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

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

Renewable Energy, 2014, vol. 66, issue C, 770-774

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.

Keywords: Solar energy; Solar photovoltaic; Solar leasing; Solar electricity (search for similar items in EconPapers)
Date: 2014
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