This decision depends on many factors and the homeowner’s goals:
If your electricity bills are over $180 a month, you have access to low-interest financing or if you have cash in a low return investment model and you pay Federal income taxes every year, it will be best to buy the system. Today the returns on solar systems for both commercial and residential ones are in double digits, anywhere from 12 to 20% and the paybacks range from 4 to 6 years depending on the utility bills..
If you have high electricity bills but no access to cash and somewhat low credit score, the PACE program may be a great solution. (See “What is solar PACE financing?” section.)
If you don’t have access to cash but have decent credit score (700+), you may want to lease the system. This way you can still lower your bills by up to 25%, without spending any money for the solar system itself.
Other factors to consider are:
- The system maintenance: if you buy the system, you are in charge of cleaning and insuring the system. If you lease the system, the leasing company will take care of all the maintenance since they are the owner of the system. Note that, the maintenance of a solar system is very easy, since there are no moving parts. Most of the time, the rain (as rare as it may be in California) takes care of the panel cleaning.
- How long you intend to stay at your current home: If you plan to stay at your current house for less than 6 years, it is usually better to lease, since most systems pay for themselves within 4-6 years, if purchased. If you intend to stay a very long time, then your financial situation is likely to determine if you want to buy or lease. Note that the solar panels increase the value of the house, so even if you sell the house within 6 years of buying the system, you are likely to recoup all the initial cost just from the sale of the house. Then all the savings achieved in the 6 years of solar production will be additional, which makes solar a worthy investment, even if you decide to move out of your home sooner than later.
- You pay a lot of income taxes: Then buying is definitely the best choice, since you can turn your tax dollars into an revenue-generating asset for yourself. If purchased, solar system provides a tax credit that is equal to 30% of the installation cost. This gets deducted from your tax bill, allowing you to pay less tax and use your funds to generate clean and cheaper energy. If you already pay taxes throughout the year, you will get a refund from the IRS equivalent to your tax credit after your file for your taxes.