Leasing Solar Panels: Benefits and Drawbacks (2024) (2024)

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Solar leasing involves paying a monthly fee to use solar panels installed on your property but owned by the lease provider. You can use all the electricity generated by the solar energy system, and your monthly power bill decreases as a result. Leasing typically follows these guidelines:

• The company that provides your lease is responsible for solar panel installation and will provide ongoing system maintenance.
• In exchange, you sign a contract agreeing to lease the solar panels for a specified period, typically 15 to 25 years, and pay a monthly fee during that time.

A solar lease makes sense financially if you cannot afford a high upfront cost, and your monthly payment would be lower than your power bill savings. In this case, your energy savings would offset your out-of-pocket cost and result in net savings. Leasing solar panels may not be the best option if the monthly payment is higher than or equal to your utility bill savings. If local electricity costs decrease even slightly, your solar lease can end up being more expensive than using the grid.

Like any other contract, a solar lease has terms and conditions that you must read carefully. Your lease providers may let you keep the solar panels at the end of the contract, but there may be cases where you must purchase the system in order to keep it.

Since the solar lease provider assumes all financing and maintenance costs, your contract will likely have a penalty for early termination. However, lease providers may give you the option of ending the contract early if you purchase the solar panels at a specified price.

Like with any purchase decision, a solar lease has advantages and disadvantages. The main benefit is delegating all the financing, installation and maintenance costs to a provider. So if your system needs a repair during your lease term, your provider is responsible. The downside is having to use your energy savings to cover monthly payments. You also miss out on financial benefits such as federal and state tax credits, which only the legal system owner can claim.

Pros of Solar Leasing:

• You can go solar at zero upfront cost since the lease provider assumes all equipment and labor expenses.
• The solar leasing company is responsible for system maintenance and any repairs during your contract term.
• Since you are not working to pay off the panels over time (like a loan), there is no payback period. The panels can also yield net savings if your monthly cost is less than your energy savings.

Cons of Solar Leasing:

• Lease payments consume a large portion of your electric bill savings. Your long-term savings are much lower than those achieved with a cash purchase or solar loan.
• Since the lease provider owns the solar panels, only the company can take advantage of solar rebates and tax incentives.
• Solar leasing contracts often have an escalator clause, which means your monthly payments can increase over time.

Another downside to solar leases is that, if you decide to sell your home before your leasing contract ends, you’ll likely run into a few issues.

Early Termination of Solar Leases

You may want to end your solar lease early iIf you’re moving to a new home, are dissatisfied with the terms of the lease or decide you want to own your panels.

Unfortunately, solar lease contracts typically last between 15 and 25 years, and it’s rarely easy to walk away from one without taking legal action. Many providers don’t allow homeowners to terminate a lease for a small fee. Instead, there are typically three options for ending your solar lease early:

• Purchase the panels: Most solar companies will allow you to “buy out” your solar lease by paying the fair market value for your system at the time you decide to terminate the lease agreement. This way, you’ll own your panels outright, but beware the cost to go this route can be $20,000 or more.
• Move the panels: If you’re moving to a new home in the same local area and want to keep your lease, you may be able to have the panels uninstalled from your old home and reinstalled on your new one.
• Transfer the lease: If you’re moving but don’t want to move your panels or purchase the system outright, you can try to transfer the lease to whomever buys your home. However, the homebuyer would have to assume the terms of the lease. The added monthly cost may affect your home’s attractiveness on the market, but it could also be an added benefit for the right buyer.

A solar lease is a long-term commitment. If you plan to move before your agreement expires or aren’t ready to enter a decades-long contract, you may want to reconsider entering into a solar lease. If you still decide you want a solar lease, make sure to read the details regarding early termination, as cancelling can be costly.

In most cases, a solar lease provides lower monthly payments but also lower savings than a cash purchase or solar loan. A lease helps you avoid the upfront cost of solar panels, which cost around $15,000 to $20,000 on average. You can also avoid upfront costs with a solar loan, but the financial requirements are more demanding than with solar leases. For example, a solar loan normally requires a minimum credit score and a potential down payment, which a solar lease does not.

From a financial standpoint, a solar lease may fit homeowners who meet the following conditions:

• Not having the funds available for a cash purchase
• Not having access to low-interest solar loans
• No plans to sell your home anytime soon

A solar lease also delegates system maintenance to the provider, although solar panels typically do not require much maintenance beyond regular cleaning.

However, we do not recommend selecting a lease if you have the option of a cash purchase or solar loan. You can achieve higher savings by owning solar panels directly, whereas you will never own a leased system. As a solar system owner, you also receive tax breaks and incentives, some of which you cannot claim under a lease.

