What Is the Difference Between Leased and Owned Solar Panels?

Imagine transforming your home into a solar powerhouse without the hefty upfront cost of purchasing solar panels. With solar leasing, you can tap into the Sun’s energy and start slashing your electricity bills right away—no large investment required. For over 15 years, solar leasing has offered homeowners a budget-friendly path to clean energy, but is it the best option today?

As solar energy becomes more affordable, the question isn’t just about whether to go solar but how to do it most effectively. As of 2023, around 60% of residential solar installations in the U.S. are owned, either through direct purchase or financing, while the remaining 40% are under third-party ownership (leases or power purchase agreements).

The cost of solar panels has dropped by more than 64% over the last decade. This drop has made it more feasible for homeowners to purchase solar systems outright, especially with the help of the federal Investment Tax Credit (ITC) which currently offers a 30% tax credit. 

For example, a typical 6-kilowatt (kW) system might cost between $15,000 and $20,000 after incentives, but it can save homeowners $15,000 to $40,000 over 25 years.

On the other hand, leasing offers an attractive option for those looking to avoid upfront costs, with payments ranging from $50 to $150 per month. However, over the course of 20 years, the total cost of a lease can exceed $30,000. 

What exactly is the difference between leased and owned solar panels then? And what are the perks of each way of financing your solar panels? 

What is the difference between leased and owned solar panels?

Here we are. The decision to switch to solar energy’s been made. Now comes a whole myriad of decisions to get those solar panels up and running. One of them certainly is whether to lease the panels or buy them outright. Both options offer distinct advantages and drawbacks, depending on your financial goals, long-term plans, and personal preferences.

Here’s a closer look at how each option works and what it means for you as a homeowner.

How do leased solar panels work?

Leasing solar panels involves entering into an agreement with a third-party company that installs and maintains the solar system on your property. In this arrangement, you do not own the solar panels; the leasing company retains ownership while you pay a monthly fee to use the energy they produce.

Leasing agreements are structured to require little to no upfront costs. Most leases involve monthly payments, similar to a traditional utility bill, but at rates around 10 to 30% lower than what you would pay for grid electricity. Payments usually range from $50 to $150 per month over a 20-year period. At the end of the lease, your financial obligation ends. 

An alternative to this setup is the Power Purchase Agreement (PPA), where you agree to pay a fixed price per kilowatt-hour for the electricity consumed. Yes, this means your payments fluctuate with your usage. Unlike standard leases with annual rate increases of 2.9% to 3.5%, PPA rates are often flat, providing a stable, predictable cost for the duration of the agreement.

One of the key benefits of leasing is that the leasing company is responsible for all maintenance and repairs, so you won’t have to worry about the upkeep of the system. However, because you do not own the panels, you also do not benefit from federal or state tax incentives. 

Additionally, if you decide to sell your home, the new buyer would have to assume the lease, which could complicate the sale or reduce the appeal of your property.

From where do you get solar leasing? 

You can get solar leasing through various solar financing and installation companies that offer leasing options. One great advantage is that these companies handle the entire process, from system design and installation to maintenance. 

The process usually starts with an assessment of your home’s solar potential, followed by a customized proposal. Once you sign a lease agreement, the company installs the solar panels, and you begin paying for the energy produced, often at a lower rate than traditional utility costs. 

To find solar leasing options in your area, you can contact these providers directly, search online for local solar installers, or use platforms like EnergySage (our partner) to compare options.

How much is a solar lease per month?

Solar lease rates generally range from $50 to $150 per month, depending on several factors (discussed below) and the specifics of the lease agreement. Some leases come with a fixed monthly payment, while others might have an annual escalation clause, increasing payments by two to three percent each year. 

Additionally, Power Purchase Agreements (PPAs) have payments that fluctuate based on the amount of electricity generated, with a fixed price per kilowatt-hour.

The exact monthly cost of a solar lease can vary based on:

1. Solar system size and energy production

Larger solar panel systems generate more electricity, which means they cost more to install and maintain. Homeowners who need larger systems to meet their energy needs will have higher monthly payments – closer to the $150 range.

Smaller homes with lower energy demands require smaller systems, leading to lower monthly lease payments, often closer to $50.

2. Local electricity rates

In areas with higher electricity rates, solar leases are structured to provide competitive savings compared to utility-provided electricity. Since solar systems are designed to offset high electricity costs, the lease rates reflect these savings. Homeowners in regions like California or New York, where electricity prices are high, may pay closer to the upper end of the scale.

Conversely, in regions with lower electricity costs, like the Midwest, solar leases tend to have lower payments because the savings from solar power are less pronounced.

3. State incentives and rebates

States with strong solar incentives, such as tax credits, rebates, or solar renewable energy certificates (SRECs), can reduce the overall cost of installing a system. These savings may be passed on to homeowners in the form of lower monthly lease rates.

In states with fewer incentives or where incentives have expired, the leasing company may need to charge higher monthly fees to cover the full cost of the system.

4. Lease structure and terms

No-Money-Down Leases: Many solar leasing companies offer no-money-down options, which spread the installation cost over the life of the lease. You will have to pay nearly $150 a month.

