Buy or Lease Solar Panels

This post is from guest writer Don Lloyd, the author of an important book on geothermal heat pumps (featured here on Mapawatt): "The Smart Guide to Geothermal—How to Harvest Earth's Free Energy for Heating and Cooling" from PixyJack Press.  It is a detailed analysis on what you need to look for in order to compare buying vs. leasing a solar pv system for your home.

The Goal
One of the best decisions I ever made was to install a geothermal heat pump (GHP) in my own home. I eliminated all oil bills, heated and cooled without pollution, increased the value of my home and saved money every year. But it requires electricity to run the compressor, the fan, the electronics and, in my case, the added running of my submersible well pump since I use my well as my heat source.

So I thought that it would be really neat if I could reduce that part of my electric bill by using solar photovoltaic (PV) energy to end up heating and cooling my home at zero net cost over the year. Both solar and GHP systems obtain energy from the sun, both have serious subsidies and it seemed a natural pairing of technologies.

The drawing below describes how this could work. The GHP uses electrical energy to operate (Input= One Unit of Electrical Energy). The solar panels could add sufficient electrical energy to compensate for that Input.

Both of these technologies require an installation cost that is better defined as an investment because you ultimately recover those expenses through federal and state rebates or tax credits and by eliminating fossil fuel costs and nullifying electrical costs. That recovery or payback may be immediate, a year or many years and will be different for every home in every location.

In order to compensate or nullify that 1 unit of Input electrical cost, I had to measure, estimate, or guess the total electrical energy of my geothermal heat pump system over a year in kilowatt-hours (kWh) so that I could replace it with solar energy in kWh. This varies with the size of a geothermal heat pump, how often it runs and how often it runs on the first stage vs the second stage, etc. These are determined mostly by the local climate, the house design, system size and your temperature settings. Some estimates show that this will run from 3,000 to 6,000 kWh or even higher. I could not easily separate my annual GHP costs from the total, but I considered 5000 kWh to be realistic.

Grid Power
We must recognize what is happening to electric costs. They have been sneakily increasing at about 5% per year for a long time. That may sound low but it is compounded and it adds up. In 5 years, that is an increase of 27.6%. Experts in the field do not expect that to change for the better in the future.

In addition, weather patterns are becoming more extreme. In many places winter temperatures have gone down and summer temperatures are rising. When we first moved into our new home five years ago, we needed air conditioning very little, and never at night. This year we had many days of 24 hour cooling and dehumidifying to survive here in the Northeast. All of this means higher electric costs. Solar panels will not change the weather but they can protect a home from these increases. You might expect electric utility companies to treat solar power as competition. In fact, electric utilities love it because high summer A/C usage creates a demand so high that they often must buy high-cost power to meet demand. And that is the precise time that solar produces the highest output.

Solar Power
For a very readable and complete picture of solar PV technology, I recommend a book by Rex Ewing and Doug Pratt titled, "Got Sun? Go Solar: Harness Nature's Free Energy to Heat and Power Your Grid-Tied Home" from Here, I wanted to explore two fascinating aspects: inverters and derating (loss) factors.

Solar panels produce direct current (DC) that must be converted to 60-cycle 240-volt alternating current (AC) to match the power grid. A device called an inverter is used to do this. It is called an inverter because it can easily be run in reverse, AC to DC, as well as DC to AC. Inverters employ solid-state switches that flip the DC back and forth to create AC. It must match the grid voltage, frequency and waveform. It uses filters and transformers to smooth a rectangular output to a sine wave shape. Inverters also produce some heat that requires a small fan both of which reduce the efficiency a bit.

Since my goal is to pair heat pumps with solar PV, I should also note that inverters are now being applied to heat pumps because changing AC to DC allows the compressor to closely match the load to the power in order to save energy. A compressor must be sized to meet the largest load. With a single stage compressor, even a light load requires full power. Two stages help but an infinitely variable design is a big step forward.

It is possible that more solar energy is produced than you need at a given moment. Then you need storage of some sort so that electrical energy is not wasted. Special batteries can be installed for this. But if you are connected to the electrical grid, you can be fitted with a meter that can run backward. This amounts to a huge storage capability while reducing your electric bill.

Of course, the more hours of sunlight, the more power we get. At my New York zip code, out of 8,760 hours per year total about 1,672 hours per year are useful, according to US government data. Other locations in the US provide higher or lower radiation. You can check out your own at:

But not all of those 1672 hours of solar radiation result in usable electrical power. Many factors reduce the amount of delivered electric power: system age, orientation, shading, latitude and electrical losses including the wiring, and the inverter. They are expressed as Derating Factors. Most of these factors are small but they are not just additive, they must be multiplied: (.92 x .98 x .995 .....etc).

The chart below shows how a contractor calculates the final derating factor for a specific installation by plugging in numbers. The example below multiplies to .769, a 23% loss.


Soiling is the result of pollen, dust or snow on the panels.

My House

We have a 2400 sf home in the Mid-Hudson Valley of New York, with town frontage on the Hudson and a view of the Catskill Mountains across the river. We have a complex set of roofs but they include a wing with a south-facing roof. I had two companies analyze my situation.

