What is the best way to go Solar?

This is Part 3 of our series to help Home Owners go Solar. Click here to read Part 1, Part 2 or Part 4.

The three most common ways to go solar by installing Solar Panels on your Roof are  :

1) Solar Lease or PPA  :  This is like a very long 20 to 25 year Auto Lease. It is the cheapest way to get Solar Panels with no out of pocket, but with monthly rental payments.  Savings are the least with this option, between 10% to 30%.

2) Solar Loan or Solar Financing :  This is an ownership option with no out of pocket expenses. You purchase the Solar Panels by taking a Loan. The savings from solar usually more than offset your monthly Loan payments.  Savings are higher than the Lease/PPA between 40 to 60%.

3) Solar Purchase or Cash Purchase : You purchase the system outright by paying for it. You enjoy immediate savings and recover your investment over the next 5 to 10 years. This option has the highest Savings of 90%.

DIY Solar and Community Solar are two other routes to going solar that are relatively uncommon.

DIY Solar is a difficult route and is only advisable for professionals who have access to a licensed electrician or have significant knowledge of Direct Current (DC) wiring.  And there is enormous complexity involved in getting Permits and Utility State and Local approvals.  DIY Solar for your Home is daunting.

Community Solar is gaining slow traction.  This option involves purchasing solar powered electricity from a remote Solar Farm or Solar Installation.  Solar Panels are not installed on your home. This is only available in a very few states and in particular locations.

1. Savings comparison Solar PPA/Lease, Financed or Cash

 

PURCHASE

FINANCED

LEASE/PPA

 

You pay upfront for the Solar Panels.

Buying your Solar Panels with a loan from a Bank.


You have monthly payments.

This is the Rental option.


You pay a monthly rent to buy the Electricity produced by Solar Panels.

Reduction in Utility Electric Bill

90%
Fill Counter
90%
Fill Counter
90%
Fill Counter

Monthly Payment

None

Monthly Loan Payments for 5 to 10 years 

Monthly Lease Payments for 20 to 25 years

Additional Savings

Tax Credit

&

State Incentives

Tax Credit

&

State Incentives

None

TOTAL SAVINGS

90%
Fill Counter
60%
Fill Counter
30%
Fill Counter

Electric Bills will reduce by least 90% once you go solar. This is true for any of the above options. 

However, there are additional monthly rentals or loan payments that reduce the total savings for the Financed and Lease/PPA solar options.

The cash buyer enjoys the most savings.  Even though they pay more upfront, they get back a large tax refund / tax credit.  State's offer additional monetary incentives.

Excellent Payback : With the reduction in electricity bills and the savings, the cash buyer recovers his investment in 5 to 9 years. After that all the savings go directly to his bottom line.

A financed system will have great savings as well since the incentives and tax credits are available to significantly offset the monthly loan payments.  The overall savings over time are very good for a financed solar system too.

The PPA and Lease have the least savings since the monthly rental payments are between 20 to 30% lower than the regular electric bills. And many rental payments increase every year; sometimes by as much as 3%.  That leads to lower and lower savings over time.

2. Differences Between Solar Lease/PPA, Financing & Cash

cash

financed

lease

ppa

You own the Solar Panels

You own the Solar panels.

You don't own them.

You don't own them.

Out of pocket $ 10,000 to $ 35,000

No out of pocket

No out of pocket

No out of pocket

No Monthly Payments

Monthly Loan Payments for 5 to 10 years

Monthly Rental Payments for 20 to 25 years

Monthly Rental Payments for 20 to 25 years

Monthly Earnings from State * Incentives

Monthly Earnings from State * Incentives

No Earnings from State Incentives

No Earnings from State Incentives

Increased Home Value

Increased Home Value

No Increase

No Increase

No Lien on Home

No Lien on Home

Likelihood of Lien

Likelihood of Lien

Immediate Savings of around 90% on your electric costs

Immediate savings lower during the Loan term.


90 % savings thereafter.

20% to 30% savings on electricity

20% to 30% savings on electricity

Huge Savings over Time

Very good Savings over Time

Steady or Decreasing Savings over time

Steady or Decreasing Savings over time

3. Savings from a Solar Lease or PPA 

Let us look at the Saving from a typical Solar Lease or PPA .

A strong caveat - the savings statements shown by Solar companies is usually very rosy. They assume you pay a high rate for your electricity and show you exaggerated savings. It is best to actually calculate your savings before saying Yes.

Take the average of the past 12 months of your electric bill prior to going solar.  Use that to compare with the monthly Solar Lease payment.  

For example if your average usage is $ 220 per month and the new lease payment is $ 183 per month, your savings are obviously $ 37 every month.

If you are taking a PPA, you should compare the actual rate per kwh you pay your power company with the rate being charged by the Solar company.

For example if you pay 13 cents per kwh for power and your monthly usage is about 800 kwh, you average electric bill before solar is 800 kwh x $ 0.13 = $ 104 a month.

