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Purchasing vs. leasing: A benefit-cost analysis of residential solar PV panel use in California

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  • Liu, Xiaohui
  • O'Rear, Eric G.
  • Tyner, Wallace E.
  • Pekny, Joseph F.

Abstract

The use of small-scale solar electric generation in the U.S. has been steadily rising in the more recent years. Solar photovoltaic (PV) cell micro-generation has been used extensively for residential applications – especially in the state of California. Systems can be purchased by a homeowner or leased through a licensed distributor. Leasing has become a more popular option mostly because it does not require substantial upfront costs, and regularly schedules maintenance is often handled by the lessor. The inability by households to capture any tax breaks related to depreciation of solar capital equipment purchased by them also has made purchasing home systems even less appealing and continues to give leasing more of a competitive edge over purchasing. If homeowners were to choose financing a system through a home-equity loan, they would be eligible for tax breaks related to the interest paid on the loan. Our study uses a benefit-cost analysis to evaluate the impacts of combined tax breaks from depreciation and interest paid on home-equity loans on competitiveness under different purchase options for a 4 kW solar PV system in California. Purchasing strategies are compared to one another based on the resulting net electricity price ($/kWh) under each option. The net electricity price metric exploits the savings in annual utility bills given the displacement of grid-based electricity by solar generation. We find that cash purchases result in the highest net electricity price. Before depreciation, the differential in net electricity prices between the home-equity loan and leasing financing options is roughly $0.07/kWh. This gap shrinks to only $0.01/kWh when both the tax breaks from depreciation and interest paid on loans are considered. Overall, our results suggest that the additional tax breaks from depreciation in conjunction with those from interest paid on home-equity loans can make purchasing much more competitive. Sensitivity analysis was conducted for key parameters, and all sensitivity tests yielded the expected results.

Suggested Citation

  • Liu, Xiaohui & O'Rear, Eric G. & Tyner, Wallace E. & Pekny, Joseph F., 2014. "Purchasing vs. leasing: A benefit-cost analysis of residential solar PV panel use in California," Renewable Energy, Elsevier, vol. 66(C), pages 770-774.
    • Handle: RePEc:eee:renene:v:66:y:2014:i:c:p:770-774
    DOI: 10.1016/j.renene.2014.01.026
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    Cited by:

    1. Ding, Liping & Zhang, Zumeng & Dai, Qiyao & Zhu, Yuxuan & Shi, Yin, 2023. "Alternative operational modes for Chinese PV poverty alleviation power stations: Economic impacts on stakeholders," Utilities Policy, Elsevier, vol. 82(C).
    2. Juntunen, Jouni K. & Hyysalo, Sampsa, 2015. "Renewable micro-generation of heat and electricity—Review on common and missing socio-technical configurations," Renewable and Sustainable Energy Reviews, Elsevier, vol. 49(C), pages 857-870.
    3. Muhammad Adnan Hayat & Farhad Shahnia & GM Shafiullah & Remember Samu, 2022. "Homogenising the Design Criteria of a Community Battery Energy Storage for Better Grid Integration," Sustainability, MDPI, vol. 14(2), pages 1-17, January.
    4. Overholm, Harald, 2015. "Spreading the rooftop revolution: What policies enable solar-as-a-service?," Energy Policy, Elsevier, vol. 84(C), pages 69-79.
    5. Botelho, D.F. & de Oliveira, L.W. & Dias, B.H. & Soares, T.A. & Moraes, C.A., 2022. "Prosumer integration into the Brazilian energy sector: An overview of innovative business models and regulatory challenges," Energy Policy, Elsevier, vol. 161(C).
    6. Zhi-Hua Hu & Qing Li & Xian-Juan Chen & Yan-Feng Wang, 2014. "Sustainable Rent-Based Closed-Loop Supply Chain for Fashion Products," Sustainability, MDPI, vol. 6(10), pages 1-26, October.
    7. Oliva H., Sebastian, 2017. "Residential energy efficiency and distributed generation - Natural partners or competition?," Renewable and Sustainable Energy Reviews, Elsevier, vol. 76(C), pages 932-940.
    8. Sopitsuda Tongsopit & Sunee Moungchareon & Apinya Aksornkij & Tanai Potisat, . "Business Models and Financing Options for a Rapid Scale-up of Rooftop Solar Power Systems in Thailand," Chapters, in: Shigeru Kimura & Youngho Chang & Yanfei Li (ed.), Financing Renewable Energy Development in East Asia Summit Countries A Primer of Effective Policy Instruments, chapter 4, pages 79-136, Economic Research Institute for ASEAN and East Asia (ERIA).
    9. Jung, Jinho & Tyner, Wallace E., 2014. "Economic and policy analysis for solar PV systems in Indiana," Energy Policy, Elsevier, vol. 74(C), pages 123-133.
    10. Luis Ferney Moreno Castillo (director) & Carlos Villanueva (coordinador) & Manuel Salvador Acuña Zepeda [y otros], 2021. "Anuario iberoamericano de derecho de la energía. Volumen III, El derecho de la energía sostenible," Books, Universidad Externado de Colombia, Facultad de Derecho, number 1287, October.
    11. Janko, Samantha A. & Arnold, Michael R. & Johnson, Nathan G., 2016. "Implications of high-penetration renewables for ratepayers and utilities in the residential solar photovoltaic (PV) market," Applied Energy, Elsevier, vol. 180(C), pages 37-51.
    12. Michael Hamwi & Jérémy Legardeur & Iban Lizarralde, 2016. "Energy Product Service Systems as core element of energy transition in the household sector: The Greenplay project," Post-Print hal-01404187, HAL.
    13. Nguyen, Ly & Kinnucan, Henry W., 2019. "The US solar panel anti-dumping duties versus uniform tariff," Energy Policy, Elsevier, vol. 127(C), pages 523-532.
    14. Piotr Kolasiński, 2020. "Domestic Organic Rankine Cycle-Based Cogeneration Systems as a Way to Reduce Dust Emissions in Municipal Heating," Energies, MDPI, vol. 13(15), pages 1-22, August.
    15. Rutovitz, Jay & Oliva H., Sebastian & McIntosh, Lawrence & Langham, Ed & Teske, Sven & Atherton, Alison & Kelly, Scott, 2018. "Local network credits and local electricity trading: Results of virtual trials and the policy implications," Energy Policy, Elsevier, vol. 120(C), pages 324-334.
    16. Fikru, Mahelet G. & Gelles, Gregory & Ichim, Ana-Maria & Kimball, Jonathan W. & Smith, Joseph D. & Zawodniok, Maciej Jan, 2018. "An economic model for residential energy consumption, generation, storage and reliance on cleaner energy," Renewable Energy, Elsevier, vol. 119(C), pages 429-438.
    17. Byrne, Paul & Fournaison, Laurence & Delahaye, Anthony & Ait Oumeziane, Yacine & Serres, Laurent & Loulergue, Patrick & Szymczyk, Anthony & Mugnier, Daniel & Malaval, Jean-Luc & Bourdais, Romain & Gue, 2015. "A review on the coupling of cooling, desalination and solar photovoltaic systems," Renewable and Sustainable Energy Reviews, Elsevier, vol. 47(C), pages 703-717.
    18. Oliva H., Sebastian & MacGill, Iain & Passey, Rob, 2016. "Assessing the short-term revenue impacts of residential PV systems on electricity customers, retailers and network service providers," Renewable and Sustainable Energy Reviews, Elsevier, vol. 54(C), pages 1494-1505.

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