Leasing Solar Panels: What Are the Advantages and Disadvantages?
January 16, 2024 | Reading Time: 9 minutes
Leasing Solar Panels
A solar lease is an alternative agreement to purchasing a system that allows customers to install a solar energy system on their property without having to pay an upfront cost. Customer pay monthly to utilize the system but ownership is retained by a third-party. Leasing terms vary by contract but typically last between 15 and 25 years. When leasing term is over, the customer may decide to renew the contract, buy out the system at a fair market value, or remove the panels from their property.
What are the steps of the solar leasing process?
- A leasing contract is signed by the property owner and the solar lessor. The contract outlines the fixed monthly cost paid by the property owner and the leasing term.
- The solar energy system is installed at no cost to the property owner and the system is turned on.
- The system is maintained and energy production is monitored by the solar leasing company at no cost the property owner. Meanwhile, the property owner makes monthly payments to the lessor and utilizes 100% of the system’s generated energy. The property owner may choose to participate in production incentive programs (net-metering, RECs) to leverage their monthly payment costs should there be excess energy.
- The owner pays the leasing company on a monthly basis for the contracted, fixed amount until the lease period is up.
- When the leasing term is up, the contract is renewed, the property owner buys out the lease or the the system is removed.
Can I rent solar panels?
Leasing your solar panels is essentially the same thing as renting them. They will be installed on your property but you will not be responsible for their maintenance or repair.
Your panels are insured to work efficiently throughout the duration of your contract but eventually the term will come to an end. At that time, you’ll decide to renew the contract, buy out the remainder of the lease, or remove the system from your property.
Benefits and Drawbacks
Is leasing solar panels a good idea?
Yes, leasing solar panels is a good idea if you:
- Are not eligible for the Federal Tax Credit or other significant solar incentives
- Do not plan on staying in your home for a long period of time
- Do not qualify for a solar loan
- Would rather not assume ownership and liability of your solar energy system
What are the benefits of leasing solar panels?
Some of the benefits of leasing a solar system include:
No or Low Upfront Costs
Solar leases typically require little to no upfront investment. This removes the barrier of significant initial costs to transitioning to solar that are usually mandated by purchasing a system.
Reduced Energy Bills
Many homeowners are contracted to a fixed monthly payment that is less than their typical electricity bill.
Additionally, they may leverage production incentives like net-metering or Renewable Energy Certificates (RECs) to lower their monthly payment even more.
No Responsibility for Maintenance or Repairs
In a solar lease, the homeowner does not own the system despite it being installed on their property. Therefore, they assume no responsibility over maintaining or repairing the system as needed. Instead, the lessor is liable.
Many solar leases come with performance guarantees that require the lessor to compensate the homeowner for any promised electricity that was not produced.
Potential Increase in Property Value
In general, solar systems increase a property’s value. Leased solar systems do not increase a property’s value as reliably, but it is still possible. Especially, if the seller has prepaid their lease in full.
Fixed Energy Costs
Solar leases bind homeowner’s to fixed monthly payments which protect them from the unpredictability of traditional electricity rates.
The monthly payments are outlined in the leasing agreement but are not guaranteed to stay the same price throughout the duration of the contract. However, what is stated in the contract must go. Homeowners who fully read and understand their contract before signing, will know exactly what they’ll be paying throughout their leasing term.
Ease and Convenience
The leasing company will typically handle all aspects of the system’s installation and management making the process easy and convenient for the homeowner.
Decreased Carbon Footprint
Just like every solar system, a leased solar system contributes to reduced greenhouse gas emissions and reliance on fossil fuels. Homeowners who install solar transform their lifestyle to be more environmentally sustainable.
What are the disadvantages of leased solar panels?
Leasing solar panels is not the best decision for all homeowners. Some potential drawbacks of leasing your solar system include:
Stifled Home Value
Solar panels usually increase a home’s value but leased solar panels might not have the same impact. Some homebuyers may be hesitant to take over a solar lease which could deter them from your property.
Zero Rebates or Incentives (Federal Tax Credit, State Tax Credits)
You are not eligible for any solar incentives or tax credits when you sign a solar lease. Since you do not own the system, you cannot qualify for financial incentives.
Your lessor however, may choose to file for tax credits or renewable energy incentives to minimize their costs. The lessor may lower your monthly payment as a result of this, but it is entirely up to them.
Long-term Fixed Lease Payments
Your payments are bound by your contract. Therefore, whatever your contract states, you are obligated to pay. It’s common for payments to increase on an annual basis which lead homeowners to pay more money for the same amount of energy as each contracted year goes by.
These recurring payments are not building you equity on the system. They are just entitling you to the right to utilize the system’s energy. As a result, you will never own the system or be able to stop paying for energy because your system will technically never be paid off.
Limited Upgrade and Customization Options
Your leasing company may have rules or limitations about the size of your system and technological makeup. You will be bound by your contract and it’s up to the lessor if you’re able to make any upgrades or changes.
If you move before your leasing term ends, you’ll need to buy out the remainder of the lease or transfer the lease to the new owner. This can make selling your home more complicated and become an added expense.
Minimal Return on Investment
The ROI for leased panels is generally lower than that of purchased systems. Leasing does not entitle you to equity but purchasing a system and making payments on it does. Over time, the cost savings from buying a system instead of leasing, can significantly outweigh the recurring lease payment.
Lack of Control
Leasing will give you less control over your system. The lessor will make decisions about maintenance, repair, and replacements for you.
Leasing vs Power Purchase Agreement (PPA)
While there are many similarities between leasing solar panels and participating in a PPA, they are different agreements.
What is a Solar Power Purchase Agreement?
A PPA is similar to a solar lease in that the system is installed for free, the homeowner is not responsible for the system’s up-keep, and the homeowner makes payments to the lessor on a monthly basis for a set period of time.
The major difference between leasing solar and a solar PPA is the payment structure. A solar lease involves a fixed monthly payment for a set leasing term. A PPA payment is based on the monthly production rate of the system as the homeowner is contracted to a fixed price per kWh.
For a more in depth analysis of the similarities and differences between a solar lease and a PPA, click here.
Other Leasing and PPA Options
Prepaid Solar Lease
Homeowners have the option to prepay their lease in full at the start of the contract. This relieves them from making monthly payments during the agreement term but still requires the third-party to monitor and maintain their system.
In many cases, prepaying a solar lease simplifies the transfer process to a new homeowner as they may assume the solar system’s benefits without payment for the remainder of the term.
A Flex PPA is a variation of a PPA that divides the projected yearly production of the solar system by 12 months and determines a fixed monthly price for the property owner. Despite varied production rates through out the year, your monthly payment will not change.
After five years, Flex PPAs give the property owner the legal right to buy the remainder of the contract and own the solar system if they want. This program essentially allows for a “lease to own” solar energy system pipeline and prevents property owners from paying increased or unpredictable monthly payments they may experience in a regular lease or PPA.
In a prepaid PPA, the homeowner pays the full (usually discounted) cost of the PPA upfront, alleviating them from payments throughout the term. This agreement typically offers favorable PPA terms for the homeowner since all the risk is on them. Therefore, it’s likely the contract will state minimal production rates that the PPA provider must insure of the system.
We’re Happy to Help
At Isaksen Solar, we’re eager to help you understand your solar financing options. We can assist you in making an informed decision that is best for your specified needs, financial boundaries, and energy goals. We’ll recommend a plan that’s custom to you and sets you up to maximize your solar potential.
Give us a call, (508) 717-3820, or request your free quote today.