Solar Leasing: Is It Worth It in 2023?
You can make your home a solar home without actually buying solar panels. You can lease them instead, which will allow you to begin harvesting the Sun’s energy and cutting your electricity costs right away, even before you’ve invested any money in your solar equipment.
Solar leasing has been the leading alternative to buying solar panels for the last 15 years. But is the concept still worthwhile, or has it outlived its usefulness? This is a question that many in the solar industry are asking this year.
How does a solar lease work?
The upfront costs of installing solar panels are significant. Currently the average purchase and installment cost for a 6kW solar panel array for a 1,500 square foot home is approximately $16,000, after factoring in the expected tax credits and rebates .
Solar leasing allows you to escape from these costs completely. Instead of purchasing your solar panels, you sign a contract with a solar leasing company to have them installed on your rooftop or ground space for no money down.
That´s right! With solar leasing you´ll get all the panels you need for no upfront costs whatsoever.
The solar leasing company will contract a solar installer to visit your home, assess your total energy needs, and then install your solar panels and associated infrastructure at absolutely no cost to you. Once the project is finished and your panels have gone online, you will become a full-fledged member of the solar energy club, without paying a dime for the privilege.
Solar lease terms
Your leasing company will charge you a set monthly fee for the right to use all of the solar energy your panel array produces. This fee will remain the same for an entire calendar year, although you can expect it to rise by three or four percent annually .
These increases result from escalator clauses in your leasing contract that allows the leasing company to adjust their rates based on expected increases in energy costs for grid-produced electricity.
Most solar leasing arrangements last for 20 to 25 years, a length that is based on the expected lifespan of a properly maintained solar panel. Your leasing company will be fully responsible for all repairs and maintenance costs for as long as you have their panels installed on your roof, and if any part of your of your solar system breaks down or wears out they will be required to replace it at no cost.
If you are typical homeowner without any unusual energy-use requirements, you can expect to pay a monthly leasing fee of between $50 and $250 per month . Where you fall on this scale will be affected by a number of factors, including your estimated energy use, your geographical location, your credit score and the business practices of your leasing company.
Once your solar lease term is up, you’ll have the option of renewing the lease, removing the solar panels at the leasing company’s expense, or purchasing the panels at a fair market price .
Regardless of what your leasing fee is, you can rest assured that it will be lower than your current monthly utility bills. After all, that is the whole point of solar leasing.
Realistically, you should be able to reduce your monthly energy cost by at least a third under the terms of your solar lease, based on the difference between your old bills and your new monthly energy-related costs.
Solar leasing and net metering
You can use the solar energy your system produces to meet your daily energy needs. If your panels are producing more than what you need on a particular day, you can divert the excess back into the power grid, in return for credits from your utility company. This practice is called net metering, and it is a nice perk of solar panel ownership that is available in some form to solar homeowners in every state except for Alabama, South Dakota, and Tennessee . When your panels aren’t producing enough electricity to satisfy your needs, you´ll be able to make up the deficit by purchasing electricity from the grid. This is naturally an added energy cost that you´ll have to pay on top of your solar leasing fee.
However, if you have enough solar panels on your roof to meet most of your energy needs most of the time, your net metering benefits should be enough to offset most or possibly even all of your costs for grid-produced energy.
The benefits of solar leasing
Solar leasing has been popular for many years. The concept seems to have gained a permanent foothold in the solar panel marketplace, and there are good reasons why this is so. Solar leasing arrangements do offer certain advantages, which is why so many homeowners have chosen to sign solar leasing contracts.
The primary benefits of solar leasing include:
#1 Elimination of upfront costs
As long as you can prove you’re capable of paying your monthly installments for the lease, which you should be able to do since these payments will be less than your regular utility bills, you can have solar panels installed on your rooftop or property for zero money down.
#2 No maintenance or repair costs
It’s true, solar panels don’t normally wear out or malfunction. Nevertheless, regular maintenance visits from solar professionals are recommended by most solar panel manufacturers, as a precaution to make sure your solar panels remain in top working order. If you were paying for this yourself, an annual inspection could cost you $150 or more .
Solar inverters are not nearly as durable as solar panels, lasting on average between 10 and 15 years before they fail . A new inverter will cost you from $1,000 to $1,500 if you own your solar energy system, assuming your warranty ran out before the old inverter stopped working (a not uncommon occurrence) .
But if you’re leasing and your old inverter goes kaput, your leasing company will handle all the costs associated with replacing that indispensable equipment.
#3 Electricity costs are reduced for the lifespan of the solar lease
When you purchase and install solar panels on your rooftop, it will generally take from eight to 12 years before your savings on electricity costs surpass the total cost of your solar photovoltaic system .
With a solar lease, however, you don’t have to worry about a payback period. Your energy costs are reduced from the first day, and you will continue to enjoy those reductions for as long as your leased panels are on your home’s roof.
