If you’re installing a solar power system in your home, you’re opting for clean, renewable energy! Switching from fossil fuels to solar energy lowers your carbon footprint and could save you money on your electricity bill. There are many different factors to consider when choosing the type of solar power system in your home. One decision you’ll need to make is whether you want to lease a solar system or purchase one to own.
Solar leasing and solar buying are both great options! The best option for your home might depend on your monthly budget, paperwork preferences, and willingness to handle maintenance work. To find out which option is right for you, let’s get started with some basic definitions.
Solar Leases, PPAs, and Solar Ownership
There are three financing options for installing a solar power system. You could opt for solar leasing, a PPA, or full solar power system ownership.
Solar Leases
How do solar leases work? A solar lease is a rental agreement where you let a company install a solar panel system in your home. Rather than owning your system, you’ll be paying a fixed monthly fee to use a company’s solar power system.
If you currently do not have a solar power system set up in your home, you’re likely purchasing your energy from an electric utility company. You probably acquire a monthly or quarterly power bill from the utility company. Aside from lowering your energy consumption by making sustainable choices, you probably have little control over reducing your energy rates. These energy rates are determined by the market, electricity retailers, or non-partisan governing bodies like NSW’s IPART or Queensland’s QCA.
If you decide to purchase a solar lease, you’re giving someone else the responsibility to build a solar power system on your roof. With little upfront cost, you’ll only be responsible for paying a recurring fixed monthly fee and requesting maintenance whenever your system needs repairs. The company will pay for the construction of the system and then sell you the power that it generates at a lower rate than your retail tariff.
Power Purchase Agreements (PPAs)
A Power Purchase Agreement (PPA) is also a power agreement with the same installation process as a solar lease. However, rather than paying to lease a solar system as you do in a solar lease, you’re only paying for the power generated by the solar system per kWh. Instead of paying a relatively consistent monthly price, your payments will vary depending on your energy consumption. In Australia, PPAs are more common than solar leases.
Owning Your Own Solar Power System
If you’d rather own your solar power system and take responsibility for all maintenance and ownership requirements, you can purchase your own energy system. Instead of signing a lease agreement, you’ll buy the system outright and produce your own energy. You’re paying for the system upfront instead of the energy as you consume it.
Solar Leasing vs Solar Buying: The Pros and Cons
You have financial options for solar power systems in Australia! Now that you’ve got the question, “How do solar leases work?” answered, you can sort through the benefits and downsides of each option.
Solar Leasing Pros
Your upfront cost could be as low as $0!
You do not have to come up with a large sum of money to buy your solar power system if you opt for a lease. As long as you own a home, you can lease your solar panels and save money from the day of installation. Upfront costs are low with leasing, and some companies even allow you to get started with $0 down.
You don’t have responsibility for the installation, maintenance, or insurance of your solar panels.
You can skip over the frustrating responsibilities of installing and maintaining your solar system if you pay a company to do it for you! Leasing solar panels also means you can skip the insurance hassle since you’ll have an agreement that takes care of that for you.
If you experience any issues with your energy system, you can simply request that the owner of the system takes care of it for you. Plus, many rental agreements allow you to receive refunds if you experience a maintenance issue or your system doesn’t produce the electricity guaranteed.
You have more flexible financing options.
Leasing agreements provide flexibility with financing. Some companies allow you to maximize your savings with a prepaid option that lets you skip over the monthly payments. On the other hand, you can also rely on consistent monthly or quarterly payments with a solar lease. Finally, you can pay for exactly what you use with a PPA.
You can purchase the system at a discounted price when your lease agreement ends.
One way to get around the steep price of a solar power system is to first lease a solar system from a company. Once your contract ends, some companies will sell you the already installed solar system in your home at a discounted rate.
Solar Leasing Cons
Electricity rates are more expensive than if you own your system.
Leasing solar panels means that you’re paying a company for the electricity. The installer will be taking a portion of the electricity rates; therefore, the rates will likely be higher than what they would be if you owned your system.
You’re locked into a fixed energy rate for years.
This could be a good thing if energy prices rise for years. But many contracts last for 10-20 years, and you don’t know what the prices will be later down the road. Fixed rates could be a downside in Australia because here, electricity prices continue to fall as more renewable energy sources are added to the electrical grid. If your rates are locked in, you’ll miss out on the lower prices later on.
You can’t take advantage of tax and subsidy benefits.
The government guarantees tax and subsidy benefits for solar power system owners once the system pays itself off. If we assume it takes two to six years for a system to pay itself off (this depends on where you are located in Australia), the solar power system owner has the advantage over the renter. You’ll still be locked into that contract by the time it pays itself off.
Solar Buying Pros
You get free electricity!
Once you’ve paid off the upfront cost, you will be earning free power! You own it! All energy generated by your solar panels is free from that giant yellow and orange fireball in the sky. All you need is sunshine, and you can harness energy without paying a dime. You can even earn credits if you sell excess electricity to the grid.
You can earn government subsidies and tax credits.
These financial benefits lower the upfront cost of buying your solar power system. If you buy a solar power system in Australia in 2022, it is subsidized by the federal government. You can earn STCs by installing your own system at home, and these can be traded in an open market for cash. This financial incentive and tax relief opportunities are great to take advantage of if you own a solar system. If you take full advantage of government support, you could save up to 30-50% on your solar installation!
You can obtain financing for the upfront cost.
In addition to the other money-saving opportunities, you can also get a loan from a bank to finance the large upfront cost of installing your own solar panel system. You’ll still be able to generate free electricity right after installation.
Solar Buying Cons
The upfront cost is hefty.
You’ll either need a generous sum of cash upfront or be able to take out a loan when you install solar panels in your home. In Australia, the typical upfront costs of a solar power installation are between $4,000 and $5,000 for a 6kW PV system and between $7,500 and $10,500 for a 10kW PV system.
You’re responsible for installation and maintenance.
In addition to the large upfront costs for these actions, you are in charge of the labor. Whether you pay extra for someone to install or maintain them or you do it all yourself, this requires extra time, labor, money, and paperwork.
We hope these pros and cons will help you decide whether solar leasing or solar buying is right for you!