What you need to know about solar leases in 2024

If you want to go solar but you aren’t sure how to pay for it, you may be considering leasing your solar panels. Solar leases are a common way to cover the costs of installing a solar energy system, but they also come with some very real downsides that are important to understand.

Leases can cause more trouble than they’re worth, so it's essential to conduct research before signing any contract. Whether or not you should sign a solar lease contract depends heavily on your specific financial circumstances, but generally speaking it’s a better financial decision to take out a solar loan if you don’t have the cash to pay for panels upfront. We’ll cover the pros and cons of solar leases so you can see why you may or may not want to enter into one.

“In the right situation, solar leases can be a good way to help lower your electricity bill,” said Spencer Fields, director of insights at EnergySage. “They allow you to go solar without putting any money down, reducing your monthly energy bills on day one and providing peace of mind around any future warranty or maintenance needs. But it's important to do your research and go into any lease agreement with open eyes. Specifically, look out for the escalation rate and see if you can get it as close to 0% per year as possible."

You can think of a solar lease like a car lease – it’s a form of third-party ownership (TPO) where you don’t own the product that you’re paying for. Under a solar lease, this third-party owner (e.g., a solar company) installs solar panels on your property and then sells you the electricity produced at a predetermined monthly rate. Companies calculate this rate based on the estimated annual production of your solar system and include this rate in your contract. Your lease will also have a fixed term length, typically 20 to 25 years.

Even if you lease your solar panels, you’ll still have a chance to own them at the end of your contract. In most cases, your solar company will allow you to buy the system outright at its market value price, but you’ll also likely get stuck paying additional fees, which means it’s not the best financial choice for owning your solar system. If you want to get out of your lease early, you’ll also be on the hook for expensive early termination fees that negate the savings of going solar in the first place.

If you don't want to purchase your solar panel system upfront with cash, you have a few options besides solar leases. Here's how solar leases stack up against the two other standard solar financing methods:

Solar leases vs. power purchase agreements

You've probably heard solar leases and power purchase agreements (PPAs) used interchangeably and for good reason! These two financing options are very similar. The critical difference is that with a solar lease, you'll have a fixed monthly payment, whereas with a solar PPA, you'll purchase the power generated by your system at a fixed price per kilowatt-hour (kWh).

What does that mean for you? Essentially, the key difference between a solar lease and a PPA is that with a solar lease, your monthly payments are predictable and stay the same over the lifetime of your contract. With a PPA, your monthly payment will vary every month depending on how much electricity you use. So if having a consistent payment each month is more helpful for your budget, a lease makes more sense for you than a PPA.

Solar leases vs. solar loans

Solar leases and solar loans are similar in many ways: most loans and leases these days offer zero down payment options, which means you don’t need to have thousands of dollars saved up to go solar. They both involve no or minimal money needed upfront and monthly payments, but the key difference is ownership: with a solar lease, you don't own your solar panels, and you miss out on the most valuable tax incentive you can claim for solar going, which is the federal solar tax credit.

Plus, most solar loans are paid off in five to 15 years, while the typical solar lease is around 20 years long.

Owning your panels with a solar loan means that you can take advantage of rebates and incentives upon installation. With a solar lease, the system's owner is the solar company, so they receive financial incentives instead. For this reason (and others), lifetime savings with a solar loan are usually higher than those with a solar lease.

If you choose a solar lease or PPA, the leasing company owns the PV system and typically will offer a service program to cover any maintenance issues that arise during the lease term. However, solar leasing companies often drag their feet or can be hard to get ahold of if you need any repairs or maintenance, which can cause headaches for you as a homeowner. If you take out a solar loan to purchase your PV system, you will be responsible for its maintenance. In either case, solar is a generally low-maintenance power source, and the equipment you buy with your solar loan should have warranties that range from 10 to 25 years.

Monthly payments differ slightly between leases and loans. In a loan agreement, you usually have a fixed monthly amount due. With solar leases, payments typically increase over time (generally around 1-3% annually). An annual escalator is another essential thing to look out for in a solar lease. These are becoming less common, but if included, they will increase your monthly payment by a preset rate over your term length (typically 1-5% each year).

As with any solar financing option, solar leasing comes with its share of pros and cons:

Top pros and cons of solar leases

Pros of solar leases

The three main advantages of a solar lease are:

• Saving money on electricity: With a solar lease, you'll save on electricity costs throughout your agreement.

• Low or no upfront costs: Unlike a cash purchase, solar leasing setups allow you to go solar without paying much (if any) money upfront.

• No maintenance responsibilities: Because you don't own your panels with a solar lease, the company you lease from is usually responsible for any maintenance and upkeep they might need.

