With “no money down” and “zero maintenance” to attract homeowners, solar leasing has become the overwhelming favorite for residential solar installations. And with the complexity of tax incentives, rebates, and financing, it’s hard to find fault with homeowners that choose this low-effort option.

Update: We published our solar ownership calculator in September 2014.

But giving up ownership means giving up a big share of the profits of going solar, and it may mean more expensive solar for society. So it’s good news that there are new options for making solar ownership as simple as a solar lease.

Why Lease

Solar leasing exploded in 2011, doubling to 46% of residential solar installations in California, then rising to nearly three-quarters in 2012 (with similar results in other states where 3rd party ownership is allowed). It’s no surprise.

Ownership of solar either requires a fair amount of cash ($10,000 or more) or financing. Financing for solar installations is not easy, since many banks (other than those financing leased systems) are still intimidated by what they see as a new technology. Financing is complicated by figuring out how to gain the 30% federal tax credit and state or utility incentives like rebates.

Add to that the responsibility of cleaning and maintenance of the solar array, and it’s no surprise that over two-thirds of the nearly 400 megawatts of solar installed on home rooftops in California since 2011 are owned by a third party.

The Losses of Leasing

But while leasing is simpler than ownership, any car buyer can tell you that ownership tends to be a better deal than leasing. That’s why only 25% percent of new cars were leased in 2013. The same is true for solar: ownership (while involving more risk) means better financial rewards.

Over the first 15 years, the various options are fairly comparable, with a financed and owned system providing the best “net present value,” followed by leasing, and a cash purchase coming in last (due to the high upfront payment). But over time, the benefits of ownership (via cash purchase or financing) grow to outstrip the value of leasing. (scroll to the bottom for our assumptions)

As shown here, the EnergySage website offers a comparison of a solar cash purchase v. a solar loan v. a solar lease, as well, but doesn’t disclose their assumptions. For example, do their financing options include deducting the loan interest? Do the lease terms last 15 or 20 or 25 years? Can a homeowner buy the system after their lease expires?

Robert Borlick of Harvard’s Electricity Policy Group finds an even larger gap between ownership (via cash purchase) and leasing (you’ll have to forgive his ignorance on the value of solar). In his very specific example from Southern California, he finds that solar homeowners give up 80% of their project’s value over the first 10 years by opting for a lease.

The bigger societal problem for solar leasing is that leasing may save individual electricity customers money on their electric bill, but the high cost of the solar middleman means more expensive purchases solar electricity for other electric customers. This chart, from the Massachusetts Department of Energy Resources, suggests that the cost of making solar leasing work is far higher than having the site host own the system.

New Options for Ownership

Fortunately, several new options are available for owning solar that lower the risk and increase the reward.

Mosaic, a company best known for providing crowd financing for community solar projects, has made inroads on simplifying individual home solar installations. Earlier this year they started providing crowd-financed home solar loans in Connecticut, and earlier this week they announced a solar loan product that includes maintenance, combining ownership via financing with the maintenance-free feeling of a solar lease.

Aleo, a subsidiary of solar-panel manufacturer Bosch, began offering zero-down loans at interest rates as low as 3% for home solar in 2013.

Add in Sungage and Renewable Funding (plus many banks), and it’s no surprise that GreenTech Media is suggesting that the market share for leasing residential solar will peak this year.

Solar leasing has helped the residential solar market grow significantly, and it’s help solved a problem of poor policy that requires individuals wanting solar to become tax and finance experts. But in the years ahead, the expiration of federal tax incentives and simplified options for ownership (and its significantly better long-term value) will mean a surge back toward solar ownership.

Solar cost comparison assumptions

• Solar array
  • 5 kW solar array, $4/Watt installed cost
  • 30% federal tax credit, no state/utility incentives
  • 1300 kWh AC output per kW DC per year, degrading 0.5% per year
  • $1000 inverter replacement in year 16 for all systems
• Solar loan
  • 5% interest on $0 down loan, 20-year term
  • Interest tax deductible at 25% marginal rate (if it’s a home equity loan, and not the unsecured examples)
• Lease
  • 15-year term
  • $50 initial monthly payments, inflating at 3%
  • Buyout in year 15 at 40% of original value
• Electricity and Present Value
  • Initial retail price of 15 cents per kilowatt-hour, inflation at 3% per year
  • Discount rate of 5%, accounting for inflation