As technology advances and we are ever more conscious of energy efficiency, solar companies seem to be multiplying. I think most people have received a knock on their door and opened it to find a sales person trying to sell them a lease or power purchase agreement or solar panels to own outright…..but which is the right option for you? While I am certainly no solar expert (though I admit to listening to 4 different solar pitches), I will share some basic knowledge about solar options and my experience with solar systems as a Realtor.
A solar lease is an agreement between a homeowner and a solar company in which the homeowner “rents” the system for a set amount of time (typically 20 years) and pays a fixed fee each month. This model is very similar to a car lease. There are little to no upfront costs and the fee for the lease is usually an unchanging monthly cost, but at the end of the term you do not own the system. Some contracts offer the option to purchase the system at the end of the term, or sometimes even sooner after a set amount of time, at current fair market value.
As with a lease, there are little to no upfront costs with a power purchase agreement (PPA), the term of the agreement is typically 20 years and the homeowner does not own the panels at the end of this term. PPA’s can also have the option to purchase after a set amount of time or at the end of the term. As its name implies, with a power purchase agreement you actually purchase power from the solar company at an agreed upon rate. This rate should be less than what you would pay your local energy company (such as PG&E), but typically increases yearly with a maximum allowable increase.
When you buy solar systems outright or finance “seller owned” systems, you get to use 100% of the energy generated from your system. Unlike leases or PPA’s, the homeowner is responsible for any maintenance required, though systems typically have warranties and are relatively low maintenance. Many people feel this option is cost prohibitive or they don’t want to invest $15,000-$30,000 on a system if they think they may be moving in the next few years. This is a reasonable concern when, in my experience, you are unlikely to see more than a 50% return on investment if you sell your home with owned solar. However, I will say that most buyers appreciate owned solar and it may attract buyers while being very unlikely to deter any buyers.
To help offset the initial cost, those who choose to purchase their solar system can take advantage of the solar tax credit (also known as the investment tax credit or ITC). Each year this credit decreases in amount. In 2019 the credit was 30% of the cost of the system. In 2020 it dropped to 26% and the tax credit will end in 2021 at 22%. In the case of a lease and a power purchase agreement, any tax credits available can be claimed by the solar company, not the homeowner.
Once again, I am not a solar expert and most homeowners aren’t solar experts either. With the bevy of companies and available solar options, it is important to pick the right option for you and to know exactly what it is that you are getting. As all companies are different and agreements are different, here are a few important questions to ask:
- Who maintains the system?
- Is the agreement transferable if I were to sell my property?
- If it is transferable, are there certain minimum requirements the buyer would need to meet?
- Can I cancel this agreement and have the system removed?
- Can I purchase the system? If so, can I purchase it before the end of the term? At what cost?
- Will this result in a lien on my property?
- If I move, can a bring my system with me?
- If I need to re-roof my house, will you remove and store the panels? At what cost?
Over the last 5 years, I have seen a big shift in buyers’ mindset about solar. In 2016, I sold a property that had financed solar. I listened to buyer after buyer tell me they were not willing to assume the loan, nor did they see any real value in the system. During an open house I even had a prospective buyer ask me if sellers would be willing to remove the system altogether and patch the roof! In the end, my sellers had to pay off the loan in order to make their property sellable. This is no longer the feedback I am getting from buyers. Many buyers see added value that reduced energy costs bring to a property. That being said, often buyers are still wary of leases and power purchase agreements and I have had buyers walk away from a home they loved because they were uncomfortable with the lease/PPA. They either want to own the system themselves, are still a bit skeptical of solar, or don’t want something on their house that belongs to someone else. Ultimately the right solar choice is a decision each individual has to make for themselves, but bear in mind that your decision may impact the desirability of your property if you choose to sell in the future.