How Solar Leases Work: Everything You Need to Know

Solar leases are ideal for individuals wishing to enjoy the maximum solar energy supply while minimizing costs.

Solar leases create convenience for solar owners who cannot install solar panel systems on their roofs. Solar installation was very costly in the past, making it nearly impossible for individuals to own.

To enjoy these solar lease opportunities, you should understand how solar leases work, the cost of leasing solar, and how solar panel leases work.

What is a Solar Lease?

Leasing solar panels works the same way as using a vehicle in a contract or a cell phone contract. The solar company relieves the burden of buying a solar panel system.

Solar leases work by paying an agreed amount to a solar installer for the solar power system, but you don’t own the solar system. You are supplied with solar energy from the solar panel at an approximately 20% cheaper rate than electricity from the grid.

The contract lasts for years, and there is no initial payment, but the company is still responsible for offering solar energy.

It is like third-party ownership, but you get all the benefits of a solar system, including free maintenance.

Let us dive into how a solar lease works!

How Does a Solar Lease Work?

Calculator and a paper with lease agreement written on it

Before settling for a solar lease, it is ideal for a homeowner to know how solar leases work.

Many homeowners are constantly torn between buying and leasing solar panels because they don’t know how solar leases work.

How do solar leases work?

Immediately after the solar energy system panels are installed, you will automatically receive the power supply from the solar panels.

It replaces your grid electricity supply, and your home will supply itself with solar panels’ energy, thus reducing your electricity bill.

If the solar panels generate enough electricity to cover all your energy usage, you can eliminate your electric bill completely. The good thing is that it is a fixed price.

However, you must still pay for your solar lease payment, although it will be cheaper than your utility bill before installing the solar power.

Finally, you should consider that this new, green power supply might not be able to cover all your electricity bills since its effectiveness depends on the weather.

How do Solar Panel Leases work?

Solar panel leases work so that you just make your monthly payment for the leases, but you don’t own the panels. The leased solar panels harvest solar energy directly from your house without you having to buy a home solar system.

A solar provider handles the installation. They either lease the solar panels at a fixed monthly amount or sell you the electricity the panels generate at a fixed price per kilowatt-hour.

The leasing company also takes on the maintenance cost and monitors the solar panels. They will carefully monitor your system hardware and performance until the signed contract ends.

Solar panel leases typically last for approximately 20-25 years. Moreover, some companies like SunRun allow you to renew the contract and buy the installed solar system.

What are the Terms of Solar Lease?

The basic terms of a leasing contract are always almost the same despite the type of the contract. A solar lease normally operates between 20-25 years.

The solar company is also responsible for monitoring how your solar panels work; in case anything breaks, the developer is responsible for repairs at their own cost.

Just because you don’t own the panels doesn’t mean you can’t see what they bring to the table. Most solar companies have a tracking program you can access on your computer or a phone app to monitor their performance.

A price escalator is included in the lease contract to reflect the rise in your electricity price. Therefore, your lease payment will be appreciated annually. The solar lease escalator runs between 1% -5%.

Solar leasing is very flexible. If you wish to move house, most solar leasing companies like Sunpower will permit you to transfer the lease to your new home. If you want to terminate the contract, you can break the lease and remove the solar panels.

Moreover, at the end of the contract, you can purchase solar panels at a discounted price as stated in the agreement, or you can either have the contract renewed or the solar panels removed. If you wish to buy the solar panels at the end of the lease contract, you can opt for a solar PPA.

Some solar companies don’t offer the option of selling the solar panels at the end of the contract—make sure you check the fine print with each company if you think you might want to own your panels after a while.

See Related: Best Portable Solar Panels for Home

Where Can You Get a Solar Lease?

how to refinance a PACE loan — refinancing a PACE loan

Most trusted installers offer solar lease panels with different solar financing projects.

If you are new to the solar world, you don’t need to be worried since EnergySage will help you understand everything about solar leasing.

EnergySage lists trusted companies that later bid to you, competing to offer the best solar financing options.

In addition, they also work with your budget, lifestyle, and financial goals. They will help you find the best, most friendly price in the market and advise you on which one to settle.

Another crucial thing before looking for a leaser installer, another essential thing is to make sure leases are available and convenient in the area you live in since they might not be available in less sunny states.

Which is the Best Payment Option?

There are limited ways of making payments for the installation of solar panels. The most important things to consider are the duration of your stay in your home and your budget.

The three modes of payment are cash, loan, and leasing.

Paying for solar panels in cash

Using cash as the mode of payment increases your long-term savings. Cash purchases have many advantages, like saving utility bills and protecting from inflation and interest.

However, it also has its downfalls, like the very high upfront costs, which are not affordable to every homeowner.

Loans

This is an option for homeowners who can’t afford to buy solar panels upfront and repair them later with their energy savings. The main advantage is enjoying the federal solar tax credit and some refunds used to repay the loan.

Before getting the loan, the best thing to do is search for low-interest loans to save you money.

Leasing Solar Panels

You can also choose to lease the solar panels, in which case you pay the lease charges but don’t own the panels.

You are free from maintenance of the solar panels and have zero upfront costs, which is ideal for those without money to start their solar journey.

How Much Does it Cost to Lease a Solar Panel?

Nothing is entirely free in this life, and neither are solar lease panels.

The cost of leasing solar panels is calculated in your monthly bill and spread over time. However, the comparatively low solar lease cost makes the overall payment much more convenient for a beginner.

Opting to lease solar panels can be a good financing step option for any homeowner or business since the cost of leasing solar panels doesn’t break your bank account.

Zero upfront costs save the wallets of many who wish to start their solar journey but are unwilling to commit to upfront costs.

See Related: Solar PACE Program: Is it a Legit?

Is it a Good Idea to Buy a Home with a Leased Solar Power System?

