What Is a Solar Lease?
Much like a car lease, a solar lease is an arrangement for you to have access to solar electricity without actually owning a solar system.
In a solar lease, a company will install a solar system on your home and then charge you a monthly rate that replaces your utility electricity bill.
Solar lease agreements are typically for 20 or 25 years and include an escalator that increases the monthly payment each year (more on that below).
Solar leases can be attractive because there are zero upfront costs and immediate energy savings. Plus, you get to lend your roof to the awesome cause of clean energy production!
However, it’s important to note that the lifetime savings of a solar lease is far less than purchasing and owning a solar system.
How Do Solar Leases work?
At its core, a solar lease is simple. Instead of making electricity payments to a utility, you make them to a solar company that installed a solar system on your roof.
There are two types of solar leases:
- Fixed monthly lease
- Power Purchase Agreement (PPA)
In a fixed monthly lease, you pay a flat fee every month. For example, if your average utility bill is $150, a solar lease company may offer you flat payment of $100 per month.
In a PPA, you pay for the electricity generated by the leased system, which will vary from month to month. For example, if your utility charges you 16 cents per kWh, a solar lease company may offer you a rate of 12 cents per kWh.
Both types of leases usually include an escalator which raises your monthly payment each year, typically by around 3%.
So, in a fixed monthly lease, your monthly payment would be $100 for the first year, $103 per month in the second year, $106.09 the third year, and so forth.
That may not seem like much for the first few years, but it picks up steam over time.
Monthly payment on a solar lease over time
|Lease Year||Monthly Payment||Annual Cost|
Here’s how a solar lease compares to paying for electricity through a utility.
Solar leases do provide a path to energy savings — especially if the cost of utility electricity outpaces the escalator. However, buying solar panels has become the better deal in the last decade or so.
Is it Better to Buy or Lease Solar Panels?
There are a handful of ways to finance a solar system. But if you’re goal is to maximize your energy savings and increase your home value, then buying panels is the way to go.
In the past, solar leases were common because owning solar panels was too expensive for many households. But in just the last 12 years, the cost of an average solar system has cut in half, from $40,000 to $20,000, according to the Solar Energy Industries Association (SEIA). Coupled with the 30% federal tax credit, that’s made buying solar panels much more affordable and the lifetime savings of ownership much greater.
Here’s how the cost of buying vs leasing solar panels compares over the life of a solar system:
Solar leases come with instant savings, but the lifetime savings of owning solar panels is much greater. And that’s not the only drawback of leasing solar panels.
Drawbacks of solar leases
- Solar leasing companies claim 30% federal solar tax credit and any other incentives instead of the homeowner
- No interest deductions on your future income tax returns
- The homeowner is contractually bound to making monthly payments throughout the entire rental term, typically 20-25 years, regardless of circumstances
- Unlike owned systems, leases solar systems provide no increase to the market value of your home
- Solar leases are often difficult to transition in a home sale, and can result delayed or disrupted offers to purchase
A Solar Lease Is a Last Resort
There is a time and place for a solar lease — and typically it’s only after all purchase options have been exhausted or ruled out.
In today’s solar environment, purchasing a system is clears a path for maximum energy savings, a smoother transition in a home sale, and a better overall experience for the homeowner.
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