Solar Leasing Pros, Cons, and Complete Buyer's Guide | SaveOnEnergy®

Guide to leasing solar panels

A solar lease allows homeowners to harness the power of the sun without paying the upfront costs associated with buying solar panels. Historically, buying solar panels was too expensive for many consumers. This is where solar leases came into play. For those who want to use 100 percent green energy, leasing a system can be a cheaper option. Instead of paying the hefty expense of solar energy, consumers could pay a monthly lease payment and still enjoy lower energy costs.

In recent years, solar panel costs have decreased by 70 percent. The EIA reports home solar has grown by 32 percent annually. As the cost of solar panels decreases, more homeowners are opting to buy a system instead of leasing it. According to the Solar Energy Industries Association, solar leases account for about 28 percent of home solar systems. This is down from 62 percent in 2014.

That being said, solar leasing allows consumers to power their home with clean energy without paying for the panels upfront. Is solar leasing right for you? This SaveOnEnergy guide will help you answer that question and more.

What is a solar lease? 

Residential solar leasing means you pay a fixed monthly rate to a solar lease company. This company still owns the solar panels, but you will power your home with the energy the panels produce. Solar leases often lead to lower energy bills because you don’t have to pay for electricity from the grid.

How is a solar lease different from a solar PPA?

Solar leases are similar to solar power purchase agreements (PPAs). With both options, you do not own the solar panels on your home, but can benefit from lower energy costs and clean power.

The main difference between solar leases and PPAs is in how you are charged. With a solar lease, the rate you pay each month remains the same, no matter how much energy the solar panels generate. Solar PPAs outline a price per kWh of solar produced in the contract. This means you’ll be charged more if your solar panels produce more energy or less during a low-production month.

Solar lease terms and conditions

When searching for a solar leasing company, there are several important terms and conditions to consider. Here are a few of the most common factors included in a solar lease:

  • Term length – Solar leases usually last between 20-25 years, which is the average lifespan of a solar panel.
  • Lease escalator – Under your contract, the rate you pay to lease the panels will likely go up between 1-5 percent each year. This is called a lease escalator and should be outlined in your lease agreement.
  • Contract expiration options – At the end of the contract, you can renew the lease, have the panels removed, or buy the panels at market value.
  • Production guarantee – Some solar companies offer a solar production guarantee and will refund the difference if the panels do not generate a certain amount of power.
  • Proper maintenance – The solar leasing company is responsible for maintaining and repairing the solar system. This should be outlined in your lease agreement.

Benefits of leasing a solar system

There are a few enticing benefits to leasing a solar system. For starters, you will pay less upfront. When you sign a solar lease, you will have to make a smaller upfront fee as opposed to paying up to $25,000 to buy a system. Some solar leasing companies even offer zero-down options, making solar leasing an inexpensive option. You will be charged a monthly fee to use the solar panels, which could be less than what you would pay for electricity from the grid. 

Another benefit of solar leasing is that you aren’t responsible for maintenance or repairs. Because the solar leasing company maintains ownership of the panels, it is also responsible for making repairs. If there’s ever a problem with your solar energy system, you would simply contact the leasing company to schedule maintenance at no additional cost.

The drawbacks to solar leasing

There are also a few important drawbacks to leasing a solar system instead of purchasing one. The savings you will experience in the long run will be lower. While buying a solar system upfront is expensive, the average payback period is between 6 – 9 years. For the remainder of its lifetime, your solar system will only generate a profit for you. And if you own the system, you can sell excess solar power back to the grid. If you lease solar panels, you will always pay a monthly fee with no end in sight and cannot take advantage of net metering programs in your area.

Leasing solar panels also means you won’t qualify for tax credits. You’ve probably heard that federal and state tax credits and incentives can help ease the cost of solar panels. In fact, the federal tax credit offsets 22 percent of the cost of a solar system. But if you don’t own the panels, the credits won’t apply to you. Instead, the solar leasing company that owns those panels benefits from tax credits, which are usually worth thousands of dollars.

Finally, if you choose to lease a solar system, selling your home could be much more difficult. The average solar lease contract can last up to 25 years. If you try to sell your home during that time, you may have some difficulty attracting potential buyers. This is because those potential buyers would need to assume your solar panel lease and have to qualify for the financing of the panels on top of the mortgage loan. 

Is a solar lease worth it?

The short answer is that it depends on your energy needs, financial restrictions, and savings goals. If you are able to spend more and buy a solar system upfront, you will have greater savings over time and avoid the drawbacks of a solar lease. 

However, if a solar lease is the only option for your household, it is a less expensive way to use solar energy. Just be sure to carefully read the lease agreement, consider the terms and conditions, and thoroughly research the solar leasing company before signing a contract.

[Federico Rostagno] / Shutterstock