Cons of solar leases

The three main disadvantages of solar leasing are:

• Savings are lower than loans or cash purchases: Cash purchases save you the most money by far when going solar. Solar loans also lead to more savings than solar leases over the lifetime of your system because lease terms are often longer and can include escalating payments where your electricity rate still increases every year, canceling out the benefit of going solar in the first place.

• You can't take advantage of solar incentives: Lifetime savings are higher with a cash purchase or solar loan because, as the system owner, you can take advantage of solar incentives like the 30% solar tax credit. With a solar lease, the system's owner is the company leasing your panels, so the company benefits from tax incentives instead of you.

• A solar lease may complicate selling your home: If you need to sell your home during a solar lease term, you’ll either need to buy out the lease from the third-party owner or transfer the lease over to the new homebuyers, which can be tricky if your prospective buyer doesn't want to assume the lease.

We’ve done the research to highlight some of the most important differences between the country's largest solar lease providers. In the table below, you can compare and contrast various aspects of these solar leasing companies' structures to help you better understand how they operate before signing a contract with them for the next two decades.

What is their business model? 

All the solar lease providers listed make their money by financing a solar system for your home and then selling you the solar electricity from the panels. In most cases, the companies promise you will save money on your power bills in the first year – a win-win situation.

What is their primary product? 

Each of these companies has a different background, but most began with financing in mind from the outset. Others started as equipment manufacturers or installation companies.

Do they directly sell solar leases? 

Some of the more prominent companies – such as SolarCity – invest heavily in marketing and selling solar leases to consumers. In contrast, others leave those activities to solar installers in their network.

Do they have their own installers or contract with local installers? 

About half of the companies listed do not undertake installations themselves. Instead, they market their solar financing product. 

Where does their financing come from? 

For the company that finances that system, it is a long-term investment because they make money off the interest you pay them each month. Plus, as solar photovoltaic (PV) equipment prices continue to come down as manufacturing costs get cheaper and more homeowners adopt the technology, big banks and securities companies have started to back the financing of PV systems. Wall Street provides financing to most solar leasing companies.

Do they manufacture solar panels?

Most solar lease companies don't manufacture solar panels. Some companies white-label the solar panels produced by others so that you may see them marketing products with their name attached.

Which states do they operate in? 

All the companies offer solar leases in California and almost all in a handful of other states, including New Jersey, Massachusetts, Arizona, and Hawaii. In any case, a glance reveals that there is a choice between solar lease providers in most of the big solar states.

Top solar lease companies in the US: What's the difference?

Like any solar financing option, solar leases can be complicated. To ensure you know how you're using your money, we've compiled a few more common questions to remember:

Will a solar lease save you money?

Just as with a solar loan or a cash purchase, a solar lease will help you save 10-30% on electricity costs over its lifetime. This cost will vary depending on where you live and the incentives available to the third-party owner. If you live in a state that offers net metering, you can take advantage of this incentive, which allows you only to pay the net difference between the energy you consume from the grid and the energy your system produces. However, other incentives, such as the federal investment tax credit (ITC) or solar renewable energy certificates (SRECs), will go straight to the system's owner. If you purchase your solar system instead of leasing it, you can take advantage of all available incentives. By owning your system, you'll typically see electricity cost savings between $10,000 and $30,000 over the next 25 years – which are larger savings than if you lease your panels.

Will you be able to choose your solar system?

The third-party owner of your system can choose who installs it on your roof. With the installer, the third-party owner will then decide the panel brand, the size of your system, and where to install it.

However, before you sign any paperwork, we strongly recommend that you review and approve your system design. It’s important to read the fine print carefully to make sure you’re not being saddled with any overall hidden fees you don’t understand, either. For example, unless you plan on making home upgrades to increase your electricity usage, you'll want to ensure that the estimated production amount does not exceed your monthly consumption. Otherwise, you'll be paying for electricity that you don't use!

Also, if you have any aesthetic concerns about your solar array, you'll want to know what the panels look like and their future location before entering into a contract.

What happens if you want to sell your home?

If you own your solar system, you'll likely see a 3-4% increase in your home's value, making your home more attractive to potential buyers. However, solar leases can often have the opposite effect. If you choose to sell your home during the solar lease term, you'll need to either buy out the lease from the third party owner–which will often cost substantially more than if you had purchased the system initially–or you'll need to transfer the lease to the new homebuyers. But some homebuyers won't want to take over your lease, making selling your home difficult. We cover what selling your home with solar is like in our article comparing solar loans and leases.

If you want to stay in your home over the next 20 to 25 years and lower your electricity bill with the least hassle, a solar lease may make sense for you. However, if you plan on selling your home before the end of a lease term and want to reap the most savings on a solar system, you'll be better off with a cash purchase or a solar loan. If you're ready to start your solar journey, check out the EnergySage Marketplace, where you'll receive custom quotes from vetted installers to maximize your solar savings.