The optimum roof angle at my ZIP code is the same as our latitude (42 degrees) but mine is slightly less than ideal at 30 degrees. The chart below shows the situation:

You should be getting the point that it is necessary to measure or compare solar power results by looking at an entire year because of daily or monthly variations.

The math is simple: Add up the rated wattage production of the panels (4800), then multiply by the annual hours of radiation (1672) to obtain the theoretical annual kWh production (8025), then apply the derating factor to obtain the expected 1st year kWh production (5824)

I was then offered a guaranteed annual production of 5550 kWh.

The results are clearly on the good side: 5550 kWh guaranteed, 5824 kWh expected. That could be higher or lower depending on the weather. So, I now know that a roof-mounted solar system can more than meet my goal. But how should I pay for this.

 Buy vs Lease

But then, I discovered that Google had invested about $280M in a solar company in San Mateo, California. SolarCity is not a solar panel manufacturer but a national installer of solar panels with a long-term business model.

I contacted a local representative and was offered two options that interested me:  buying outright or a unique leasing program.

Buy Option:  Install 20 panels providing 4800 watts of power on my south-facing roof, with a guaranty of 5550 kWh as a complete system meeting all local and state codes.

Only $8,000! Not bad and it would meet my goal. In addition, every solar kWh produced over the year would be subtracted from the grid. I would not know the overall savings total for a year but every month I would see a smaller bill from the utility. If the system only produced the guaranteed amount of kWh, and if my average cost was $.16/ kWh, I would save about $888/ year. Plus, the market value of my home would increase.

However, that $8000 cost is a bit deceptive. First of all, the installing company wants their $25,194 as soon as the system is turned on. At that point, you can apply for the state rebate that may take a few weeks or months. The federal and state tax incentives cannot be requested until the next year's tax return. Finally, New York's income tax law has a $20,000 exemption for retirement income. If your income is primarily from retirement, that exemption plus other deductions could mean that little tax is due. A $4,498 tax credit when there is no tax does not help much.

Lease Option:Now consider the installation of the same system at zero cost in a 20-year lease with a guaranteed annual kWh production. The installer will receive the state rebate and will do all of the paper work, generate engineering drawings, get and pay for the building permit, In effect, under the lease, they become a utility supplier, providing kWh of power at a lower rate than my utility company. If the difference in kWh cost is $.05/kWh, I would save $291 a year with no installation cost. This would not meet my original goal but I would have a further increase in home value, save a lot of paperwork, save the town building permit fee ($134) and lower my utility bill. In addition, In addition, New York has just passed a new law that provides tax credits for solar leases up to $5,000.

Here is another important point. I would have a guaranty of 5550 kWh over a year. If the sun refuses to shine, and I get less, I get a refund. If more than 5550 kWh is produced, there is no extra charge. In effect, that means that the average cost of the solar power over the year decreases if I exceed 5550. Again, it would take a full year for this to play out.

Decision: To buy or lease—that is the choice. It is a tradeoff; both have their place. If this had been a part of my construction mortgage as the GHP system was, or if I had that amount in my account, I would have chosen the Buy Option. I picked the Lease Option. It is now on my roof and in my basement and both look very cool.

Final Reflections

It is a good feeling to know that I now have a silent, no maintenance PV system grabbing energy from above and stuffing it below where it is most useful. I am very pleased with my decision to lease.  I paid nothing for the installation and I am saving money over the year. I even like the looks of the panels on my roof. One sunny day I took a look at the new reversible meter and I saw the kWh numbers actually decrease at that moment. That was impressive!

I also like the ability to monitor the solar production at any time since the data is automatically sent wirelessly to the internet. This is shown graphically by the hour, day, or month plus a running yearly total. Below, an example for August 31, 2012:


June 1 was my start date. Three months later (August 31, as you can see by the graph) I have received 2147 kWh, all subtracted from my power company meter. That is an excellent start but of course the days are getting shorter. I think that I might exceed 6000 kWh but I will not know until June 2013. Every kWh over 5550 kWh lowers the cost of the lease power and I will then know my actual saving.

Finally, I was curious to find out if a full, bright moon with a clear sky could possibly generate even a smidgen of power. As you can see yourself, the answer is no.

SolarCity is one of a number of national installers who offer to sell the power and provide the system free. This is a trend that is sweeping the country. Sunrun and Sungevity are also major players and they often work through chains like Home Depot and Lowes. While panel manufacturers suffer, installers are thriving. Homeowners can lower their utility bills, escape the uncertainty of fluctuating energy costs and avoid the complex bureaucracy of federal and local credits, rebates, building permits and fees, electrical inspections and utility company liaison.

I was impressed by the professionalism of SolarCity. They made certain that my roof could handle the 1000 pound load. They mapped my roof structure so that the panels could be attached to the hidden joists, not just to the roof.  They produced engineering drawings and use a local SolarCity supervisor to obtain a NY state engineering stamp of approval, the local building permit, arrange for a local electric inspection, and for the utility's net meter installation.

They are currently operating in AZ, CA, CO, HA, MA, MD, NJ, NY, OR, PA, TX and DC with headquarters in San Mateo, CA.  In their lease program, they become in effect a utility providing a guaranteed amount of electric power at a lower cost than the grid. They provide Chinese and US panels.

I found the installers to be well-qualified, very professional people who must be a combination of steeplejack, mechanic and electrician.



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