If you’re looking to lower your electricity bill without any upfront costs, there’s a good chance you’re considering a solar lease. Under the right circumstances, solar leases can be an attractive option, offering cheaper electricity with very little hassle on your end. However, there are also instances in which a solar lease could cause trouble down the line, so it’s important to do your research before signing any contract. In this article, we’ll cover the basics about solar leases–from what they are to why you may or may not want to enter one.
- Under a solar lease, you won’t own your solar system, but you will benefit from the electricity it generates
- You’ll typically save 10 to 30 percent on electricity costs with a solar lease
- Make sure that you review and approve the system design before entering into a solar lease
- While an owned solar system will typically increase your home value and make it easier to sell, a leased solar system can make selling your home more difficult
- Start your solar journey today on the EnergySage Marketplace
What’s a solar lease?
Solar leases are fairly similar to car leases in that they are a form of third party ownership (TPO). Under a solar lease, this third party owner (e.g. 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, which will typically range from 20 to 25 years. At this point, you can choose to either purchase your system outright at the market value price, remove your system, or renew your contract (typically one to 10 years) and continue monthly payments.
Another important thing to look out for in a solar lease is an annual escalator; these are becoming less common, but if included, will increase your monthly payment by a preset rate over your term length (typically one to five percent each year).
Solar lease vs. power purchase agreement: what’s the difference?
You’ve probably heard solar leases and solar power purchase agreements (PPAs) used interchangeably, and for good reason! These two financing options are very similar. The key 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). To learn more about comparing solar leases and solar PPAs, be sure to check out this article.
Will a solar lease save you money?
Generally, a solar lease will help you save between 10 and 30 percent 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’ll be able to take advantage of this incentive, which allows you to only 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 owner of the system.
As a side note, if you choose to purchase your solar system instead of leasing it, you’ll be able to 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.
Will you be able to choose your solar system?
The third party owner of your system will be able to 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 it’s placed. However, before you sign any paperwork, we strongly recommend that you review and approve what will be included in your system design. For example, unless you plan on making home upgrades that will increase your electricity usage, you’ll want to make sure that the amount of estimated production 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 where they’ll be placed before entering into a contract.
What are the benefits of a solar lease?
The lack of upfront costs is often the biggest initial draw of a solar lease–but this can also be accomplished with a zero-down loan. So why would you want to enter into a solar lease if it will save you less long-term?
With a solar lease, there shouldn’t be any surprise costs! Because you’re not the owner of the system, you won’t have to worry about any upkeep or maintenance costs that may arise over the system’s lifetime. The third party owner will monitor your system to make sure its performance is in line with your contract, and if anything is amiss, they’ll be responsible for fixing it. However, solar systems are generally very low maintenance, so it’s highly unlikely that these costs would exceed the additional savings you’d get from owning your system. It’s also possible you’re someone who doesn’t have enough tax liability to take advantage of the ITC, so by leasing your solar system, you won’t have to worry about missing out on this owner incentive.
What happens if you want to sell your home?
This is one of the most important considerations you should make before entering into a solar lease contract. If you own your solar system, you’ll likely see a three to four percent increase on the value of your home and it will likely make 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, which can make selling your home very difficult.
Start your solar journey today with EnergySage
If you’re looking to stay in your home over the next 20 to 25 years and want to lower your electricity bill with the least amount of hassle, a solar lease could be a great option for you! However, if you plan on selling your home before the end of a lease term and want to reap the most amount of 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, be sure to check out the EnergySage Marketplace, where you’ll receive up to seven custom quotes from pre-vetted installers. You’ll be able to find a system and installer that fits your needs at the right price to maximize your solar savings.