Minnesota homeowners are increasingly turning to solar energy systems to lower their energy costs and transition to clean energy. However, one major decision stands between deciding to go solar and actually mounting panels on your roof: Should you buy (own) or prepay lease your solar energy system?
While both options let you generate clean power, the financial returns, long-term risks, and options when moving or transferring a prepaid lease differ significantly. Our team at TruNorth Solar wants to be sure you understand the differences, so we’re going to highlight a couple different factors that we feel are the most important to consider.
Own Your System vs. Prepaid Leasing: How They Compare
When you own a solar energy system (paying via cash or a solar loan), you are the legal owner of the equipment and have full control of your energy independence. When you prepay a lease (or enter a Power Purchase Agreement / PPA), a third-party solar provider owns the system, they have control over it, and you pay a monthly lease fee to use the electricity it generates.
Take a look at this chart showing some of the factors that need to be considered when comparing owning a system vs. prepay leasing one:
Factor | Owning | Leasing (Prepaid) |
Upfront Cost | Cash or Solar Loan | Pre-Payment Required |
Asset vs. Liability | Asset ownership – You own the system. | Liability – System could be sold to another entity. |
Maintenance & Repairs | Managed by the owner. Often covered by warranties such as Solar Insure. | Managed by the leasing company. You don’t own your system so you don’t have control over repairs. |
Home Sale Flexibility | The system adds value to home and new home owners. Increases selling price for sellers. | This can be complex. The buyer must qualify or a prepaid lease must be bought out. Can be a detractor for home sale. |
End-of-Term / Exit Options | You retain full ownership of the system and all equipment. | The system must be removed, renewed, or bought out. |
Adding Onto Your System | You can add panels or battery storage at any time. | You must get this approved by the third party owner, or install a completely separate system, which can add complications. |
Breaking a Prepaid Lease, Moving, and Fair Market Value Buyouts
One of the most critical, and overlooked, factors when deciding to commit to a prepaid lease is what happens when life changes and you want to move or exit the contract early.
Terminating a solar prepaid lease before its 15- to 25-year contract ends can be difficult and costly.
Breaking the prepaid lease usually requires paying out the remainder of expected future payments or paying for the professional removal and restoration of the roof. And requesting system removal early often incurs costs for decommissioning fees.
If you decide to sell your home with a prepaid leased system, the homebuyer must agree to take over the remaining terms. If the buyer refuses, the sale cannot proceed under those terms. Or, you will likely have the option to purchase the system outright from the leasing company so it can be included as real property in the sale of the home.
However, the buyout price (whether you’re selling your home or not) is determined by the Fair Market Value (FMV) of the equipment at that specific time.
There are a couple of risks involved with Fair Market Value:
- Unpredictable Costs: Because Fair Market Value depends on system age, prevailing market rates, and remaining useful life, it can be difficult to predict exact buyout costs years in advance.
- Possible Disputes: With Fair Market Value, both parties must agree on what the system is now worth, and determinations can sometimes differ or be higher than homeowners anticipate, making a purchase buyout more expensive than expected.
Servicing Your Solar Energy System
Another critical factor to consider is service for your solar energy system. When you own your system, you have full control over who services it. You are responsible for repair or replacement costs, but you can call TruNorth Solar (or another trusted installer) to help you out, and on your timeline.
When your system is owned by a third party, they choose who will service it when needed, and when those services will be performed. So, if they are in no hurry to get your system fixed, you are missing out on your solar production and lower energy bills during that time.
Choosing a Trusted Installer
While TruNorth Solar does not currently offer prepaid lease options, that doesn’t mean we never will. But we won’t make this decision lightly or without our customers’ well-being in mind.
And, whether you decide to purchase and own your solar energy system, or lease one from a third party, we can’t stress enough the importance of choosing a reputable and local Minnesota installer. We encourage you to check reviews, talk to your friends and neighbors, and check with local solar associations like MnSEIA so you’re fully informed about this big decision.
If you’re considering a prepaid lease, here are some questions to ask the installer:
- How is fair market value determined?
- What if we can’t agree on the fair market value in the future?
- Who owns this prepaid lease?
- Could this prepaid lease be sold?
- Are there any hidden clauses that require me to make up the difference if the financial entity doesn’t get their tax credits?
- What happens if I’m unable to get my system serviced when needed?
- What would happen to my system if the entity claims bankruptcy?
Our Energy Consultants here at TruNorth Solar would love to chat with you or answer any questions you may have about your options, so please feel free to contact us any time.