How does a solar lease work?

What is a solar lease?

A solar lease is an agreement where you rent or lease solar panels and other related equipment from a solar provider or installer. This means the solar provider owns, operates and maintains the system for you. In exchange for your monthly payment, you may also receive a production guarantee from the installer. This means the system is guaranteed to produce a minimum amount of energy over a set number of years.

How is a solar lease different from a solar PPA?

Solar leases are similar to power purchase agreements (PPAs) in that they offer an alternative to the outright purchase of solar equipment. However, there are several key differences between solar leases and PPAs. With a PPA, you pay for the electricity generated by the system over time; with a lease, you pay for the use of the equipment itself. With both options, there are often few upfront costs, but monthly costs may increase over time.

How is a solar lease different from a solar loan?

Solar leases also differ from traditional panel purchases and solar loans because they require lower upfront costs and may come with more flexible contract terms and conditions. Panel purchases require long-term commitments with substantial solar panel costs. In contrast, it may be possible to transfer a solar lease agreement to someone else, like when you sell your home. Still, many large solar companies make it difficult to get out of a lease agreement early.

How solar panel lease agreements work

Getting a solar lease involves renting solar panels and other equipment from a company that owns the equipment. This arrangement differs from buying solar panels because you don’t need to pay a lot of money right away, but you can immediately benefit from reduced electricity bills.

Solar leases usually have a set term — typically 20 to 25 years — during which time you make monthly payments in exchange for using the equipment. Your payment amount depends on the company, the size of the system, how much energy you use, your location and your creditworthiness. The company may also include free repairs and maintenance with your lease.

That said, some customers report receiving inadequate maintenance from their solar equipment provider, like Laurinda of McVeytown, Pennsylvania, who said: “At the time of installation Trinity told us that they would monitor our system and make sure that it remained in working condition …. My husband checked our system and realized it wasn’t working properly. Trinity wasn’t monitoring it like they said they would. We contacted them so they would come and repair it. They didn’t.”

What happens at the end of a solar lease?

At the end of your solar lease term, you may be able to renew the contract, upgrade to a newer system or have the system removed from your home. In some cases, you may also purchase the solar panels outright from the provider. Renewing or buying out the lease can provide added long-term savings since you won’t need to continue making monthly payments.

Overall, solar leases provide a great way to switch to clean energy without making significant upfront investments or long-term commitments. With more flexibility than purchasing panels outright and repairs and maintenance included, leases are becoming increasingly popular for households looking to go green.

Is leasing solar panels worth it?

Leasing solar panels can be a great option for households looking to switch to clean energy without having cash for a down payment or the entire purchase amount. A lease is also a good option if you prefer to avoid maintaining and monitoring the equipment yourself. That said, homeowners who lease their solar equipment can’t take full advantage of available incentives — so eligible households may prefer financing over leasing.

Cy Yablonsky of PowerLutions, a solar installation company in New Jersey, said, “Financing solar panels is the better option for individuals who can fully take advantage of available incentives. … A lease is more suitable for those who cannot.” Still, you might opt for a lease over financing if you don’t want the burden of being responsible for the system (and any maintenance issues) in the long run.

Pros of solar leases

Many homeowners opt for a solar lease because it ultimately frees them of responsibility when it comes to maintenance and repairs.

• Flexibility: Solar leases provide some flexibility over purchasing equipment outright because terms usually last up to 25 years and may be transferred when your house sells. This means you can switch to clean energy without committing to a lengthy solar loan and update your panels as the technology evolves.
• Low initial payment: Leases don’t usually require any money down, while purchasing panels outright requires full payment or a down payment. This means you can start saving on your electric bill with little to no upfront cost. Some solar companies require a down payment for leases, so read the contract carefully before signing.
• Free maintenance and repairs: Most solar companies include monitoring, maintenance and repairs at no extra cost to the lessee. Solar leases offer a more hands-off approach to clean energy and are an excellent option if you prefer not to manage the system yourself.
• Potential incentives: Depending on where you live, leasing solar equipment may qualify you for state incentives, though this is uncommon.

Cons of solar leases

A solar lease isn’t ideal for every homeowner; make sure to consider the disadvantages before you sign on for this option.

• Limited or no rebates or incentives: In general, the leasing company that owns the solar equipment benefits from available rebates, incentives and tax credits — not the lessee. According to Mark Steber, chief tax information officer at Jackson Hewitt: “The federal residential solar energy credit is only available to taxpayers who purchase and install solar panels on their home. The tax credit is not available to those who are leasing the equipment, as the lease is not a purchase cost.”
• Not suitable for everyone: Leasing solar equipment might not make economic sense in areas where electricity rates are low because lessees won’t recoup their investment within their chosen lease term period.
• Long-term commitment required: Even though some solar leasing companies offer short-term contracts, many require longer commitments that may be difficult for households to keep up with over time. These lengthy contracts can also complicate selling your home down the line.
• Lack of ownership: Because the system belongs to the leasing company, you won’t have full control over the equipment or be able to customize it as desired.

Bottom line

Solar leases can be a great option for households looking to switch to solar energy without the significant upfront costs associated with outright panel purchases. Solar leasing typically comes with lower rates than other financing options, but consider all factors involved before committing to a solar lease — not all areas offer the same financial benefits, and there are potential drawbacks.