A solar lease is very similar to your current utility bill. The energy will be generated on site via clean solar energy, and the customer sees some level of bill savings. But just like your normal utility-bill, you do not own the energy generator, and you are not paying off an asset. Instead, you only pay for the electricity the solar panels generate. Essentially, a homeowner with a leased system on his roof has gone from paying the utility for his electricity to paying the solar company. In addition, homeowners cannot claim the 30% Federal solar tax credit. They also get to depreciate the cost of your solar system (that’s something you cannot do, in any case), saving themselves – and their investors – tax dollars.
You commit to pay them a certain amount for 20 years, at the end of which they will collect their equipment from your roof. This is much how a car lease works, except you won’t get that new system excitement every 36 months. A typical lease offered by a major national installer would have you paying $99 per month for the first year. This will save you about $500 that year. But, this lease comes with what is known as an escalator – a pre-determined annual increase. In this case, the escalator of 2.9% means that by year 6 your lease will be costing you more each month than the loan discussed above. And it would keep on increasing for the subsequent 14 years! Your expected lifetime savings from the system is $23,000.
Leasing Your Solar Panels with a Fixed Monthly Lease
If taking on some debt is also not in the cards for you, renting is your last option. You can rent a solar system on your roof for 20 years through a typical fixed monthly lease, or through a PPA. Both options are likely to have an ‘escalator’ rate, or a percentage by which the initial rate will increase every year.
This escalator rate can range from 0%-4% per year. Six years ago, leasing was the solar industry standard, and allowed many homeowners to go solar while saving a few bucks a month on utility costs. However, this model is going out of style. The drawback of leasing is that every month your lease payment is exactly the same. Since solar production varies seasonally, this means that some months you’ll pay more than you would have if you simply stayed with your utility.
So, when you go shopping for solar, make sure you look at your financing options. Companies offering leases will tout the low initial monthly payments. Make sure you know what the payments are going to look like down the road and ask how many years you will be locked into this plan.
Pros of Leasing Solar Panels
- Realize immediate savings on your monthly utility costs by choosing a solar panel leasing option.
- Lease payments for your solar system will be lower than your monthly utility costs after installation.
Cons of Leasing Solar Panels
- Solar installers claims the 30% Federal solar tax credit, homeowners do not.
- No interest deductions on your future income tax returns.
- Solar leases require you to be contractually bound to making monthly payments throughout the entire rental term – 20-25 years with minimal monetary gains when the lease is up.
- No increase to the market value of your home.
- You are overpaying for a solar panel system over time vs. the value you receive from outright purchase.
- Difficulty in transitioning ownership of panels through sale of home resulting in delayed or disrupted offers to purchase.
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