Disadvantages of leasing solar panels
Virtually all solar industry analysts agree that at this point in time, solar leasing has more disadvantages than advantages. Here are a few of the flies in the ointment that make solar leasing a questionable arrangement in 2023:
#1 Leasing complicates a home sale
The duration of the lease might make you reluctant to lease solar panels. Should you decide to sell your house and move before your 20- or 25- year lease expires, you would have to either convince the home’s new owner to transfer the lease to their name (the best-case scenario), or you’d have to buy out the rest of the lease in order to have the solar panels removed (the worst-case scenario).
Buying out a solar leasing contract could be a minor consideration if you only have a year or two left on your lease. But buying out a lease that won’t expire for 10 or more years could take a notable chunk out of your home sale profits.
This situation presents quite a contrast to what you could expect if you owned your solar panels outright and decided to put your home up for sale.. A study by Zillow found that houses with solar panels will sell for about 4.1 percent more than homes without solar energy on average, which amounts to a premium of about $6,000 for each kilowatt of solar panel capacity installed .
#2 Solar leases offer declining savings over time
With a solar lease, what you save in your first year could very well be the best you’ll ever do. Escalator clauses guarantee annual increases in leasing charges of between one and five percent, and there is no guarantee that grid-energy prices will actually rise that much (thereby reducing your savings).
Furthermore, solar energy systems won’t supply you with any electricity overnight, and their production will decline seasonally as daily sun hours decrease in wintertime. You’ll have to rely on the grid to fill in these gaps, and that means a monthly utility bill to pay in addition to your regular solar lease payments.
If you have net metering benefits you may be able to offset what you take from the grid. But net metering has grown increasingly controversial and it may be phased out or restricted in many states in the not-too-distant future.
Another factor working against you is what is known as solar panel degradation. What this means is that as a solar panel ages it gradually loses production capacity, with the average decline calculated at 0.5 percent per year by the National Renewable Energy Laboratory (NREL) .
This may not sound like much, but the decline is continuous and will accumulate. After 20 years a solar panel will only be producing about 90 percent of the energy as it did when it was new, although you’ll be paying much more for its output than you did before, thanks to 20 years of escalator clauses and lease payment increases. By the time you reach the end of your solar lease you may not be saving much of anything anymore, and you may come to see the arrangement as a burden you can hardly wait to have lifted from your shoulders.
#3 Solar leasing offers much lower savings that solar financing
While paying for a solar energy system out of your own pocket represents a huge investment, most prospective homeowners will be able to qualify for a solar loan that will eliminate most of the upfront costs.
If you have a good credit score you may be able to qualify for a solar loan that will cover 100 percent of your solar energy installation costs, and let you repay the entire amount of the loan in monthly installments. This is the equivalent of a solar lease’s no-money-down option, but it’s a better deal than the latter because a solar loan will offer you more savings over a 25-year-period than a solar lease.
So how much can you boost your total savings if you choose financing over leasing?
According to a study published by Ecowatch, a solar power system financed through a solar loan will save the typical homeowner $35,000 on electricity over 25 years, while a solar lease will only save them $10,000 over the same period of time .
This is because the cost of installing a solar energy system has declined by over 70 percent over the last decade, which means solar loans can now be taken for lesser amounts and paid off more quickly than before . And once that loan is paid off, it’s free solar energy from that point on.
Solar leasing was never the most economical option over the long term. But it’s terms are even less favorable in comparison to solar financing than was previously the case.
Should you get a solar lease? The final verdict
As revealed by a study from the Solar Energy Industries Association, the percentage of solar homes in the United States with leased panels has dropped from 62 percent in 2014 to 28 percent in 2022 . The pendulum has swung heavily in favor of solar loans and cash purchases, as the economics of the industry have shifted toward unconditional ownership.
At this point, the only real advantage solar leasing has over purchasing is its simplicity. When you lease solar panels you can hit the ground running, and with no fuss or muss you’ll have a solar home in no time at all. You won’t have to search for the right equipment, contract an installer, or go through the process of trying to secure financing through a bank or credit union. You also won’t have to worry about maintaining your system, since your solar leasing agreement will take care of that responsibility for you.
But if your main concern is to maximize the return on your investment—and in most instances that probably should be your main concern—you’ll be better off purchasing your solar panels rather than leasing them. You’ll certainly come out ahead buying your solar energy system if you have the funds to pay for it upfront, and if you need financing the terms of your solar loan should be more generous than the terms of a solar lease.
If for some reason you’re unable to qualify for a solar loan, perhaps because your credit rating is a bit challenged or because your current employment offers minimal compensation, a solar lease might still make sense. With leased solar panels you absolutely will be able to save money on electricity, that is guaranteed. That is why solar leasing took off in the early 2000s, and it is why solar leasing remains a viable option for at least some homeowners yet today.