How Does a Solar Lease Work? Pros and Cons of Leasing Solar

You’ve likely noticed residential solar panels in your area, especially if you live in a sunny state. But do you know how a solar lease works? This lesser-known solar financing option is one worth exploring.

Making the switch to renewable energy for your home is not only beneficial for the environment. Your wallet will thank you as well! Taking the time now to really understand your options and make the best decision for your circumstances can make a considerable difference monetarily in the long run. We’ll cover how solar panel programs work and the pros and cons of leasing so you can make an informed decision.

Are solar panels worth it for your home? Sun Badger Solar is here to answer all of your solar panel system questions. 

What is a Solar Lease

Deciding between buying and leasing is one of the necessary steps before putting solar panels on your roof. Solar leasing works similarly to car leasing. With a solar panel lease, you work with a solar partner and sign a solar lease agreement– typically for 20 years.

The solar company installs and owns the solar panel system on your roof and benefits from the tax incentives. At the same time, you pay them a set rate monthly to utilize the energy generated from the system. Leasing solar panels allows homeowners to switch to a clean energy source for their homes, reducing their monthly electric bills with no upfront costs.

Person in a yellow sweater calculating costs

How Does a Solar Lease Work?

So, how exactly do solar leases work for the homeowner? Regardless of how much energy your solar panels produce, your monthly payment will be a flat rate with a solar lease. Overall, you can expect approximately 20% savings on electricity costs for your home.

A solar panel lease includes all maintenance and repairs on the system for the duration of the lease, as well as insurance and system monitoring. A solar panel contract will generally give you the option to extend the lease after the term, have the panels removed, or purchase the panels.

Your monthly payment to the solar company will be determined at the start of the lease and outlined in the solar panel lease agreement. The solar company will consider the current energy usage of your home, the climate in your location, and the tilt of your roof. These factors will impact the exact lease terms for your situation, including the monthly payment and specifications for the panel system to be installed.

  • Current home energy usage
  • Climate of your location
  • Orientation and slope of your roof

Average Cost of Leasing Solar Panels

Solar panel lease costs can vary depending on where you live and how much energy you use. According to Forbes Advisor, monthly leases on solar panels can range from $50 to $250.On a 20-year lease, that could end up being $60,000 on the high end, much greater than the average cost to purchase the panels. A small down payment may also be required, although most will offer a zero-down option.

Installer and customer shaking hands over solar lease agreement

What are the Terms of Solar Panel Lease Agreement?

Although solar lease terms will vary slightly depending on your location and the company you choose, they usually last for the lifespan of the solar panels, which is 20-30 years. At the end of your lease term, you will have three options moving forward:

  1. Renew the solar panel lease
  2. Have the solar panels removed
  3. Purchase the solar panels at market value

The purchase price may have already been outlined at the start of the contract. Solar leases are a good starting point and allow solar energy to be accessible to more households, but make sure you review all terms of the lease agreement before signing. Below are some other critical pieces of a solar panel lease.

  • Monthly Lease Payment
  • Lease Term Length
  • Price Escalator
  • End of Contract Options

Exploring solar energy options? Find out if solar suits your home with Sun Badger’s Residential Solar Services and get a free quote!

infographic showing the pros and cons of leasing solar panels

Pros and Cons of Leasing Solar Panels 

Now that we’ve got the solar lease basics down, let’s take a look at the pros and cons of leasing solar panels so you can apply them to your unique situation.

Advantages of Leasing Solar

At first glance, there are many advantages to leasing solar, but the decision to lease vs. buy solar panels will ultimately come down to your financial situation and long-term goals for your home.

No Upfront Cost

The primary advantage of leasing solar is the lack of upfront costs. Most solar panel leases are zero down payment, making it a decent option for those looking to explore greener energy options but do not have the current budget to purchase their own panels.

Lower Energy Bills

Whether you decide to buy or lease your solar panel system, you can be confident that you are contributing to a cleaner environment and saving yourself money on energy for your home. Solar lease payments are roughly 20% less than your average monthly electricity bill.

Maintenance isn’t Your Responsibility

Since the solar company owns the solar panels on your roof, you are not responsible for any of the costs associated with repairs and maintenance. This is increasingly becoming less of an advantage due to the minimal maintenance required on solar panels. Rinse the panels with a hose a few times per year, be sure they are clear of debris, and you should have no problems.

Disadvantages of Leasing Solar

Like car leasing, there are some clear advantages to leasing solar, but that does not mean it is always the best option. It’s important to look at the disadvantages as well before making any big decisions regarding the energy plan for your home.