Prepaid Leases: In contrast, some homeowners opt for a prepaid lease, where they pay a large upfront sum and benefit from lower monthly payments.

5. Maintenance and service costs

Solar leases typically include the cost of maintenance, insurance, and monitoring of the system. The leasing company bears the responsibility for system upkeep, and these costs are factored into the monthly lease rate. Depending on the size of the system and the leasing company’s policies, these costs may cause the monthly lease payment to vary within the $50 to $150 range.

6. Escalation clauses

Some solar leases include annual escalations, which increase the payment by a small percentage (2 to 3%) each year. These leases start closer to $50 per month but gradually increase over time. If a lease includes a fixed payment with no escalations, it usually starts higher but remains stable throughout the years.

States with the best solar lease deals

The states with the best solar lease deals are generally those that offer strong state-level incentives, higher-than-average electricity rates, and ample sunlight. These factors combine to make solar leases more attractive and cost-effective for homeowners. 

Some of the best states for solar leases are:

California: High electricity rates and abundant sunshine make solar leasing a popular option.

New Jersey: Robust state incentives and a solar-friendly policy environment provide great leasing deals.

Massachusetts: Despite less sunshine, high electricity costs and strong state incentives make solar leasing attractive.

Arizona: Lots of sunshine and high electricity rates make Arizona a top state for solar leasing.

New York: High utility costs and state solar incentives help reduce the costs of leasing in this state.

States with less favorable solar lease deals

States with lower electricity rates, less sunlight, or fewer incentives tend to offer less attractive solar leasing deals. Some states where solar leasing might not be as financially advantageous include:

Louisiana: Relatively low electricity rates and fewer state incentives make leasing less attractive.

Kentucky: Lower utility costs and less favorable solar policies limit the financial benefits of leasing.

West Virginia: A lack of solar-friendly policies and incentives make leasing less advantageous.

Indiana: Low utility costs and fewer solar incentives create less favorable leasing deals.

California leads the nation in solar leasing, with a significant percentage of its solar systems installed under lease agreements or Power Purchase Agreements (PPAs). This is due to the state’s high electricity costs, favorable solar policies, and a large number of solar leasing companies operating in the market. 

Other states with high rates of solar leasing include Arizona, Nevada, New Jersey, and Massachusetts, where similar conditions—high energy costs and strong incentives—encourage homeowners to lease rather than buy.

What does it mean to own solar panels?

Owning solar panels, whether through an outright purchase or financing, means you have complete control over the system installed on your property. This ownership comes with some long-term financial benefits. 

For instance, the federal Investment Tax Credit (ITC) currently offers a 30% tax credit on the cost of the system which can substantially reduce your upfront investment. After taking advantage of incentives, a typical 6-kilowatt (kW) system might cost between $15,000 and $20,000, but it could save you $15,000 to $40,000 over 25 years, depending on electricity rates in your area.

Once the solar system is paid off, your electricity becomes essentially free for the life of the solar panels. It can be up to 30 years with no problems. This can lead to significant savings compared to leasing, where payments continue for the duration of the contract. 

If your system produces more electricity than you need, you can send the surplus back to the grid through a process called net metering. Net metering allows you to earn credits that help offset the cost of any electricity you pull from the grid when your panels aren’t producing enough power. This gives you the flexibility to balance energy production and consumption, and in states with favorable net metering policies, it can significantly reduce or even eliminate your electricity bills.

Additionally, owned solar systems can increase your property value; studies show that homes with solar panels sell for about 4.1% more than comparable homes without solar. In contrast, leased systems may complicate a home sale, as the buyer must agree to take over the lease. By owning your solar panels, you not only reap the long-term financial rewards but also add value to your home in a way that leasing doesn’t.

However, owning the system also means you are responsible for its maintenance, although solar panels generally require minimal upkeep. 

Why solar leases are bad? 

Solar leases are often criticized for several reasons. One of the primary issues is that while leases offer low upfront costs, they usually end up being more expensive over time. 

For example, solar leases often include an annual escalation clause that increases payments by around 3% per year, making the cost rise significantly over a 20-year period. This escalation can erode any initial savings from switching to solar, especially if utility rates don’t increase as quickly as predicted​.

Another drawback is the lack of ownership. You do not benefit from federal or state tax incentives if you lease. Additionally, because you don’t own the panels, you may not see the same increase in property value that comes with owning a system. 

In fact, leased solar panels can make selling a home more complicated, as buyers must agree to take over the lease. This has been a deal-breaker for some buyers, as it adds an extra financial commitment that they may not want​.

Finally, while solar leases provide immediate savings, the long-term financial benefits are lower than owning a system outright. Over the 20-25 year lifespan of a solar system, the potential for savings is much greater if you own the system. 

Leasing companies, on the other hand, benefit from maintenance fees, escalated payments, and control over the system, limiting how much you save in the long run.

