What Are the Pros and Cons Of Leasing Solar Panels?

home with solar panels

There has never been a better time to bet on solar power – with system prices falling fast and the technology and batteries getting better. Solar energy is clean, abundant and most of all, free.

Now, even households that can’t install their own rooftop panel can reap the benefits. Solar leasing – paying a fee to access energy generated from the solar PV that you don’t own – is one of many such options to allow almost anyone to benefit from solar.

We investigated the pros and cons of solar leasing to help you decide whether this is the right choice for you.

What is a Solar Lease?

Solar leasing opens the door for homeowners interested in switching to renewable energy without the need to install panels. Instead, the homeowner leases the solar installation from a company (much like car leasing) and pays a fee in exchange for the electricity produced by the system.

Depending on the type of agreement, the fee might be monthly, annual, or be paid upfront. A specific type of a solar financing option is a Power Purchase Agreement (Solar PPA), which is more like a utility bill, where you pay for the kilowatt-hour (kWh) you use. That means that your monthly price fluctuates according to your usage, although it’s still approximately 15-20% lower than what you would pay with a utility company.

With both solar leasing and PPA, you don’t need to make any upfront investment, nor do you have to pay for the ongoing maintenance and operations of the solar panel system.

How Does Leasing Solar Panels Work?

When you enter into a solar leasing agreement with a company, you are entitled to the energy produced by the company’s solar panel for the duration of the contract. These contracts are almost always long term, with an average solar lease being approximately 15 to 20 years. After the solar lease is finished, you can renew or end it or alternatively, purchase the panels for a discounted price.

The contract is handled by the solar energy company, so you don’t have to deal with any hassles. After you sign the lease, you start receiving two bills – your regular utility bill (for the continuing electricity distribution charges) and a new one – for using the solar system.

Your electricity costs will be approximately 10 to 30 percent lower than what you would be paying with your utility company, although the exact savings will depend on your property and the incentives in your state.

Solar leasing might seem like a great idea to reduce your monthly energy costs, but don’t jump into a contract with a solar company too quickly. Let’s carefully look at the pros and cons first.

Pros of a Solar Lease

Easy Entrance into the Solar Marketplace

Installing solar can be a complicated, costly affair. There are many ways you can go wrong with rooftop solar, for example – if you face them the wrong way, you might not get as many benefits. Entering a solar leasing contract on the other hand is very easy – everything regarding the installation and the upkeep of the solar system is done by the leasing company.

Reducing Your Electric Bill

Though the exact savings depend on the terms of the contract, your electricity costs will be approximately 10 to 30 percent lower than what you would be paying with your utility company.

Elimination of Upfront Costs

Even with falling prices, the upfront cost of buying solar panels can range between $15,000 to $25,000. In the long term, the benefits will far outweigh the costs but the high initial costs can deter some families from reaping the benefits of solar power. On the other hand, a zero-down solar lease (or a Power Purchase Agreement) requires no upfront payment.

No Responsibility for Repairs or Maintenance

When comparing leasing vs buying solar panels, the ongoing upkeep and maintenance of the solar system will play into your decision. Note that solar equipment is usually reliable and carries warranties, so you don’t have to worry too much, but even so, one benefit of leased solar panels is that the maintenance responsibility lies not with you, but with the solar company.

You can Buy Your Solar Energy System at the End of the Lease

At the end of the lease, you might be eligible to purchase the leased solar system from the leasing company, for a discounted price. You will need a good credit score (typically 660), or have paid for your home in cash (quite unlikely), or, if all else fails, pay an additional fee to the leasing company.

Your Solar Panels Will be Tied into the Grid

Your solar panels for lease will be tied to the main grid for the additional layer of security. This is due to the notorious dependency of solar installations on mother nature whims. During windy days, when your rooftop panels won’t produce much electricity, you will receive backup power from the main grid.

If You Sell Your Home, You Can Transfer Your Lease to the Buyer

Whether you buy or lease solar panels, you are in it for the long run. With the average duration of a solar leasing contract nearing 20 years, there is a possibility that you will sell your house before the contract ends. In that case, you will be able to transfer your lease to the new buyer. Alternatively, some solar companies might offer to relocate your panels to your new home, if it’s able to accommodate the system.

Cons of a Solar Lease

What are the downsides to be aware of when considering a solar lease?

The Leasing Company Takes the Tax Incentives and Rebates

The federal solar tax credit allows you to deduct 30% of the cost of installing a solar energy system from your federal taxes. This represents a great incentive for homeowners towards going for a home solar system.

When you generate renewable energy, you might also be eligible for Solar Renewable Energy Certificates (SRECs), which you can then resell to other companies for a profit. An SREC can be worth over $300 in certain states.

However, with solar leasing, all these benefits are scooped up by the leasing company.

