What you need to know about solar leases in 2023

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Solar lease

If you want to lower your electricity bill without any upfront costs, there's a good chance you're considering a solar lease. Under the right circumstances, solar leases can be an attractive option, offering cheaper electricity with minimal hassle. However, there are also instances where a solar lease could cause trouble, so it's essential to conduct research before signing any contract. We'll cover the basics of solar leases–from what they are to why you may or may not want to enter one.

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Key takeaways

  • Under a solar lease, you won't own your solar system but will benefit from its generated electricity.

  • A solar lease typically saves 10-30% on electricity costs.

  • Before entering into a solar lease, make sure that you review and approve the system design.

  • While an owned solar system will typically increase your home value and make it easier to sell, a leased solar system can make selling your home more difficult.

  • Start your solar journey today on the EnergySage Marketplace.

Solar leases are relatively similar to car leases in that they are a form of third-party ownership (TPO). Under a solar lease, this third-party owner (e.g., a solar company) installs solar panels on your property and then sells you the electricity produced at a predetermined monthly rate. Companies calculate this rate based on the estimated annual production of your solar system and include this rate in your contract. Your lease will also have a fixed term length, typically 20 to 25 years. At the end of the term, you can purchase your system outright at the market value price, remove your system, or renew your contract (typically one to 10 years) and continue monthly payments.

If you don't want to purchase your solar panel system upfront with cash, there are a few options besides solar leases. Here's how solar leases stack up against two other standard solar financing methods:

Solar leases vs. power purchase agreements

You've probably heard solar leases and power purchase agreements (PPAs) used interchangeably and for good reason! These two financing options are very similar. The critical difference is that with a solar lease, you'll have a fixed monthly payment, whereas with a solar PPA, you'll purchase the power generated by your system at a fixed price per kilowatt-hour (kWh). Our article comparing solar leases and PPAs can help you further understand the nuances of the two options. 

Solar leases vs. solar loans

Solar leases and solar loans are similar in many ways: They both involve no or minimal money needed upfront and monthly payments, but the key difference is ownership: with a solar lease, you don't personally own your solar panels, while with a solar loan setup, you do own your panels once you have fully paid off the loan. Most solar loans are paid off in five to 15 years, while the typical solar lease is around 20 years long.

Owning your panels with a solar loan setup means that you can take advantage of rebates and incentives upon installation. With a solar lease, the system's owner is the solar company, so they receive financial incentives instead. For this reason (and others), lifetime savings with a solar loan are usually higher than those with a solar lease.

If you choose a solar lease or PPA, the leasing company owns the PV system and typically will offer a service program to cover any maintenance issues that arise during the lease term. If you take out a solar loan to purchase your PV system, you will be responsible for its maintenance. Solar is a generally low-maintenance power source, and the equipment you buy with your solar loan will have warranties that range from 10 to 25 years.

Monthly payments differ slightly between leases and loans. In a loan agreement, you usually have a fixed monthly amount due. With solar leases, payments typically increase over time (generally around 1-3% annually). An annual escalator is another essential thing to look out for in a solar lease. These are becoming less common, but if included, they will increase your monthly payment by a preset rate over your term length (typically 1-5% each year). In this article, we compare solar loans and leases in-depth so you can choose the best financing option for your needs.

As with any solar financing option, solar leasing comes with its share of pros and cons:

Top pros and cons of solar leases

Advantages Of Solar Leasing
Disadvantages Of Solar Leasing
Saves money on electricitySavings are lower than loans or cash purchases
Low or no upfront costsCan't take advantage of solar incentives
No maintenance responsibilitiesComplicates selling your home

Pros of solar leases

The three main advantages of a solar lease are:

  • Saving money on electricity: With a solar lease, you'll save on electricity costs throughout your agreement.

  • Low or no upfront costs: Unlike a cash purchase, solar leasing setups allow you to go solar without paying much (if any) money upfront.

  • No maintenance responsibilities: Because you don't own your panels with a solar lease, the company you lease from is usually responsible for any maintenance and upkeep they might need.

Cons of solar leases

The three main disadvantages of solar leasing are:

  • Savings are lower than loans or cash purchases: Cash purchases are generally the best way to save the most money with solar. Solar loans also lead to more savings than solar leases over the lifetime of your system because lease terms are often longer and can include escalating payments.

  • You can't take advantage of solar incentives: Lifetime savings are higher with a cash purchase or solar loan because, as the system owner, you can take advantage of solar incentives like the 30% solar tax credit. With a solar lease, the system's owner is the company leasing your panels, so you can't use these incentives to boost your savings.

  • A solar lease may complicate selling your home: If you need to sell your home during a solar lease term, you either need to buy out the lease from the third party owner or transfer the lease over to the new homebuyers, which can sometimes complicate the selling process if your prospective buyer doesn't want to assume the lease.

