Solar leases: Everything you need to know
A solar lease is a financing option that allows you to get solar panels installed on your roof without having to worry about the upfront cost of a solar system.
Solar leases make solar accessible to homeowners who might not have the funds to go solar. However, just because there are no upfront costs, doesn’t mean that solar leases provide you with the best savings.
In this blog, we’ll go over everything you need to know about this solar financing option, so you can determine whether or not a solar lease is the right choice for you.
Solar leases eliminate the daunting upfront costs of installing a solar panel system on your roof. Image source: Energy News Network
What is a solar lease?
Leasing solar panels works similarly to leasing a car. You pay a fixed monthly payment to a solar installer, but you do not own the solar panels. In return, you get all of the solar energy the panels produce, which cuts down your electric bill.
Solar lease contracts are usually for 20 to 25 years. At the end of the lease term, you have the option to buy the solar panels at a discounted price, extend the lease, or have the panels removed from your roof.
Solar leases are also similar to power purchase agreements, or solar PPAs. Usually, a solar installer will work with a leasing company to be able to offer a solar lease. The installer is responsible for designing, installing, and maintaining the solar panels.
How does a solar lease work?
Once the solar energy system is installed, the homeowner gets to use all of the solar power the panels generate.
The solar electricity the panels generate is used to power your home, instead of power from the grid. If the solar panels produce enough electricity to cover all of your electric usage, you won’t have an electric bill, but you will have to pay a monthly solar lease payment.
The payment will be lower than what your monthly electric bill was before installing solar, meaning you will still see long-term savings when you lease solar panels.
However, if the solar panels do not produce enough energy to cover all of your electricity usage, you will have both a solar lease payment and an electric bill. Your solar lease payment will remain the same regardless of how much electricity your solar energy system produces.
For example, let’s say your original utility bill before leasing solar panels was $150. Your lease payments are $100. In July, your solar panels eliminate your entire electric bill because of net metering.
In December, when production is low, your solar panels don’t produce enough to eliminate your whole utility bill. So, you would have to pay your $100 lease payment, plus whatever the utility charged you for the energy you used from the grid.
What are the pros and cons of a solar lease?
|Zero upfront costs||Not eligible for federal tax credit/certain local and state incentives|
|Reduce energy bills||Lower long-term savings as compared to purchasing a system|
|Not responsible for system maintenance/monitoring||Entering into a long-term agreement|
|Predictable lease payment every month||Can be difficult to pass over agreement when selling home|
Pros of a solar lease
The best part of a solar lease is that you don’t have to worry about the high upfront costs of a solar panel system to get the benefits of solar energy.
Solar leases let you reduce your energy bills and can eliminate the uncertainty of how much you’ll pay for electricity each month, as your lease payment stays the same.
You also don’t have to worry about the maintenance or the monitoring of the system since you do not own it.
Cons of a solar lease
However, not owning the system does come with its downsides. Since you aren’t the one who owns the system, you can’t take advantage of the federal solar tax credit. You also might not be able to get local incentives, like solar renewable energy credits (SRECs), or certain utility rebates.
Solar leases can also make it difficult to sell your home in the future, even though the contract can be passed onto new homeowners, as some potential home buyers won’t want to enter into a long-term contract.
Solar leases will usually include a price escalator, which means your lease payment will go up yearly by a certain percent. Your lease payments will still be lower than your old electric bill, but that does mean less savings for you. Plus, solar leases could impact any future home or landscaping improvements you want to make on your home if it could potentially hinder the productivity of the solar panels.
The biggest downside to a solar lease is that your long-term savings are substantially lower when leasing solar panels as opposed to buying. When you purchase a system outright, you can eliminate your entire electric bill and you don’t have to worry about any other monthly payments.
With a solar lease, you are locked into monthly payments for a full 20 years.
Should you get a solar lease?
Although "free solar panels" sound like a great deal, there are a few things you should consider before you agree to signing a solar lease.
You should carefully consider what incentives you are eligible for before leasing solar panels. The federal tax credit and incentives like SRECs can save you a substantial amount of money when you purchase a system.
You will not be able to take advantage of these with a lease. However, if you do not qualify for these incentives, a solar loan might be right for you.
Other financing options
You should always consider all of the financing options available to you before you enter a solar lease. If you don’t have the money for a cash purchase of a solar panel system, you can consider a solar loan or a solar PPA.
These options could save you more money than a solar lease, depending on your circumstances.
If your credit score prevents you from qualifying for a zero-down solar loan, then leasing solar panels might be your best option. You should always get solar quotes from multiple solar companies in order to truly make an informed decision.
Make sure you read a solar lease agreement carefully. If you have solar lease quotes from multiple solar companies, compare the solar lease payment escalators, what restrictions might apply, and what type of maintenance is included.
- A solar lease is a solar financing option where a homeowner does not own the solar panels on their roof, but instead pays a monthly lease payment to a solar company in exchange for the energy the solar panels produce.
- The homeowner gets to use all of the electricity the solar panels produce which reduces their utility bill through an agreement called net metering.
- The lease payment is typically lower than what the homeowner’s electricity bill was prior to installing solar panels.
- While solar leases allow you to avoid the upfront costs of a solar installation, you get lower lifetime savings than if you had purchased the solar panels.
- In most cases, the only time it makes sense to get a solar lease instead of purchasing solar panels is if you don’t qualify for the federal tax credit.