In terms of control and customization, leasing offers limited flexibility. The leasing company usually dictates the system size and setup, often providing standard packages that may not fully align with your specific energy needs. Additionally, if the system underperforms, your expected savings could diminish, but you would still be obligated to continue making lease payments.

Should I lease or buy solar panels?

Deciding whether to lease or buy solar panels has its own set of advantages and drawbacks, and understanding these in detail can help you make an informed decision that aligns with your goals. Here is a set of the most important considerations. 

Factors to consider when deciding between leasing and owning

Your financial situation is the first factor to consider (it is probably no surprise). 

Leasing requires little to no upfront investment. If you are not prepared to spend a large sum immediately, this option may be appealing to you. In contrast, purchasing solar panels, whether outright or through a loan, involves a higher initial cost but can lead to greater savings over time.

Your long-term plans for your home also matter. If you plan to stay in your home for many years, owning your solar system allows you to fully realize the long-term savings from reduced energy bills. In contrast, if you might move within a few years, a lease might be less complicated in the short term, but could pose challenges when selling your home, as the new owner would need to take over the lease.

Another consideration is your comfort level with responsibility and maintenance. With a lease, the leasing company typically handles all maintenance. This can be appealing if you prefer not to worry about the upkeep of the system. However, this comes at the cost of control and customization; you might not be able to optimize the system to your specific energy needs as you would if you owned it.

Pros and cons of leasing solar panels

Further reading: Leasing Solar Panels: Pros and Cons

Pros and cons of owning solar panels

Buying a house with leased solar panels

Buying a house with leased solar panels can be both a financial and practical challenge. One of the main concerns is transferring the lease to the new homeowner, which requires approval from the solar company and a credit check. If the buyer doesn’t qualify or isn’t interested in taking over the lease, you might have to buy out the remainder of the lease, which could cost thousands of dollars depending on how much time is left in the contract.

Many report that selling a home with leased panels can complicate the sale process. Buyers often hesitate because of the ongoing monthly payments and the possibility of annual escalation clauses that increase the lease payment by up to 3% each year. Even though solar leases reduce energy costs, the long-term savings may not be as substantial as owning the system outright.

Another potential downside is related to home maintenance, particularly with roofing. If the roof needs repairs or replacement, the panels must be removed and reinstalled, adding $1,500 to $6,000 to the total cost. Additionally, the panels themselves might be older, leading to reduced efficiency, which affects the savings on utility bills.

However, there are some positives. The maintenance and repairs for leased solar panels are generally covered by the leasing company, which can be a relief for homeowners who don’t want to deal with the technical side of solar systems. For those focused on reducing utility bills and contributing to a lower carbon footprint, leased solar panels still offer a way to do that without the upfront investment required for ownership.

What to know before buying a home with leased solar panels

Before buying a home with leased solar panels, you need to thoroughly understand the terms and conditions of the existing solar lease. The first step is to request and review a copy of the lease agreement. Pay close attention to the remaining duration of the lease, the monthly payment amounts, and any escalation clauses that might increase the payments over time. 

It’s also important to consider the impact on your mortgage approval process. Some lenders may factor the lease payments into your debt-to-income ratio, potentially affecting your loan eligibility or terms. Additionally, the lease may require you to meet certain credit criteria to assume the lease.

Another consideration is the potential impact on your homeowner’s insurance. Since the solar panels are owned by a third party, you may need to verify that your insurance policy covers any liability related to the panels, or you may need to amend your policy to include this coverage.

Understanding the potential impact on property value is also key. While leased solar panels can reduce energy costs, they might not add as much value to the home as owned panels. Some buyers may see the lease as a liability rather than an asset, potentially complicating future resale. It is worth discussing with a real estate agent who understands the local market dynamics and how solar leases are perceived by buyers in your area.

Lastly, you should investigate the solar company’s reputation and service record. Since the company is responsible for maintaining the system, you want to ensure they have a strong track record of customer service and system performance. Poor maintenance could affect the efficiency of the solar panels and, consequently, your energy savings.

How to transfer a solar lease to new homeowners?

The first step you need to do when selling your house with a solar lease is to notify the solar leasing company of the impending sale. They will typically require the new homeowner to undergo a credit check to make sure they meet the company’s criteria for taking over the lease. This credit approval is usually necessary to ensure that the new homeowner is financially capable of maintaining the lease payments.

Once the new homeowner is approved, the next step is to formally transfer the lease. This process involves signing a transfer agreement that legally shifts the responsibility for the lease payments and the associated benefits (like reduced energy costs) to the new homeowner. Both the seller and buyer will need to sign this agreement, and it must be approved by the leasing company. 

During this process, you may also need to negotiate who is responsible for any outstanding payments or potential fees associated with the transfer. Some leases include early termination fees or transfer fees, which could become a point of negotiation between the buyer and seller. Clarifying these details in advance can prevent last-minute surprises.

Additionally, do not forget to make sure that the lease transfer is properly documented in the home sale paperwork. Your real estate agent and closing attorney should work together on the paperwork and make sure that the lease transfer is recorded as part of the sale.

Your decision on financing your solar panels should in the end balance financial pragmatism with your long-term goals and values.