If you Solar company charges you 10 cents per kwh then you monthly savings would be 13 cents - 10 cents = 3 cents per kwh. Thus your monthly savings would be  800 kwh x 3 cents = $ 24 per month. 

3a. Solar Lease Example


lease

Savings

Upfront Payments

None

Average Monthly Electric Bill Before Solar : $ 150 per month

Monthly Payments : Year 1

$ 120 per month

$ 30 Savings every month or $ 360 per year

Monthly Payments : Year 2

$ 122.4 with 2% increase

Annual Savings $ 334 in year 2

Monthly Payments : Year 15

$ 161.5 with 2% increases every year

If you utility rate increased to $155, you could be paying more for solar now - $ 161 vs $ 155

Make sure you calculate your savings yourself. Don't rely on the Solar companies calculations.  There are many cases of homeowners ending up paying more for Solar electricity in a few years after going solar because they did not do their own home work.

A fixed no increase Lease is the better option.  Even if you have lower savings initially, you will continue to have those savings and not see them dry up or worse, start seeing losses.

3b. Solar PPA Example


PPA

Savings

Upfront Payments

None

Average Electric Bill Before Solar : $ 180 per month 


(1200 kwh each month @ 15 cents  1200 x  $0.15 = $ 180 )

Monthly Payments : Year 1

$ 0.12 cents per kwh for Solar Power 

Savings are 3 cents per kwh


$ 0.03 x 1200 = $36 per month

or $ 432 savings a year

Monthly Payments : Year 2

$ 0.12 per kwh with 0% increase

Annual Savings $ 432 in year 2

Monthly Payments : Year 15

$ 0.12 per kwh with 0% increase

Annual Savings will be lower depending on how much the utility rates have increased. But with a fixed rate PPA or Lease you should still be saving.

Choose a fixed no increase PPA or Lease over a program that has an annual increase. You will continue to have saving over time with those programs. 

Even though the savings are low for the Solar Lease and PPA's, you can still get a good deal by making sure you choose a no increase Lease/PPA and make sure you have 20% or more savings on your actual electric bill. Again, do the calculations yourself. Don't rely on the Solar Sales person.

4. Solar Financing - an example


Financing

Savings

Upfront Payments

None

Example is for  typical 8 kw system that costs about $21,000

Monthly Payments : Year 1

Financing costs are about 5% leading to a monthly payment of $160* a month

Electric Savings are around $130 a month after going Solar.


Net out of pocket of $30 per month

Monthly Payments : Year 2 to Year 10

Same fixed $ 160 per month

Paid about $3600 over 10 years

Savings after year 10

No more monthly payments

Annual Savings of $1500 or more every year.

              *  The monthly payments assume your solar system costs $15,540 after the tax credit of 26%

A financed solar system is an excellent investment. You may have some out of pocket during the loan term if your loan payments exceeds the savings from electricity, as shown in the example above.

However, in many states there are additional state incentive which mean more savings and you could end up saving money even during the term of your loan.

After your loan is paid off, you will enjoy huge savings from electricity as well as any state incentives for another 15 to 20 years.

5. Solar Cash purchase - an example


CASH

Savings

Upfront Payments

None

Example is for  typical 8 kw system that costs about $21,000. 


Out of pocket is $15,540 after tax credit of 26%.

Monthly Payments : Year 1

No Payments / Only Savings

Electric Savings are around $130 a month after going Solar - $ 1560 a year.


Many States have additional savings from programs like SREC's and grants.

Payback

between 5 to 10 years

With no state incentives you recover your money in less than 10 years.


In states like NY and NY you get your money back in 5 to 7 years. 

Savings after Payback

Annual Savings of $1500 or more every year plus State incentive if applicable.

A direct purchase cash system is the most advantageous for Home Owners. In most States the investment pays for it itself in 5 to 10 years.  Thus, a payback period between 5 to 10 years.

Even in the States where there are no solar incentives, you will recover your money back in about 10 years.

That leaves you another 15 to 20 years of savings on electricity from the Solar panels.  This is the best way to go solar.

5. Conclusion : what is the best way to go Solar?

Purchasing a Solar System with or without financing is the best option for home owners who are able to take a loan or have the funds to make the 15 to 25 thousand dollar Solar Investment. You will enjoy 25 to 30 years of continuous savings.

A Solar Lease or PPA is the way to go for senior citizens or homeowners on a fixed income who cannot afford to buy.  A fixed no increase Lease or PPA with real savings from day 1 are a must.  Do the math yourself to make sure there are substantial savings before signing on the dotted line.

This is Part 3 of our series to help Home Owners go Solar. Click here to read Part 1Part 2 or Part 4.

Author: Michael Bennet

A Solar energy professional with ten years of marketing and installation experience. Avid and passionate about the adoption of solar and related technologies in all homes. Blogs about all things solar and sustainable at MySolarHome.us.