The #1 Thing Clark Howard Hates About Solar Panels

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Solar panels have been marketed as a great way for Americans to save on energy costs. But, as with any purchase, you need to be a savvy shopper when it comes to buying a solar energy system.

If you’re thinking about getting solar panels on your roof, it’s easier than ever to estimate your potential savings. 

Google’s Project Sunroof calculates how much money you could potentially save with solar panels installed on your roof. All you do is enter your address, and the online tool projects the number of hours of usable sunlight your home gets each year and how many square feet of your roof would be available for solar panels.

Solar Panels: It’s Not How They Lay, It’s How You Pay

So what’s not to love?

As a longtime solar panel customer, money expert Clark Howard appreciates the savings that can be generated with solar panels, but he says how you pay for them  — leasing, financing to purchase or buying outright — can make all the difference.

Specifically, Clark doesn’t care for two of those payment options.

“I hate the leasing and financing of solar because you’re creating an obligation, a liability. And the solar itself may be floating out there as an asset on the roof, but the financing could kill a sale,” he says.

How could financing solar panels kill a home sale? It has to do with the solar power purchase agreement (SPPA), which is a contract that stipulates that a third party, typically the installer, owns, operates and maintains the solar panels on your home.

While homeowners may enjoy the thought of not having to fork over $15,000-$20,000 upfront to buy solar panels, SPPAs, which have terms that could extend for 20 years, come with some significant drawbacks.

The Downside of Leasing Your Solar Panels

Roadblocks for Homebuyers 

A home with leased solar panels could create an issue when it’s time to sell the property. That’s because a new buyer typically would have to qualify for both the mortgage and the long-term SPPA on the solar panels.

“Very often, it can be harder for a buyer to qualify financially for the SPPA than for the mortgage to buy your home,” Clark says.

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No Federal Tax Credit for Homeowners Leasing Solar Systems

According to the U.S. Department of Energy, you have to own your system to qualify for the federal solar tax credit.

Because a third party retains ownership of your solar energy system during the term of a lease agreement, the company — not the homeowner — would get the tax break.

Terrible Terms

“Many leases contain an escalator clause that can further reduce savings by increasing payments 3% per year,” according to Consumer Reports. “So if you’re paying 12 cents per kilowatt-hour in year one, with a 3% escalator, you’ll be paying 18.2 cents in year 15.”

Buying vs. Leasing Solar Panels: Clark’s Advice

Given those issues, Clark suggests that homeowners purchase their solar energy system outright.

”Ultimately, my preference is for you to buy solar equipment, rather than lease it, if you’re financially able to do so,” Clark says.

Final Thoughts

In some states where leasing is prohibited, you may be able to pay for the installation of a solar energy system with a home equity line of credit (HELOC).

In that case, the homeowner can own the system and pay back the HELOC over time.

“You get the tax credits, you get the energy savings, and you have the risk of the loan that turns into an asset. The energy savings over time will make your wallet smile,” Clark says.

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