Solar Lease Agreements

What Is a Solar Lease?

A solar lease is similar to a car lease in that it allows you to benefit from solar electricity without owning the solar system. The leasing company will set up a solar system on your home and charge you a monthly fee to replace your utility electricity bill. Typically, solar leases last for 20 to 25 years and include an annual increase in the monthly payment due to an escalator clause.

One of the main benefits of a solar lease is the lack of upfront costs, allowing you to start saving on energy immediately. Additionally, leasing supports the production of clean energy by utilizing your roof space.

However, it's essential to understand that while leasing offers immediate savings, the overall lifetime savings are generally less than purchasing and owning your own solar system.

The Basics of Solar Leasing

At its core, a solar lease functions by shifting your energy payments from a utility provider to a solar company that installs a solar system on your property. Instead of buying electricity from the grid, you lease a solar energy system and pay the leasing company for the energy produced.

There are two primary types of solar leases: fixed monthly leases and power purchase agreements (PPAs). In a fixed monthly lease, you pay a consistent fee each month, often less than your usual utility bill. For instance, if your average bill is $150, a solar lease might set a flat fee of $100 per month.

In contrast, a PPA charges you based on the actual electricity generated by the leased system, so your monthly payment can vary. If your utility charges you 16 cents per kilowatt-hour (kWh), a PPA might offer a rate of 12 cents per kWh for the energy produced.

Both leasing options typically include an annual escalator clause, usually around 3%, that incrementally raises your monthly payments each year. Although the increase may seem minor initially, it can become more significant over time.

Choosing Between Buying and Leasing Solar Panels: Which Is Right for You?

One popular option for financing a solar system is leasing the panels. However, if you want to maximize your long-term energy savings and boost your property's value, purchasing the panels outright offers the best benefits.

Previously, the high cost of solar panel systems made leasing a more viable option for many households. But in the past 12 years, the average cost of a solar system has significantly decreased—from $40,000 to $20,000—according to the Solar Energy Industries Association (SEIA). Additionally, the 30% federal tax credit further lowers the financial barrier for purchasing solar panels, making ownership more accessible and providing greater lifetime savings.

To understand the financial difference between buying and leasing solar panels, consider how the costs compare over the lifespan of a solar system:

Challenges of Leasing Solar Power

• Solar leasing companies receive the 30% federal solar tax credit and other incentives rather than the homeowner.

• Future income tax returns cannot include interest deductions for homeowners who lease solar systems.

• Homeowners are required to make monthly payments for the entire rental term, usually spanning 20-25 years, regardless of changing circumstances.

• Leased solar systems do not contribute to an increase in the market value of the home, unlike owned systems.

• Transitioning a solar lease in a home sale can be challenging, potentially causing delays or disruptions in offers to purchase the property.