Are Leased Solar Panels Worth It? (2024)
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Choosing the right solar panel financing option will make going solar more affordable and extend your long-term benefits. A solar lease can help you avoid hefty upfront installation costs and enable you to benefit from energy savings sooner. However, it can also negatively impact solar incentive savings and home value.
We researched the pros and cons of solar leasing and how it compares to other financing options so you can decide if a solar lease is right for you.
What Is Solar Panel Leasing?
Many leading solar panel companies offer solar leases as a more cost-effective way for customers to sign up for a solar system. Under this agreement, you make monthly lease payments and get full access to all solar power generated, which helps lower your utility bills and makes installing solar worthwhile.
Solar leasing works best for homeowners who can’t afford the high upfront costs of purchasing solar panels or the responsibility of ongoing maintenance. With solar leasing, you can invest in some of the best residential solar panels without a large initial payment and still benefit from long-term savings. Your solar company will even handle any upgrades and repairs at no cost.
The biggest drawback of choosing a solar lease is that it disqualifies you from solar incentives since you don’t own the system. Solar incentives would lower your overall investment and make your move to renewable energy more cost-effective.
Other payment options, such as a cash purchases or solar loan, provide better long-term energy savings than solar leases because they allow you to take advantage of all solar incentives. You’ll also see more savings once your solar payback period ends. On average, this takes six to 10 years. After that, you benefit from all of the energy cost savings. Solar leases offer lower solar savings since you’re continuously paying your installer.
- Solar lease agreements typically last 20 years and often include a solar lease escalator, meaning your repayments will increase annually based on current market pricing. In addition, solar lease agreements are often hard to break and may include early termination fees.
Pros and Cons of Leasing Solar Panels
Solar Panel Leasing Terms
The typical solar lease lasts around 20 years, but terms may vary between solar panel installation companies. Some companies offer leases for up to 25 years, which aligns with the average home solar panel life span.
Your lease agreement will include panel maintenance and servicing terms for the length of your contract. You may also benefit from the following:
- System monitoring with a dedicated web portal or app access
- Online payment options
- Proactive alerts if any issues are detected
- Performance guarantee of a minimum system output
Your lease contract will include details on the payment schedule. Solar leases usually require zero up-front costs and only include monthly fees. However, these monthly fees may increase over time. Many lease contracts include escalator pricing that adds 1%–5% to your annual fees. For example, if you pay $150 per month in your first year, it could increase by a minimum of 1% the following year. This upward trend will continue throughout your lease term to account for rising costs.
You’ll have several options for your solar system at the end of your lease, including the following:
- Extending your current lease and entering into another contract
- Purchasing the solar system and gaining legal ownership
- Removing the system from your home
It’s worth noting that you may be responsible for insuring the solar panels yourself. As the system owner, the leasing company typically carries insurance on the panels—but not always. Check the terms of your lease for hidden costs and responsibilities.
Ending a Solar Lease Early
Ending a solar lease early is a complex process. Many solar providers include early termination fees and additional clauses that make breaking the lease challenging. For example, if you plan to sell your home, having a solar lease makes it harder to complete the transaction. In these cases, you must select from one of the following choices:
- Buyout: Pay the remaining value of the lease before selling your home, either based on a predetermined price in your contract or the system’s fair market value. This could require a substantial payment if you have a lot of time left on your lease.
- Relocation: You may be able to move the panels to your new home if it’s within the provider’s service area and meets installation requirements.
- Transfer: Attempt to find a buyer willing to take over the lease. For this to work, the new homeowner must meet all of the provider’s qualifications, including a credit score check. Transfer terms can vary significantly between companies.
- Default: If no other option is viable, you might have to default on the lease, which can significantly impact your credit.
We recommend avoiding a solar lease if you plan to sell your home before the lease agreement ends. Consider using different financing options, such as a cash payment, which grants full system ownership. The transfer is much more straightforward, and owning your solar system may boost home value.
Other Solar Panel Financing Options
You should review all available financing options before committing to a solar lease. Most solar providers offer two or more financing options. We’ve broken down the most common ones below.