The table below shows some critical aspects of the country's largest solar lease providers' operations. We also explain how these organizations differ from EnergySage. The questions below cover the various aspects of a solar leasing company's structure to help you better understand how it operates before signing a contract with them for the next 20+ years.

What is their business model? 

All the solar lease providers listed make their money by financing a solar system for your home and then selling you the solar electricity from the panels. In most cases, the companies promise you will save money on your power bills in the first year – a win-win situation.

What is their primary product? 

Each of these companies has a different background, but most began with financing in mind from the outset. Others started as equipment manufacturers or installation companies.

Do they directly sell solar leases? 

Some of the more prominent companies – such as SolarCity – invest a lot in marketing and selling solar leases to consumers. In contrast, others leave those activities to solar installers in their network.

Do they have their own installers or contract with local installers? 

About half of the companies listed do not undertake installations themselves. Instead, they market their solar financing product. 

Where does their financing come from? 

A solar panel system installed for zero-down may be a way to save money. For the company that finances that system, it is a long-term investment. With solar photovoltaic (PV) equipment prices coming down globally and PV technology having proved itself dependable, big banks and securities companies have started to back the financing of PV systems. Wall Street provides financing to most solar leasing companies.

Do they manufacture solar panels?

Most solar lease companies don't manufacture solar panels. Some companies white-label the solar panels produced by others so that you may see them marketing products with their name attached.

Which states do they operate in? 

All the companies offer solar leases in California and almost all in a handful of other states, including New Jersey, Massachusetts, Arizona, and Hawaii. In any case, a glance reveals that there is a choice between solar lease providers in most of the big solar states.

Top solar lease companies in the US: What's the difference?

Sun Power
Business modelRents solar panelsRents solar panelsRents solar panelsRents solar panelsRents & sells solar panels
Primary productSolar leases & PPAsSolar leases & PPAsSolar leases & PPAsSolar leases & PPAsWhite-labeled solar panels
Market solar leases?YesYesYesNoYes (in some markets)
Have their own installers or subcontractors?Own installersOwn installersLocal installersLocal installersOwn installers
Solar lease finance resourcesWall StreetWall StreetWall StreetWall StreetWall Street
Manufactures panels?Yes (Silevo, Tesla solar roof)NoNoNoNo, but white-labels panels

Like any solar financing option, solar leases can get complicated. To ensure you know how you're using your money, we've compiled a few more common questions to remember:

Will a solar lease save you money?

A solar lease will help you save 10-30% on electricity costs over its lifetime. This cost will vary depending on where you live and the incentives available to the third-party owner. If you live in a state that offers net metering, you can take advantage of this incentive, which allows you only to pay the net difference between the energy you consume from the grid and the energy your system produces. However, other incentives, such as the federal investment tax credit (ITC) or solar renewable energy certificates (SRECs), will go straight to the system's owner. As a side note, if you purchase your solar system instead of leasing it, you can take advantage of all available incentives. By owning your system, you'll typically see electricity cost savings between $10,000 and $30,000 over the next 25 years.

Will you be able to choose your solar system?

The third-party owner of your system can choose who installs it on your roof. With the installer, the third-party owner will then decide the panel brand, the size of your system, and where to install it. However, before you sign any paperwork, we strongly recommend that you review and approve your system design. For example, unless you plan on making home upgrades to increase your electricity usage, you'll want to ensure that the estimated production amount does not exceed your monthly consumption. Otherwise, you'll be paying for electricity that you don't use! Also, if you have any aesthetic concerns about your solar array, you'll want to know what the panels look like and their future location before entering into a contract.

What happens if you want to sell your home?

If you own your solar system, you'll likely see a 3-4% increase in your home's value, making your home more attractive to potential buyers. However, solar leases can often have the opposite effect. If you choose to sell your home during the solar lease term, you'll need to either buy out the lease from the third party owner–which will often cost substantially more than if you had purchased the system initially–or you'll need to transfer the lease to the new homebuyers. But some homebuyers won't want to take over your lease, making selling your home difficult. We cover what selling your home with solar is like in our article comparing solar loans and leases.

If you want to stay in your home over the next 20 to 25 years and lower your electricity bill with the least hassle, a solar lease could be an excellent option! However, if you plan on selling your home before the end of a lease term and want to reap the most savings on a solar system, you'll be better off with a cash purchase or a solar loan. If you're ready to start your solar journey, check out the EnergySage Marketplace, where you'll receive custom quotes from vetted installers to maximize your solar savings.

Find out what solar panels cost in your area in 2024
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  • 100% free to use, 100% online
  • Access the lowest prices from installers near you
  • Unbiased Energy Advisors ready to help
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