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Solar Financing Options: Leasing

Written by Caitlin Ritchie/

Edited by Hannah Hillson

Last updated 01/06/2023

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A solar lease lets homeowners enjoy the benefits of solar power without paying the upfront cost to buy solar panels. Historically, solar panels weren’t an option for many consumers because of they were too expensive. This is where a solar lease comes into play. 

In the last 20 years, solar panel costs have fallen by over 50%, according to a report from the Lawrence Berkeley National Lab. But despite the cheaper price tag, solar panels are still a large investment. For those who want to switch to solar, leasing a solar system can be a much cheaper option. Instead of paying the high upfront cost of solar panels, consumers pay a monthly lease payment to the installer and can still enjoy lower energy costs, increased independence from the power grid, and the environmental advantages of solar energy. Interests rates have increased recently, so a growing number of consumers are considering solar leases to enjoy the benefits of solar without a loan payment.

The Energy Information Administration reports residential solar generation has grown by 32% since September 2021. As the cost of solar panels decreases, more homeowners are opting to buy a system instead of leasing it. According to the Solar Energy Industries Association, in California solar leases or power purchase agreements (PPAs) accounted for about 32% of home solar systems in 2017, down from 72% in 2013.

Solar leases bring a unique set of benefits and drawbacks. On the one hand, leasing a solar system is a more affordable option for many households. However, the energy savings long-term are much larger if you own your solar panels. This article will cover the basics of solar leases, including what to consider if you’re thinking about going solar through a solar lease.

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What is a solar lease?

With a residential solar lease, you pay a fixed monthly rate to a solar lease company. This company still owns the solar panels, but you will power your home with the energy the panels produce. Solar leases often lead to lower energy bills because you don’t have to pay for electricity from the grid.

Solar Leasing Guide by Save On Energy

How is a solar lease different from a solar PPA?

Solar leases are similar to solar PPAs. With both options, you do not own the solar panels on your home, but can benefit from lower energy costs and clean power.

The main difference between solar leases and PPAs is in how you are charged. With a solar lease, the rate you pay each month remains the same, no matter how much energy the solar panels generate. Solar PPAs outline a price per kilowatt-hour (kWh) of solar produced in the contract. This means you’ll be charged more if your solar panels produce less energy during a low-production month.

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Solar lease terms and conditions

When searching for a solar leasing company, there are several important terms and conditions to consider. Here are a few of the most common factors included in a solar lease:

  • Term length Solar leases usually last between 20-25 years, which is the average lifespan of a solar panel.
  • Lease escalator Under your contract, the rate you pay to lease the panels will likely go up between 1%5% each year. This is called a lease escalator and should be outlined in your lease agreement.
  • Contract expiration options At the end of the contract, you can renew the lease, have the panels removed, or buy the panels at market value.
  • Production guarantee Some solar companies offer a solar production guarantee and will refund the difference if the panels do not generate a certain amount of power.
  • Proper maintenance The solar leasing company is responsible for maintaining and repairing the solar system. This should be outlined in your lease agreement.

Benefits of leasing a solar system

There are a few enticing benefits to leasing a solar system. Here are some of the advantages of a solar lease that you should consider.

  • Cheaper upfront cost. When you sign a solar lease, you will have smaller upfront fee as opposed to paying an average cost of almost $25,000 to buy a system. Some solar leasing companies even offer zero-down options, making solar leasing an inexpensive option. You will be charged a monthly fee to use the solar panels, which could be less than what you would pay for electricity from the grid. 
  • Easy maintenance or repairs. Another benefit of solar leasing is that you aren’t responsible for maintenance or repairs. Because the solar leasing company maintains ownership of the panels, it is also responsible for making repairs. If there’s ever a problem with your solar energy system, you would contact the leasing company to schedule maintenance at no additional cost.
  • Lower energy bills. After signing a solar lease, you will likely experience a significant reduction in your months electricity bill, depending on your location and energy usage. Even though you won’t own the solar system, you will use the energy it produces to power your home. This means you will rely less on electricity from the power grid and, in turn, receive lower energy bills.

Drawbacks to solar leasing

There are also a few disadvantages when it comes to leasing a solar system instead of purchasing one. Here are the most important considerations to make. 

  • Lower long-term energy savings. While buying a solar system upfront is more expensive, the average payback period is between 6 – 9 years. For the remainder of its lifetime, your solar system will only generate a profit for you. With a solar lease, you will still experience lower energy bills, but you will always pay a monthly fee and the long-term savings will be less than if you owned your system. Also, you can only participate in net metering programs (where you sell excess solar power back to the grid) if you own your system.
  • Ineligible for tax credits. If you lease your system, you won’t qualify for most solar incentives, like tax credits and rebates. For example, the federal solar tax credit offsets 30% of the cost of a solar system. If you don’t own your system, you won’t be eligible for these incentives. Instead, the solar leasing company (which maintains ownership of the solar system) will benefit from those tax credits.
  • Selling your home could be difficult. The average solar lease contract can last up to 25 years. If you try to sell your home during that time, you could have some difficulty attracting potential buyers because the new owner of the home would need to take over the solar panel lease.

Pros and cons of a solar lease

Pros Cons
Lower energy bills Lower savings in the long run
Cheaper upfront cost Always pay a monthly leasing fee
Some companies offer zero-down options Cannot benefit from net metering programs
Not responsible for maintenance or repairs to solar panels Do not qualify for most tax credits and incentives
Lower your carbon footprint Can be more difficult to sell your home

Is a solar lease worth it?

The short answer is that it depends on your energy needs, financial restrictions, and savings goals. If you are able to spend more and buy a solar system upfront, you will experience greater savings over time and avoid the drawbacks of a solar lease. 

However, if a solar lease is the only option for your household, it is a cheaper way to switch to solar energy. Just be sure to carefully read the lease agreement, consider the terms and conditions, and thoroughly research the solar leasing company before signing a contract.

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