Lower Savings in the Long Run

Although any solar panel system will save you money on your home’s electricity, solar leasing has a lower long-term savings potential when compared to buying. If you decide to lease solar, you will have a monthly payment for as long as you continue the lease, while purchasing outright allows you to reap the benefits of free electricity for the life of your home once the solar panels are paid off.

Price Escalation

Another consideration when deciding if you should buy or lease solar is price escalation. Solar lease contracts will contain a price escalation clause, which is often somewhere in the one to five percent range. This yearly price increase reflects the rising cost of electricity.

No Impact on Property Value, Negative Impact on Home Sale

The nature of a solar lease means that you do not actually own the solar panels on your roof. Therefore, your property value does not increase as it would if you owned the panels outright.

If you decide to sell your home before your lease is up, this may have a negative impact on the sale of your home. Termination of the lease is required if the new owners do not wish to continue with the solar panel system.

Beautiful home with black solar panels

Should You Get a Solar Lease? 

Hopefully, the leasing solar panels pros and cons list has helped clarify any outstanding questions and narrow down the right choice for your home. With such promising statistics on solar energy, it’s no surprise that the popularity of residential solar panels is continuing to rise. Regardless of your financing option, the solar panels will be part of your home for many years to come, so it’s not a decision to take lightly.

While the price of solar panels initially made them unaffordable for most households, the price today is significantly lower, making purchasing the panels a viable and attractive option. If you can secure a solar loan from a bank, purchasing is an even better option for maximizing savings because you can take advantage of tax rebates and other incentives without the significant upfront investment. When making your decision, consider the following questions to guide you:

  • Do you have upfront capital or qualify for a solar loan through your bank?
  • Do you plan to sell your home in the next 20 years?
  • Which tax credits and other incentives would you qualify for if purchasing solar panels?

Other Ways to Go Solar

While they may sound appealing, solar leases are not the only answer. Depending on your situation, buying solar panels may be a more promising option, and set yourself up to maximize savings. Learn more about making solar energy a reality for your home with Sun Badger’s financing options.

Solar Loan

A solar loan offers all the valuable benefits of adding solar energy to your home without needing a large chunk of capital upfront. Most national banks have a solar loan option with interest rates as low as four percent, depending on your location and financial situation. This allows you to pay for the panels monthly over time and own them outright at the end of the loan.

Cash Purchase

If upfront cost is not an issue, the advantages of buying a solar panel system will outweigh any advantages that solar leasing offers. With an upfront cash payment, you will immediately reap the benefits of your solar system. All energy generated from the system will be essentially free to you with no monthly payment to worry about.

Prepaid Lease

If you like the idea of solar leasing but want to avoid monthly payments, the prepaid solar lease might be for you. With this scenario, you would make a one-time full payment to the solar company for a set number of years of energy for your home. The solar company would still own the panels, but you would lock in current energy costs for the entire duration of the lease by paying upfront.

Solar Power Purchase Agreement (SPPA)

A Solar Power Purchase Agreement is similar to a solar lease. The only exception is that your payment will fluctuate because you pay for the energy your panels produce instead of a flat rate. At the start of the contract, you will agree to a specific price for each kilowatt-hour generated from your solar panel system. The solar company will own the solar panels on your roof just like they do with a lease.

Solar Leasing FAQs

Let’s cover a few of the most common questions surrounding solar leasing. Check out Sun Badger’s blog for answers to even more Solar FAQs before you move forward with your solar panel system.

What happens at the end of a solar panel lease?

The answer depends on your lease contract, but usually, you can renew your lease, remove the solar panels, or keep the panels and purchase them at market value or an amount predetermined in your lease contract.

Can you buy leased solar panels?

You should have the option to buy out your leased solar panels from the solar company. The buyout price is sometimes a fixed amount in the lease contract.

Do solar tax credits apply to leased solar panels?

Solar tax credits and other rebates apply only to the owner of the solar panels. This means that if you lease solar panels on your rooftop, you are forgoing these incentives.

Explore your state’s solar incentives and how you can capitalize on incorporating solar energy in your home or business!

Home with black solar panels on the roof

Explore Sun Badger’s Solar Financing Options

Upgrading to solar energy is a smart move financially and environmentally for your home or even your business. While leasing may seem enticing, your savings, in the long run, will be significantly limited compared to purchasing solar panels. With the price of solar panels becoming cheaper over time and the low maintenance required, it does not make financial sense to put your money towards a monthly lease payment when you could be putting that towards owning the panels.

At Sun Badger Solar, our team is passionate about the solar industry and ensuring your home is equipped with the best solar technology. See what our customers say about our services, and check out our blog for more information about commercial and residential solar power.

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