• Sunrun: Our top pick for leasing
• Solar Energy World: Our pick for long-term warranty coverage
• Palmetto Solar: Our pick for protection plan
• Momentum Solar: Our pick for easy integration

Going solar is a beneficial home upgrade from a financial standpoint. High-quality solar panels have a lifespan of over 25 years, and your payback period can be less than five years in places with high electricity prices. However, the upfront cost of solar panels and installation can be high. For example:

• According to the Solar Energy Industries Association’s (SEIA) 2022 Solar Market Insight Report, the average cost of a home solar system is $3.27 per watt.
• Based on that figure, you can expect to pay around $16,350 for a 5-kilowatt (kW) solar system before applying for solar incentives.

Leasing solar panels is just one of several financing options. There are many ways to get solar energy for your home, each with pros and cons.

Cash Purchase

Assuming you have the capital, paying the full price of your home solar system upfront is an option. This method allows you to skip the interest payments associated with a solar loan and all the monthly fees charged under a solar lease. A cash purchase results in the highest long-term savings compared to other purchasing options and means you own your system immediately.

Although you pay off your system immediately with a cash purchase, you will still have to wait a few years before breaking even. As a quick example, assume you purchase a 5 kW solar system for $16,350:

• You claim the federal Investment Tax Credit (ITC) for the first year you own your panels, equivalent to 30% of your total system cost. In this example, the credit is worth $4,905, reducing the net cost of your solar system to $11,445.
• With abundant sunshine and an electric tariff of 20 cents per kilowatt-hour (kWh), this system should produce around 8,000 kWh per year and yield $1,600 in power bill savings.
• Considering $1,600 in annual savings, the simple payback period is slightly over seven years.

However, the best residential solar panels include product warranties of up to 25 to 30 years, which means you benefit from clean energy for a long time after breaking even. That said, you must be willing to wait out the payback period if you purchase a solar panel system in cash.

Solar Loans

A solar loan covers your upfront costs, and you can pay over time using part of your monthly savings. If you can get a low-interest rate, the monthly loan payment will normally be much lower than the lease payment for an equally sized solar system. You can also find solar loans with zero down payment, which means you get positive cash flow from the first month.

Solar loans are viable when you can get attractive interest rates, and monthly payments are much lower than your power bill savings. You also own the solar panels right away, which means you are entitled to any cash rebates and tax benefits available. If you don’t have access to a low-interest financing option, a solar panel lease may be a better option.

Power Purchase Agreement (PPA)

A solar power purchase agreement or PPA is similar to a lease in that you pay a provider a monthly fee to use solar panels. However, there is an important difference in determining your monthly cost:

• A solar PPA does not have a fixed monthly fee. Instead, you are charged based on how much electricity your panels generate. Typically, this rate is lower than the local electricity tariff.
• For example, if the local tariff is 20 cents per kWh, a PPA provider may charge you 15 cents for every kWh of energy your system produces.

A solar lease charges you the same monthly fee regardless of electricity generation, while a PPA has a variable fee depending on the power you use. Under this arrangement, you may pay more during the summer when your solar panels are more productive, and less during the winter when the amount of sunlight decreases.

Generally, you will achieve higher savings in the long run if you purchase a solar power system upfront. You can also claim the federal solar tax credit and incentives offered by your local government or utility company.

Purchasing solar panels is recommended if you can pay the full price upfront or have access to a low-interest solar loan. However, a solar lease or PPA is viable if these financing options are not available to cover installation costs. For example, a homeowner who cannot get favorable interest rates due to a low credit score may prefer to lease solar panels.

We recommend signing a solar lease in cases where customers do not have options for a cash purchase or solar loan. A lease does not require a large upfront investment or a high credit score, which can be beneficial if you cannot secure a loan. In addition, the lease provider must keep your solar system in optimal condition during the entire term of the contract.

However, solar leases also have some disadvantages to be aware of, including:

• You will never own your system under a solar lease unless you buy out the contract.
• Since you do not own a leased system, you cannot claim certain solar incentives. For example, the company that owns the system will be able to claim the federal solar tax credit, but you cannot.
• Lease payments consume a large chunk of your monthly budget. In the long run, you can save a few thousand additional dollars with a cash purchase or a solar loan.
• Selling your home while you have an active solar lease is sometimes difficult because you must find a buyer willing to assume the remaining monthly payments.

Solar leases also include free maintenance, but solar panels do not require much upkeep. The most important requirement is regular cleaning, and you must also plan for an inverter replacement after 10 to 15 years. Overall, solar maintenance costs are small compared to the extra power bill savings you would see by owning solar panels directly.

Solar leases and PPAs offer comparable savings. The main difference is that a solar lease charges you fixed monthly fees, while a PPA charges variable fees based on the system’s electricity production. In both cases, the average energy bill savings are smaller than those achieved when owning solar panels directly through a cash payment or loan.

Learn more about Leonardo David

Learn more about Tori Addison