The Complete Guide to Solar Leasing

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In the early 2000s, it was nearly impossible for the average US homeowner to buy a set of solar panels. It was simply too expensive – with a typical solar panel system costing more than $50,000.

Thankfully, solar leasing offered an affordable alternative, allowing people to benefit from solar energy without having to fork out thousands of dollars for the upfront cost. Fast forward to today, and this system is still helping thousands of Americans install solar panels on their property.

Think solar leasing might suit you? Before you get stuck in, let’s look over the pros and cons of solar leasing, how much you can expect to pay, and whether it’s a better investment than buying the panels outright.

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What is a solar lease?

A solar lease is a contract between a homeowner and a solar company that allows the user to have solar panels installed on their property with low upfront costs – or none at all.

In return, the homeowner pays a fixed monthly lease payment, which is calculated using the estimated production of the system.

Once installed, the homeowner benefits from all of the free electricity that the solar panels produce, which is used to power the home. Despite this, the homeowner doesn’t own the panels – the company that rents out the panels does.

How does a solar lease work?

Although solar leasing sounds complicated, it’s actually a pretty simple process.

The solar lease company kicks things off by offering a contract to the homeowner – outlining how much the user would like to pay upfront for the panels, which can be as little as $0, and the amount they’ll pay each month.

Once the contract is finalized, it’s time to crack on with the solar panel installation. The user will then be able to harness free solar energy, which will power their property.

Although the panels are owned by the solar lease company, the homeowner is entitled to all of the electricity that the panels produce. However, the user will also have to pay the company a monthly fee for the solar panels – so the energy savings won’t be as rewarding, compared to panels bought outright.

Solar lease contracts usually last for around 20 years. Once it comes to an end, most lease providers offer homeowners the chance to buy the panels at a discounted price.

How much does a solar lease cost?

Solar panel leases cost between $50 and $250 per month, on average. The exact amount the homeowner pays depends on the amount of energy they use at home, the company supplying the lease, their location, and their credit score.

The customer can choose between a number of financing options that best suit their needs. And whilst some solar companies require a downpayment for the lease, most allow you to lease the system with no upfront costs.

The monthly lease fee also increases each year by something called the ‘solar lease escalator’. But before you panic, the contract outlines how much the panels will cost for the duration of the lease, including any escalators, so there shouldn’t be any nasty surprises.

You can expect your bill to go up by 1%–5% each year once the price escalator is factored in.

Leasing vs buying solar panels

Overall, buying solar panels outright is likely to benefit homeowners more than leasing them – but of course, this isn’t an option everyone can afford. Whether leasing solar panels or buying them outright, homeowners can rest assured that solar panels can reduce their carbon footprint and lower their energy bills.

To give you a better idea of whether one trumps the other, we’ve compared solar panel leases to buying them outright in the table below.

BenefitsBuying solarSolar lease

Reduced energy bills

Smaller carbon footprint

No upfront costs

Better long-term savings

Homeowner owns the system

Qualifies for federal tax credit

Qualifies for solar renewable energy certificates (SRECs)

Adds value to property

No maintenance costs

Is a solar lease right for you?

Solar panel leases are a great option for anyone that wants to shrink their carbon footprint and reduce their energy bills, without having to fork out a few thousand pounds to pay for upfront costs.

This is also a great option for people worried about having to pay for solar panel maintenance costs, as this is also covered by the supplier. For example, if the solar inverter breaks, it could end up costing you between £500–£1,000 – but homeowners who have leased their panels can pass this cost onto the supplier.

What are the pros and cons of a solar lease?

ProsCons

No upfront cost

Users aren’t able to save as much

Energy bills savings

Long contracts

No maintenance costs

Doesn’t add value to your property

Power production guarantee

Homeowners don’t get tax benefits

Advantages of solar leasing 

No upfront cost

Solar leases are a great way for everyone to benefit from solar energy – especially those who can’t afford the upfront costs.

