-escalating payments) or a “pre-paid lease” (a huge up-front down payment of about 45 to 48 percent of the cash purchase price with no monthly payments). The big attraction is avoiding the large initial cash outlay.
PPAs operate for a long term of 20 years. The structure and terms of leases are dependent on interest rate concessions and the application of rebates. For PV leases, energy tax credits are the major component as the solar company, not the consumer, owns the system and keeps the credits. The claim is that the consumer is freed from concerns that taxing authorities might modify or eliminate credits, but you can be sure that the leasing deals would be adversely affected and markedly different should that ever occur. In addition, a minimum FICO score of 700 is required for standard leasing programs.
For example, a 33-panel “three system” design is priced at $49,182. The underlying premises are that:
1. The current electric bill is $300 monthly
2. After installation, a $16 monthly connection fee is still paid to HECO
3. The $300 monthly billing averages $552 over the 20 years
Purchasing has a net cost of $19,517 after application of the federal ($14,665) and state ($15,000) energy credits. Based on the 981 kWh power production, the PV system replaces $132,517 of electricity costs over 20 years for a net savings of $113,000.
In contrast, the pre-paid leasing program requires a lump sum deposit of $23,286. The $16 minimum charge is still paid to the utility company. The net savings check in at $95,250.
With a $5,000 initial down payment, $217 per month is paid to the solar company. The net savings is $61,474. At “zero down,” $230 per month, with a 3 percent annual escalation, is paid to the solar company. It results in a total savings of $44,335.
The above examples have been derived from an actual proposal submitted to a homeowner. Considering that since that company’s own figures actually show the superiority of purchasing over leasing, can you imagine how another comparable system costing $4,000 to $6,000 less might fare?
Generally, purchasing your own PV system is an even better option for your financial health than leasing. Consider that many systems have a “pay-back” period on the net cost of four to five years. In those cases, there would be no payments to HECO from years six to 20 beyond the minimum “connection” charge — you are essentially “home free.” In the standard leasing plans, monthly payments continue to the end of the 20-year term, at which time you can either buy the system or have the solar company remove it. You’d then be back as a “hostage” with the utility company. The closer the consumer gets to “owning” his own system, the better off his financial situation will be.