Selling Your Property Could be Difficult

You are contractually bound to make payments for the duration of the solar lease, so if you decide to sell your house before, you will either have to buy the lease out or transfer it to the next homeowner.

That can deter some prospective buyers from going ahead with the purchase, as it represents an additional expense. This complication is hypothetical and might not apply to you, but it should be considered in the buying vs leasing solar panels decision-making.

The Leasing Company Gains Access to Your Roof for Maintenance

Since it’s the responsibility of the solar company to maintain the solar system per the duration of the lease term, you essentially give them free access to your roof. This might not be a big deal, but it does represent an inconvenience – for example, you have to make yourself available when the company schedules a regular maintenance visit.

No Increase to Your Property Value

Solar panels installed on your roof increase your home’s property value by up to 4.1% compared to homes with no panels. That’s a net benefit of an additional $9,274 for the median-valued home in the U.S. However, leased panels won’t add value to your property – because they are not yours.

No Net Metering Credits on Utility Bills

When deciding between buying solar panels vs leasing, it’s important to consider various scenarios. For example, homeowners who own their roof panels can sell any excess power they produce back to the utility company in exchange for credits. These credits can be cashed towards cheaper electricity from the main grid, for example on a cloudy day when your solar installation doesn’t produce enough.

This is called net metering and you can only do it if the panels on your roof are yours – not with a leased solar energy system.

pros and cons about solar energy

Other Ways to Go Solar

Of course, solar system leasing won’t be for everyone and that’s ok. There are many ways to go solar and knowing what options are available to you might help you select what works best for you.

Cash Purchases

A solar cash purchase is exactly what it sounds like: You pay for your panel upfront, in full amount, maximizing your savings. This used to be the only option to buy rooftop solar, before the spread of solar loans. Of course, purchasing your solar system in cash requires a significant financial investment upfront that not everyone can afford. However, it is the option that will allow you to save the most money in the shortest duration.

Solar Loans

If paying cash is not an option, your next best choice is a solar loan. Solar loans are similar to solar leases because you make a regular payment each month. However, with a solar loan, you are the sole owner of the installation and are entitled to all the popular benefits – including rebates, tax breaks, and incentives.

Ideally, look for a $0-down solar loan for immediate savings – with no money out of pocket, you will save straight away as your monthly payment will be lower than your electric bill.

Prepaid Leases

Very similar to a solar panel purchase, a prepaid solar lease is paid 100% up front and you pay nothing else for the duration of the contract. However, the solar panel is still owned by the company, not you. What’s good about such an arrangement?

The lease amount will be close to the actual panel price, including any tax credits. The leasing company might even let you sell Renewable Energy Credits (SRECs), which will be an additional income for you.

Is Solar Leasing the Best Option for You?

Solar leasing is one of the financing options available to people who want to benefit from solar energy. It opens the door to cheap, reliable, and clean electricity for many people who otherwise wouldn’t be able to afford to pay for a solar panel. The monthly payments on your electric bill will be cheaper than the power from the grid and there are no upfront costs of installation.

However, signing a solar lease will make you miss out on some great benefits of owning your own solar system. The cost of solar in 2020 is going down (about $12,920 after tax credits), reducing the payback period to only 3-5 years.

In addition, the federal and state governments offer various tax credits, incentives, and other savings to residential rooftop solar owners. Lastly, installing a solar system increases your home’s property value by approximately 4.1%.

These facts alone make the solar system a worthy investment – so if you are deciding between solar leasing vs buying and you are in the position, you should consider buying!

FAQs

Below are answers to some of the questions you might have about whether to lease or buy solar panels?

How much does it cost to lease a solar panel?

Solar leasing is one of the long-term financing options to enable homeowners who can’t afford to buy a solar system to still be able to benefit from cheap clean energy. The average lease payments range between $50-$250 per month (and should work out to be approximately 20% lower than your average electric bill). With a solar lease payment, you pay a fixed monthly price while with a Power Purchase Agreement (PPA), your payment varies based on your usage. You don’t pay any upfront installation costs.

Why you shouldn’t lease solar panels?

There are pros and cons of solar panel leasing and you should have all the information before making an informed decision. Although solar leasing can save you money on your utility monthly payments, it has a few downsides. Most notably, it might make it more complicated for you to sell your house, it will prevent you from earning net metering credits and you will miss out on many benefits associated with owning your installation – tax credits, rebates, and property value increases.

Is it harder to sell a house with solar panels?

When deciding whether to lease vs buy solar panels, the potential complications with selling your home is an important consideration. Solar leases last approximately 15 to 20 years and when you decide to sell, you will either have to buy the lease out or transfer it to the new owner. It can deter prospective buyers because they might not be willing to continue paying the price or they might not be eligible to take it over.

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