Choosing the right solar financing option can make your transition to solar more affordable and increase your long-term savings. A solar lease allows you to skip large upfront installation costs and save on energy immediately. However, leasing may reduce your eligibility for solar incentives and doesn’t add as much value to your home as owning a system.
We’ll discuss the pros and cons of solar leasing and compare it to other financing methods to help you determine whether it’s the best option for your home and budget.
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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, batteries, or the responsibility of ongoing maintenance. With solar leasing, you can invest in some of the best residential solar panels and top battery systems 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 cash purchases or solar loans, 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 savings since you’re continuously paying your installer.
Solar lease agreements typically last 20–25 years and often include a solar lease escalator, meaning your repayments will increase annually based on market pricing or predetermined rates. In addition, solar lease agreements can be challenging to break and may include early termination fees. If you plan to sell your home before the lease term concludes, you’ll need to consider options like transferring the lease to the new homeowner or buying out the remainder of the lease, which can complicate the sales process.
Pros and Cons of Leasing Solar Panels
Pros
- No obligation to own your solar system
- No significant upfront payment is required
- Solar provider maintains the system for you
Cons
- Disqualification from solar incentives, rebates, and credits
- Early termination fees for breaking your agreement early
- Monthly payments may increase each year
Solar Panel Leasing Terms
The typical solar lease lasts 20–25 years, but terms may vary between solar panel installation companies. Some companies offer leases for up to 25 years, which is the average lifespan of home solar panels.
Your lease agreement will include panel maintenance and servicing terms for the length of your contract. You may also benefit from the following:
- Solar 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 upfront 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.
Cash Purchase
Buying your solar panels upfront offers the best long-term financial benefits. While this is the most expensive option in the short term, you’ll own the system outright and won’t pay interest costs or monthly fees over the life of your system.
A cash purchase saves you the most regarding long-term energy bills over the system’s 25-plus-year life span. It allows you to use the many state and federal incentives available to solar panel owners, including saving up to 30% on costs through the federal solar tax credit. However, it requires a large upfront payment, and coverage for workmanship and equipment quality is limited to your manufacturer’s warranty.
Solar Loan
Solar loans offer a middle ground between cash purchases and solar leases. You make an initial down payment, followed by monthly payments toward your system costs. Some solar companies may even offer a $0 down option. You’ll eventually own your system outright after the term expires, allowing you to access available solar rebates and incentives and save on long-term energy bills.
Solar loans require a lower upfront investment than purchasing solar panels in cash, while still offering system ownership after a few years. They also allow you to use the solar incentives available to solar owners, including the solar tax credit. However, monthly interest rates can increase the total cost of the solar energy system, and excellent credit may be required for more competitive solar loan rates.
Depending on the provider, loan terms can range anywhere from 10 to 20 years. Some lenders offer fixed interest rates for a portion of the loan, helping homeowners better predict their monthly payments. Certain solar companies may also offer in-house financing options, which streamline the process by removing the need for a third-party lender. Ultimately, your credit score will influence the interest rate you’re offered.
Solar PPA
Although the terms solar power purchase agreement (PPA) and solar lease are often used interchangeably, the two financing options have key distinctions. In a solar PPA, the provider installs solar panels at no upfront cost and maintains ownership of the solar energy system over the solar agreement term, similar to a lease. However, with a PPA, the customer pays a fixed rate per kilowatt-hour (kWh) produced by the system.
The additional terms of a PPA vary depending on the contract with your company. The PPA rate per kWh is often lower than the price for traditional electricity from your utility, allowing you to benefit from consistent long-term energy savings with clean energy.
A PPA has a low upfront cost and may save 5%–20% on your electric bill without requiring solar system ownership. However, like a solar lease, a solar PPA will not allow you to access the solar tax credit or other incentives. Workmanship and equipment quality coverage is also limited to your manufacturer’s warranty.
PPAs may include escalators, meaning your price per kWh can increase over time. Their availability varies state by state.
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 upfront 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 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 deciding. You’ll need to assume the contract, which can include escalator clauses (increasing payments) and complicate selling the house later.
