Tesla’s recently announced solar rental program was met with high hopes, as a program with the potential to make solar more accessible to more homeowners. With a sense of how the program works, the question becomes: how do the savings from renting solar panels form Tesla compare to the savings from owning or leasing solar panels?
Renting vs. leasing vs. buying solar panels: key factors to consider
There are pros and cons to each leasing, buying and renting models for going solar, and which option makes the most sense for you depends on a number of key criteria. Here are a few key factors to consider when deciding how best to invest in solar:
The primary difference between leasing, renting and buying solar panels is the cost structure. If you opt for the leasing or renting option, you will pay little to no upfront costs for solar to be installed on your property; instead, you will pay monthly for your solar panels. In a lease, you will be locked into a long-term contract with monthly payments that escalate over time (i.e., your monthly payments will increase by a few percentage points per year), which will either be tied to what you currently pay for electricity or the amount of solar energy actually produced by your solar panels. Similarly, if you decide to participate in Tesla’s solar rental program, you will have fixed monthly payments that increase each year, but will not be tied into a long-term contract. Conversely, if you decide to buy your solar panels, you will pay upfront to own your solar panels outright, reducing or eliminating monthly electricity bill payments altogether in the future.
The one exception to this is if you decide to purchase your solar energy system and finance it with a loan. In many cases, solar financiers offer $0 down payment loans for solar on 5, 10, 15 or 20-year loan terms. These financing mechanisms mean you pay for your solar panel system with monthly payments as opposed to the big upfront expenditure, similar to purchasing a car. However, unlike a leasing or renting model, you own the solar energy system outright and receive more benefits from solar than if you were leasing or renting.
Benefits from solar by financing model
The biggest benefit of investing in solar is a reduction in your monthly electricity bills. This should be the case for each method of going solar: buying with cash or through a loan, renting or leasing. However, there’s a big difference in how much solar can save you in these different models.
For instance, with a lease, your monthly payments for solar may be tied to how much you currently pay for electricity. In many cases, solar lease contracts are designed to provide a first-year discount from your electricity bill, reducing your annual electricity expenditures by 10% to 40% in the first year. The future savings from leasing solar panels will be modeled based upon how the cost of electricity will change where you live in the future, as well as how your monthly payments will change year-over-year. In other words, if the electricity rate where you live increases by more than your monthly payments increase each year, then you’ll save more money on your electricity bills from a lease. However, if your monthly payments increase by more than the cost of electricity does each year, then you will end up not saving nearly as much money from solar.
Tesla’s solar renting program follows a similar model, with a fixed monthly payment based upon the size of your solar energy system–small, medium or large–and not on your current electricity bills. Similarly, if the monthly price for the rental program increases faster in the future than the cost of electricity does, then you would not save nearly as much money by renting solar.
With an ownership model, either through a loan or a cash purchase, you are able to produce larger savings from solar by either guaranteeing monthly payments for a loan over a shorter period than a lease contract or by paying upfront for the next 25-years’ worth of electricity prices. As a result, solar shoppers who purchase their solar energy system typically see much larger electricity bill savings than those who rent or lease panels.
Beyond electricity bill savings, there are a number of federal and state solar incentives available to residents who invest in solar, from the federal Investment Tax Credit to state solar rebates and incentive payments. You are guaranteed these benefits if you purchase your system outright, while the third-party company that owns your solar energy system claims these benefits in a leasing or renting program. If you finance solar with a loan, be sure to ask if you receive the ITC benefit and any state incentives, or if you’re expected to pay those back to cover the cost of the loan.
If you lease or rent a solar panel system, the company that owns the system will be responsible for any ongoing maintenance associated with keeping your system running smoothly. If you own your system outright, you may be required to take care of that maintenance, which will often be covered by manufacturer or your solar company’s warranties.
Perhaps the biggest long-term consideration is the long-term contract commitment. In the case of leasing solar panels, you usually sign a 25-year contract that may be hard to get out of, and which may make it harder to sell your house down the line. Tesla’s rental program has no long-term contract, meaning you can decide to have your panels removed at any time. (From the sounds of it, Tesla is removing the $1,500 removal fee that was originally a part of the program.) However, since you don’t own panels while renting, you would not benefit from increased home value if you decide to move.
In ownership models, the long-term commitment is to powering your house with solar. And, once you’ve purchased your solar panels either with cash or by financing with a loan, studies show that solar increases your home property value by 3-4%.
When does it make sense to rent, lease or buy solar panels?
There are merits to each option for going solar, and there are situations that lend themselves best to leasing, renting or buying solar panels.
Buying your solar panel system makes the most sense if you have the money on hand to pay upfront for your solar panels, and anticipate being in your home long enough for the system to pay for itself. In these cases you can lock in or eliminate your monthly electricity bills for two or three decades in the future, while also increasing the value of your home.
Leasing solar panels may make the most sense if you want to power your home with solar but don’t want to pay upfront for the cost of the installation and don’t care as much about the increased home value associated with owning solar panels.
Renting and purchasing solar panels with a loan are two methods of investing in solar that split the gap between an upfront cash purchase and a lease. With Tesla’s solar renting program, you can install solar panels on your home with basically no risk, securing fixed monthly payments for solar that are likely lower than your electricity rate and allowing you to effectively trial powering your home with solar. If you don’t like it or are planning to move, Tesla will come out and remove the installation. Financing a solar purchase with a loan is another way to invest in solar without a large upfront cost, but which comes with the added benefits associated with owning your solar panels outright, such as increasing your home’s value.
Explore how much solar can save you with EnergySage
If you’re interested in how much you can save by purchasing solar, financing a solar energy system with a loan or leasing solar panels, the EnergySage Solar Calculator provides a comparison of the upfront and monthly payments, as well as the potential 25-year savings associated with each option. If you’re interested in harnessing these benefits, register for a free account on the EnergySage Marketplace to receive custom quotes from solar companies near you.