Solar leases were first pioneered in 2007 and quickly gained popularity in the solar energy industry. One of the biggest hurdles for residential renewable energy systems is the upfront investment, an issue that solar leases help solve.
However, leasing a solar system isn’t always the best option for all homeowners, especially if they have the cash to buy the system, they qualify for a solar loan, or they can take advantage of the federal solar tax credit.
What Does It Mean To Lease Solar Panels?
Solar leases allow homeowners to rent their solar equipment instead of buying it. The solar electricity produced by the solar panels supplies power to the house, and the homeowner makes a monthly lease payment for the solar panels. Even though the solar panels are installed on the property, the homeowner doesn’t own them.
Benefits Of Leasing Solar Panels
There are some financial benefits of leasing solar panels, which have made them a popular option for certain homeowners.
Startup Costs Are Lower On Leases
Often, homeowners can get a solar panel system for $0. Because the high upfront cost of solar panels is a common hurdle that makes solar power unaffordable to many, solar lease agreements bypass this issue.
Moving Or Selling Your Home Won’t Be A Deal Breaker
Although the details vary by the solar provider and the lease agreement, solar leases commonly have clauses for moving. Typically, homeowners can transfer the lease to the new home buyer.
However, there are often credit requirements, and the buyer may need a certain minimum credit score. In some cases, potential buyers might be concerned about assuming the lease and the associated monthly fee. Occasionally, the home seller will need to buy out the solar lease if the new owner is unable or unwilling to take it over; this would mean the interested buyer would own the panels outright after purchasing the property from the seller.
Homeowner Isn’t Responsible For Solar System Repairs
With a solar lease, the leasing company that owns the photovoltaic (PV) system is responsible for repairs and maintenance, not the homeowner. This is generally good news unless the leasing company is very slow to make needed repairs.
Drawbacks Of Leasing Solar Panels
Although there are benefits of solar lease agreements, there are also some drawbacks.
Leasing Company Gets To Claim Rebates And Incentives
Because the leasing company owns the solar system, they can claim the federal solar tax credit, not the homeowner. The tax credit is worth 30% of the total system cost if installed before 2032.
If the solar energy system costs $16,000, the value of the tax credit in 2022 is $4,160, so it’s an impressive tax incentive. Likewise, if there are other local, state, or utility incentives, the homeowner will typically not qualify.
Reduced Long-term Savings
Although the lower upfront cost of entering a solar lease is very appealing, the long-term savings are also usually lower. If the homeowner buys the solar system, it will pay for itself with the utility bill savings over time. However, for solar leases, the homeowner will need to make payments for the lifespan of the solar panel system.
No Increase In Home Value
Numerous studies show that installing solar panels boosts home value. However, this only applies when owning and not leasing the solar panels. If the homeowner sells the home, owning solar panels can make a big difference in the sale price.
Differences Between Leasing And Buying Solar Panels
The owner of the solar system impacts a variety of factors.
Upfront Cost
The hefty upfront expense of installing solar panels could be a compelling reason to lease instead of buy. However, many banks, credit unions, and solar installers offer financing. In some cases, the homeowner can get solar panels for zero down. Also, if the loan is a home equity loan, the interest may be tax deductible.
Long-Term Costs
Often, the maintenance and repair costs are lower when leasing a solar panel system, but this does depend on the solar warranties. When buying, the solar system comes with warranties, but these vary significantly between solar panel installation companies. Solar equipment, like the panels and inverters, also have warranties from the manufacturer for up to 25 years, but they don’t usually cover labor.
In addition, the solar company usually offers a labor and service warranty for a certain number of years. Occasionally, some solar installers offer warranties for 25 years, but this is somewhat rare. Labor and service warranties between 2 and 10 years are more common.
With solar leases, the leasing company is responsible for all repairs. However, if a homeowner buys a solar power system with long warranties, they will have similar coverage.
Ownership Of The Panels
Another huge difference is PV panel ownership. When leasing the system, the homeowner only owns the power generated. When buying, they own the panels and solar power. However, that also means that it is the homeowner’s responsibility to insure them, which could cause a slight increase in their insurance premiums.
Long-Term Savings
If you compare the total energy savings with the utility company over the life of the solar system, solar homeowners will almost always save more money if they own the panels instead of leasing them. This is because monthly lease payments can last for around 20 – 25 years, but the payback period of a solar system is usually 6 – 10 years.
FAQs About Solar Panel Leases
Let’s look at some common questions your customers may have about solar leases.
Solar Lease Vs. Purchase Power Agreement?
With a solar lease, the homeowner is leasing the equipment and the payments are fixed. With a solar power purchase agreement (PPA), they payments are based on the solar power production and there is a cost per kilowatt hour of power. Therefore, the homeowner will often pay more in the summer if solar electricity production is greater and less in the winter.
Are There Solar Lease Requirements?
Yes, solar leasing companies have requirements for homeowners. Typically, they must own the home and have a certain minimum credit score. There may also be requirements for having a minimum monthly electric bill.
Which Is Right For Your Clients?
Whether it is better to lease or own a solar system depends on your client’s situation.
Consider Buying If …
● The homeowner can take advantage of the federal tax credit and possibly other incentives
● They qualify for financing or have enough cash for purchasing solar
● They want to increase their home value
● The homeowner wants to maximize their long-term energy savings
Consider Leasing If …
● The homeowner can’t take advantage of the solar tax credit
● They don’t want to be responsible for solar system maintenance and repairs
● They do not qualify for a solar loan with low interest rates and don’t have enough cash to purchase the system
Regardless of whether you offer leases or solar PPAs, it’s helpful to be able to answer questions for your customers. Many of them will have questions regarding solar lease terms, so it’s helpful to understand how they work, even if you don’t offer them.
GreenLancer can help provide permit design and engineering no matter how they’re financed. For more info on the financing options available, read more on our blog.