Prepaid Solar Leases

It sounds like a contradiction. The solar company sells you a lease, and discounts it steeply IF you pay everything up-front. This has to leave you thinking: Why would I lease, if I had enough money to buy?

The answer is - the prepaid lease is a good deal. A suspiciously good deal...

Let's look at the math. The following numbers are taken from an actual lease proposal written in 2012 for a property in northern California:

  • This particular proposal was for a large system; the purchase price would be $34,000.
  • The federal tax credit means that 30% of this expense is refunded, so the purchase price is now $23,800.
  • The state rebate for this system is $1,627, making the net purchase price $22,173

Since, with a lease, the leasing company keeps the credits/rebates, a homeowner needs to start his decision process with the $22,173 figure. "OK, Mr. Lease Company, I can OWN this solar installation for just over $22k. What can you do for me that would make me want to lease it, instead?"

This particular lease company's response was as follows:

  • We'll provide any required maintenance for the next twenty years. That includes replacing the inverter, which is typically required after a decade or so, and which is not cheap.
  • We'll write you a check if electrical production drops below what we've guaranteed.
  • Oh - and we'll charge you $18,000, not $22,173.

OK - What's the catch? If you went to lease a car for 20 years, they wouldn't charge you less than the cost to purchase the car. Yet that's what's going on with solar.

There must be a downside.

Honestly - I can't think of any. The only argument I can come up with against a prepaid lease (versus outright purchase) is that, since you don't own the system, you can't mess with it - you can't just get tired of it one day, and stack it behind the garage. And if you sell your home, the new owner can't remove the panels until the lease is over. But, realistically, that installation is providing free electricity. Few home buyers are going to want to dismantle it.

How's this suspiciously good deal possible? Leasing companies make their money via an accelerated depreciation not available to homeowners. Are solar leases leveraging a tax loophole? Perhaps. Are you, the homeowner, at risk of the loophole disappearing some time in the future? Not if you've signed a prepaid lease, and the solar's been placed on your roof. But don't think that you can sit for a year or two, thinking about whether you should get a prepaid solar lease. This rediculously good deal WILL end.

back to: Should I Lease?

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