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 is 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 leasing vs. other financing options
If you don’t want to purchase your solar panel system upfront with cash, there are a few options aside from solar leases to consider. Here’s how solar leases stack up against two other common solar financing methods:
Solar leasing vs. power purchase agreements
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.
Solar leasing vs. solar loans
Solar leases and solar loans are also similar in many ways. They both involve no or minimal money needed upfront and have monthly payments, but they key difference is ownership: with a solar lease, you don’t personally own your solar panels, while with a solar loan setup, you do own your panels.
This is important for a few reasons. First, owning your panels with a solar loan setup means that you can take advantage of rebates and incentives upon installation. With a solar lease, the owner of the system is the solar company, so they receive the financial incentives instead. For this reason (and others), lifetime savings with a solar loan are usually higher than those with a solar lease.
Second, 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. If you take out a solar loan to purchase your PV system, you will be responsible for its maintenance.
Lastly, monthly payments differ slightly between leases and loans. In a loan agreement, you usually have a fixed monthly payment due. With solar leases, payments typically increase over time (usually around one to three percent annually.
Read more about solar leases vs. solar loans in this article.
Pros and cons of solar leasing
As with any solar financing option, solar leasing comes with its share of pros and cons:
Top pros and cons of solar leases
|Advantages of solar leasing||Disadvantages of solar leasing|
|Save money on electricity||Savings are lower than loans or cash purchases|
|Low or no upfront costs||Can't take advantage of solar incentives|
|No maintenance responsibilities||Complicates selling your home|
On the pros side, solar leases help you save money on electricity, they typically don’t have any upfront costs, and you won’t have to worry about system monitoring and maintenance. On the cons side, savings are lower than a cash purchase or solar loan setup, you can’t take advantage of solar incentives, and it can complicate selling your home during the lease term.
Pros of solar leases
The three main advantages of a solar lease are:
- Save money on electricity. With a solar lease, you’ll save money on electricity costs over the course of your agreement.
- Low or no upfront costs. In contrast to 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. A cash purchase is generally the best way to save the most money with solar, but solar loans also lead to more savings than solar leases over the lifetime of your system. This is mainly because lease terms are longer and can include escalating payments.
- You can’t take advantage of solar incentives. Another reason lifetime savings are higher with a cash purchase or solar loan is because as the owner of the system, you can take advantage of solar incentives like the solar tax credit. With a solar lease, the owner of the system is the company leasing you panels, so you can’t use these incentives to boost your savings.
- A solar lease may complicate selling your home. If you need to sell your home during a solar lease term, you either need to buy out the lease from the third party owner or transfer the lease over to the new homebuyers, which can sometimes complicate the selling process if your prospective buyer doesn’t want to assume the lease.
Should you finance your solar panel system with a solar lease?
If you want to avoid responsibility for maintenance or repairs to your solar system, are ineligible for federal or state solar tax credits, and/or don’t want to pay significant money upfront or take out a loan to go solar, a solar lease could be right for you! While you won’t necessarily maximize your savings or own your system, you’ll still benefit from solar with electric bill savings and no upfront payments.
Other key things to know about solar leases
Like any solar financing option, solar leases can get complicated. To make sure you know how you’re using your money, we’ve compiled a few more common questions to keep in mind:
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.
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.
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.