If you want to use solar energy for your home but worry about the cost, solar leasing might be a good choice for you. To see if solar leasing fits, it’s good to know what leasing gives you and how it works.
Basically, this solar financing option lets solar users save money by getting the gear needed to make solar energy for their home, for a set monthly fee. Leasing helps you pay for solar panels without spending too much.
Interested in the solar lease? Here’s what you need to know.
What Is a Solar Lease?
A solar lease is an agreement forged between a homeowner and a solar company, permitting the installation of solar panels on the homeowner’s property at minimal to no upfront cost.
In exchange, the homeowner remits a fixed monthly lease payment, determined based on the projected production of the system.
Post-installation, the homeowner enjoys the electricity generated by the solar panels to power their home at no additional cost.
However, ownership of the panels remains with the solar company, not the homeowner.
How Does Solar Lease Work?
The goal of a solar lease is to save on your electricity bills.
While you still have to pay the solar company, these payments are often less than what you would pay to your utility company for electricity.
Although solar leasing sounds complicated, it’s actually a pretty simple process.
In a solar lease, you agree to pay a fixed monthly amount to the solar company in return for the ability to use all the electricity produced by the solar system on your property.
The solar company retains ownership of the solar panels and the associated equipment throughout the term of the lease, which typically lasts for 20 to 25 years.
The solar company is responsible for the maintenance and repair of the solar system, ensuring it operates efficiently.
This takes the burden of maintenance off the property owner.
There are little to no upfront costs for the property owner in a solar lease agreement.
The lease payments are fixed and are often lower than the local utility rates, potentially saving money over time.
At the end of the lease term, you may have the option to purchase the solar system at a reduced price, extend the lease, or have the system removed by the solar company at no cost.
As the solar company retains ownership of the solar system, they are entitled to any tax credits, rebates, and other financial incentives associated with the solar system installation.
Your monthly lease payment may be fixed or may increase slightly each year as outlined in your solar lease agreement.
How Much Does a Solar Lease Cost?
The cost of solar panel leases typically ranges from $50 to $250 per month.
The precise amount a homeowner pays is influenced by their home energy consumption, the leasing company, geographic location, and their credit rating.
Customers have the flexibility to opt for financing options that align with their financial circumstances.
While some solar firms may ask for a downpayment, the majority provide the lease with zero upfront charges.
A factor known as the ‘solar lease escalator’ causes the monthly lease fee to increase annually.
However, there’s no cause for alarm as the contract delineates the cost of the panels throughout the lease term, inclusive of any escalators, ensuring there are no unexpected charges.
With the price escalator taken into account, anticipate a 1%–5% annual increase in your bill.
Pros of Solar Lease
Solar leases open the door to solar energy benefits for all, particularly for those who find the upfront costs prohibitive.
A majority of lease providers offer a zero-cost upfront payment option, while others allow for partial payment for the system.
This arrangement broadens the accessibility of solar panels across US households, moving beyond just the affluent homeowners.
Savings on Energy Bills
Despite the monthly fee payable to the solar lease provider, homeowners stand to reduce their energy bills.
The exact savings hinge on several factors, including:
- How many panels do they lease
- The location
- Their energy consumption
- The size of their property
- The type of solar panels they lease
Absence of Maintenance Costs
Under normal circumstances, homeowners bear the brunt of repair and maintenance costs should the solar panel system experience wear or damage.
However, for those leasing panels, the responsibility shifts to the supplier, given their ownership of the system.
Beyond just the solar panel system, most solar lease providers extend a roof penetration warranty, covering additional peace of mind.
Assured Power Production
In regions of the US where weather predictability is a challenge, the energy output of solar panels can fluctuate daily.
Thankfully, most leases come with a ‘power production guarantee’.
This ensures that if the panels fall short of a specified power output, the monthly lease payment is accordingly reduced.
Cons
Solar leases indeed mitigate the barrier of upfront costs, making solar panels more accessible.
However, the savings aren’t as substantial compared to purchasing the panels outright.
With an outright purchase, individuals can revel in energy savings, typically reaching a break-even point in about eight years.
While solar leaseholders will still realize savings, they also incur a monthly fee ranging between $50 and $250.
Extended Contractual Commitment
The tenure of most solar lease contracts spans 20 years, a lengthy financial commitment.
This not only poses an inconvenience but can also create complications should you decide to relocate during this period.
No Increment in Property Value
Solar panels are known to augment property value by an estimated 4.1%, as subsequent owners inherit the panels and the accompanying lower energy bills.
Thus, solar leasing doesn’t enhance property value since leased panels are removed from the property upon your departure.
Foregone Rebates and Tax Credits
According to the Office of Energy Efficiency and Renewable Energy, outright purchase of solar panels qualifies you for several tax credits:
- 30% tax credit for systems installed prior to 2020
- 26% tax credit for installations from 2020 to 2022
- 22% tax credit for systems installed in 2023.
On the flip side, solar leaseholders are ineligible for these credits and incentives as they don’t own the panels; they only benefit from the electricity they generate.
Alternatives to a Solar Lease
PPA
Homeowners have the option to explore a Solar Power Purchase Agreement (also known as PPA) – a financial setup enabling homeowners to pay a fixed rate per kilowatt-hour (kWh) for the electricity generated by the solar panels.
Solar Loan
A solar loan is a financing option that individuals or businesses can use to cover the costs of installing a solar energy system. It is specifically designed to fund solar panel installations.
With a solar loan, you can start saving on your energy bills immediately without a large upfront payment.
The monthly savings on your electricity bill can contribute towards the repayment of the loan, and once the loan is paid off, you can enjoy free or significantly reduced energy costs.
Unlike solar leases or Power Purchase Agreements (PPAs), a solar loan allows you to own the solar energy system outright, meaning that you can claim the tax incentives to overcome financial barriers.
How Does a Solar Lease Differ from a Solar PPA?
They are quite similar, yet a notable distinction is that PPAs permit homeowners to enter the agreement with a predetermined price per kWh.
The rates under PPAs are usually more favorable compared to the charges by local utility providers.
Much like solar leases, PPA providers take on the full responsibility of installation and maintenance costs, with homeowners generally not required to pay any upfront charges.
Does Solar Leasing Really Save Your Money?
Solar leasing can indeed result in savings on electricity expenses, although the extent of savings may not be as large as purchasing solar panels outright.
Both purchasing and leasing solar panels can lead to savings on monthly utility bills.
However, with leasing, you continue to pay the lease amount for the duration of the agreement, whereas owning the panels can eventually lead to a period where there are no more payments and you can enjoy the full extent of monthly savings.
Over a typical 20-year solar lease term, you could save about $5,000 on energy costs compared to sourcing all of your power from the grid.
However, if you own the solar panels, the long-term savings are usually higher.