Using a cash purchase for your solar energy system offers several benefits. Paying upfront gives you immediate and full ownership of the solar system, so you won’t have to worry about interest rates or monthly fees.
A cash purchase also makes you eligible for all solar incentives that help reduce solar panel costs. For example, you can use the federal solar tax credit to write off up to 30% of installation costs and apply the savings to your federal tax liability. Ultimately, an upfront purchase offers the best return on investment (ROI) and long-term energy bill savings.
Solar loans provide a middle ground between cash purchases and leasing. Homeowners make an initial down payment, followed by monthly payments toward their system costs. Some solar companies may even offer a $0 down option. Your full system cost will increase due to added interest rates, but you will own the system, and solar incentives can help offset the interest cost.
Solar loan length varies between providers but could last 10–20 years. Some providers offer special financing terms, such as fixed interest rates for a set time frame. Some companies also provide in-house loan options, eliminating the need for third-party financiers. Interest rates vary based on your credit score.
A solar Power Purchase Agreement (PPA) is another third-party financing option where you don’t own the system. Instead, you pay the solar company for the electricity you use each month—typically at a rate lower than your utility. The solar company calculates payments based on kilowatt-hours (kWh), and payments can fluctuate depending on how much electricity the system produces. You typically pay less for clean energy compared to standard electricity costs.
PPAs involve zero or minimal upfront costs and long-term contracts (often 20+ years). They don’t offer the ROI of solar loans or cash purchases, and you’ll miss out on solar incentives since the solar provider retains ownership of your solar system. However, the leasing company handles all maintenance and repairs.
PPAs may include escalators, meaning your price per kWh can increase over time, and their availability varies state-by-state. According to the Database of State Incentives for Renewables & Efficiency (DSIRE), only 29 states, plus Washington, D.C., and Puerto Rico, allow PPAs as a financing option for solar panels. Six states disallow solar PPAs, while the status in several other states is unclear.
To learn more about the various financing options and how to avoid common solar panel scams, check out the video below with home technology expert Ross Trethewey:
Are Leased Solar Panels Worth It?
Leasing a solar system usually provides less financial benefit in the long term than owning your system outright. Your monthly payments aren’t paying down a loan balance, nor will you own the system when the lease ends. Since most of your payments go toward leasing fees, you’ll have lower electric bill savings and a lower ROI.
Solar leases are difficult to break and can complicate your home sale. They may have complex or costly early termination options, and you won’t benefit from the boost in home value that solar ownership provides. In addition, leases often include fees and escalator clauses.
However, there are circumstances where leasing might make sense. Solar leasing works for homeowners who don’t want to own a solar system and don’t have plans to sell their homes in the next 20–25 years. Leases can be a cost-saving alternative if you can’t afford a cash payment or won’t qualify for a solar loan with favorable interest rates.
Ultimately, the best choice depends on your budget, future plans, and your goals for a solar investment. We generally recommend choosing an up-front payment or solar loan to maximize your solar investment and energy savings, but you should compare all financial options before deciding.
Our Conclusion
Leased solar panels offer solar system savings without a large upfront payment. However, they eliminate many benefits of system ownership, including savings on energy bills and savings on installation costs related to incentives for owners. We recommend weighing your financing options before committing to a solar lease. Request quotes from at least three solar providers and thoroughly review their products, services, and financing options.
FAQ About Leased Solar Panels
What happens to solar panels after your lease ends?
After your lease ends, you can have the solar panels removed from your property or extend the lease. Some providers also allow you to purchase the solar panels.
What is the main difference between a lease and a purchase?
The main difference between a solar lease and a purchase is system ownership. A solar lease allows you to lease the panels from a solar provider, but you never legally own them. A cash purchase makes you the system’s owner and qualifies you for added solar savings from solar tax credits, incentives, and rebates.
Do leased solar panels qualify for a tax write-off?
No, you can’t write off leased solar panels. You must legally own your solar system to qualify for a tax write-off.
Is it worth buying a house with leased solar panels?
Buying a house with leased solar panels can be worth it for the potential electricity savings. However, you should review the lease terms thoroughly and weigh the financial implications before making your decision. You’ll need to assume the contract, which can include escalator clauses (increasing payments) and complicate selling the house later.
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