Most lease suppliers provide the option of a no-cost upfront payment, whilst others offer the option to pay for just part of the system. Either way, this system makes solar panels accessible to more households around the US, rather than just well-off homeowners.

 

Energy bills savings

Although homeowners have to pay a monthly fee to the solar lease supplier, they’re still about to save on energy bills. The exact amount they’ll save will depend on a number of factors, including:

  • How many panels they lease
  • The location
  • Their energy consumption
  • The size of their property
  • The type of panels they lease

 

No maintenance costs

Usually, if something in the solar panel system breaks or wears down, the homeowner has to pay for repairs and maintenance themselves. However, customers leasing panels can simply pass this problem on to the supplier, as they’re the ones that own the system.

As well as covering the costs of the solar panel system, most solar lease suppliers also cover a roof penetration warranty.

 

Power production guarantee

In some parts of the US, the weather is notoriously unreliable, which means solar panels can generate more energy on some days compared to others. Thankfully, most leases include a ‘power production guarantee’, which means if your panels don’t produce a certain amount of power, you’ll pay less for your monthly lease payment.

Disadvantages of solar leasing

Users aren’t able to save as much

Although solar leases make panels more accessible by removing the upfront costs, users aren’t able to save as much as they would if they buy the panels outright.

When someone buys solar panels outright, they can enjoy energy savings – and can usually break even after around just eight years.

Although people will still save this amount with a solar lease, they’ll also have to pay between $50 and $250 for the monthly fee.

 

Long contracts

Most solar lease contracts last for 20 years, which is a long time to be tied to something financially. Not only is this an inconvenience, but it can also cause a bit of trouble if you want to move homes during this time.

 

Doesn’t add value to the property 

It’s estimated that solar panels can increase the value of your property by 4.1%. Why? Because the new owners will inherit your panels and benefit from lower energy bills.

However, panels that are bought with solar leasing will not add any value to your home, mainly because the leased panels are removed from the property once you leave.

 

No rebates or tax credits

The Office of Energy Efficiency and Renewable Energy states that if your purchase solar panels outright, you’ll qualify for the following tax credits:

  • 30% tax credit for systems installed before 2020
  • 26% tax credit for any solar panel systems installed from 2020 to 2022, and
  • 22% tax credit for systems installed in 2023

However, homeowners with a solar panel lease won’t receive any of these credits and incentives because they don’t own the panels – they just receive the electricity generated from them.

What are the alternatives to a solar lease?

Homeowners can also look into a Solar Power Purchase Agreement (also known as a PPA) – a financial arrangement that allows homeowners to pay a fixed price per kilowatt-hour (kWh) for the power generated by the solar panels.

What’s the difference between a solar lease and a solar PPA? Well, they’re almost identical, except PPAs allow the homeowner to sign the contract with a set fixed price per kWh. These rates are usually lower than what local utility companies charge.

Similar to solar leases, PPA companies are fully responsible for the installation and maintenance costs, and homeowners typically don’t pay any upfront fees.

Have solar leases been a success in the US?

The solar panel industry has come a long way over the past decade, which is partly thanks to solar leases and other finance options available.

In the early 2000s, solar leasing quickly became one of the most popular ways to invest in solar. Back then, a solar panel system could set you back more than $50,000, which is why leasing them was more achievable.

Since then, the US solar industry has grown dramatically – by 20% in 2021 alone – which is strongly linked to the availability of financing options. As a result, solar panels have gradually become more affordable – with the cost of panels decreasing by 82% since 2010.

This means that whilst solar leasing has been successful, there’s less of a need for it today. Wood Mackenzie has reported that this growth in the industry has led to a decrease in the share of new projects that are third-party owned (TPO). In fact, the TPO share has fallen from 26% in 2020 to 23% in 2021 – the lowest level on record.

Summary

Solar leasing has its fair share of pros and cons – it’s certainly not for everyone. But by giving the option to swerve the expensive upfront costs, solar leasing is making free, clean renewable energy accessible for more people.

Not only is this key during the recent energy crisis, but it’ll also encourage more people to switch to renewable energy in a bid to help the planet.

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