Getting a home with a leased solar power system is a good idea. It will be an added advantage if you are not in a position to settle the needed upfront costs to purchase the solar panels.

Start by understanding the previous homeowner’s solar contract with the leasing company.

Familiarize yourself with the lease terms, including duration, pending payments, cost of the payment, and who is responsible for system repairs.

Another critical thing to be keen on is the payment schedule.

Don’t assume the lease payment is fixed despite what the system produces; some companies have adjustable-rate leases, while others are fixed. Find out which one suits your needs.

Lastly, if you find the lease term that fits your needs, the responsible company will transfer the lease immediately after running your credit check and later transfer your name to the lease.

What is the Difference between Solar Leasing and Buying Solar Panels?

Buying the panels only suits folks who have the money to purchase them upfront or at least the means to pay for them, as well as their installation and maintenance over time. On average, the panels will start reimbursing costs after nine years, and then the energy savings will build.

On the other hand, leasing is suitable for those who want to begin the solar journey without sacrificing their financial budget.

In solar leasing, you are not the owner of the solar panels, whereas in buying solar panels, you are the owner and maintainer.

Solar panels have a higher upfront cost than leasing, which has a small upfront cost.

The good thing is that both will help you save on utility bills.

What is the difference between a Solar Lease and a Solar Power Purchase Agreement?

People tend to confuse solar leases and Solar Power Purchase Agreements. They are similar financing options, so you’d be forgiven for mixing them up.

In both solar leases and SPPA, the solar company installs the solar panel on top of the homeowner’s roofs as you make monthly payments.

In the solar lease, the payment is fixed regardless of how much energy the system produces, whereas, in Solar PPAS, your contract will state the cost of each kilowatt-hour of solar energy produced.

The Solar Power Purchase Agreement tracks the kilowatts used as you make your fixed monthly payment in the solar lease.

What are the Advantages of Leasing Solar Panels?

Leasing solar panels comes with advantages for homeowners. The added benefits include :

Reduced Utility Bill Expenses: Solar leases reduce energy bills because you generate power.
Zero Maintenance Costs: The maintenance of the solar system is up to the company and not something you have to organize or pay for. You don’t have to monitor the solar system since you only rent and do not own the solar panels.
Fixed Monthly Installments: In a solar lease, you make fixed monthly payments clearly stated in the contract. That makes it easier for you to budget your total monthly expenses.
No Upfront Costs: Solar leasing is a good option for those who don’t want to worry about the total initial cost of a solar panel system to enjoy solar energy services. Most solar companies have zero upfront costs.

What are the Disadvantages of Solar Leasing?

Solar leasing has some cons that potential buyers and new owners must consider before opting for a solar lease. Some of the disadvantages include:

Not Convenient for Tax Credits and Solar Credits: Renting solar panels does not qualify you to enjoy the benefits of any solar tax credit since you are not the owner. Therefore, leasing companies, being the owners, will receive the 26% federal tax credits.
Depreciation of Home Value: The value of your home depreciates when the solar panels are leased compared to owning the solar panels, which add value to your home. The value decreases when you want to sell the house because the potential buyer might not be interested in solar leases. Therefore, you will be forced to reduce the price of your house.
Challenge When Selling Your Home: A solar lease also makes it difficult to sell your home. Many buyers are skeptical about taking over a lease agreement regarding your energy usage.
Long-term Savings are Low; Purchasing solar panels might be expensive, but it saves a lot in the future. Your long-term savings will be higher since you will have eliminated the electric bill forever. While you can save money on electricity bills by leasing, they belong term savings aren’t as big.
Potentially Two Bills: You might end up paying for two bills in months when there isn’t enough sun to generate the solar power you need. You’ll still need to make the monthly payments in your lease, but you may still get a bill from your utility company if it’s rainy!

See Related: How to Finance Solar Panels

How to Get Out of a Leased Contract

There will always be instances that can make you want to terminate the leased contract. You may want to relocate to a new home or sell your home without the leased solar panels.

Selling your home with leased solar panels might make finding individuals willing to continue the contract challenging.

But you don’t have to get stuck with that; let us discuss how you can end the solar leased contract.

Transfer of the solar lease

This is one way of getting rid of the solar panels’ lease. For example, some companies like Sunrun have a service transfer specialist who will help in the transfer process. However, you might get an instance where the buyer does not want the lease, and you will be left with the option of reducing the price of the house by the amount of the transfer and sealing the deal.

Buy the solar panel system at a price offered on the market

You can also opt to own the solar panels and terminate the contract. However, the price of the solar panels might be slightly higher since their value might not have depreciated while in use. Considering the duration the system has been used, its quality, and the fact that it has been locked up in a commodity of producing power, the value is typically still high.

Buyout

You can clear the balance on the remaining lease and remove or leave the solar panels in your house. However, this is rarely accepted since a buyout has to last five to seven years.

Is there a Better Solar Financing Option than a Solar Lease?

Solar can be cheap and expensive simultaneously- but it delivers savings down the line.

The approximate price of a solar power system in the United States ranges from $14000 to $16000 after the federal tax credit is considered.

Of course, that is not friendly for all bank accounts, and that’s why most people opt for solar leasing or taking solar loans.

Solar loans allow you to install the solar panel system without paying a whole lump of dollars at once.

However, solar loans are not always convenient for homeowners since the cost can be extremely high.

Currently, the cost of the solar power system has been reduced, making it more feasible for homeowners to take a solar loan and pay for the installation.

One benefit of loans is that you own the solar panels despite using a solar loan to purchase them. That means you can take advantage of the tax incentives and other tax credits you cannot enjoy when leasing.

Almost all solar loans don’t require a down payment, and they also have a reasonable interest that is pocket-friendly.

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