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What You Need To Know About The Solar Lease

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What You Need To Know About The Solar Lease
What You Need To Know About The Solar Lease

Solar Power is a great way to “go green” by reducing your carbon footprint and your dependence on oil, gas and coal.  That’s enough of a motivation to switch for some people, but what really gets most Americans interested in Solar Power is the potential to save money and avoid constantly rising energy costs. Purchasing a solar power system can be costly, but leasing is a great alternative for many homeowners. 

When most people think about leasing, they may be more inclined to think of a vehicle than solar panels. But leasing of solar panels is exactly what many homeowners are doing today, and it is more popular than ever. This is because it is making the installation of solar panels, which was previously out of the reach of homeowners much more affordable.

Solar leases have actually been around since the early 2000s. The number of solar power systems in California were able to be dramatically increased from just 50 in 1999 to a whopping 50,000 just twelve years later. In the last two years, rooftop solar installations have more than doubled thanks to the increased availability of solar leases, declining solar panel prices and incentive programs offered by the government.

How Solar Leases Work

Simply put, a solar lease is something offered by a company that sells solar panels. But before a solar lease can be granted, the company has to ensure that a homeowner’s roof is capable of handling a series of panels, or an array. If a roof is deemed suitable, then there may be more than one option available for leasing.

The homeowner many be able to get a solar array installed on their roof with no money down and a monthly fee, or by paying a certain amount at the outset with the goal of reducing or eliminating monthly fees. The solar company which installed the array will also maintain the system to ensure it is operating at maximum efficiency.  Just as the car dealership would own a leased vehicle, so does the solar company own the arrays they lease to homeowners.

Once the end of a leasing period is reached – which is usually 15 years – the homeowner has the option to extend it, buy the array from the company outright or have the array removed.

You enter into a contract with a solar leasing company, which guarantees you the benefits of the system and the energy generated by the solar panels for up to 20 years under the contract. The monthly electricity price you pay to the leasing company is used for the electricity produced on your property by the solar system. The leasing company will have the panels removed from your property at the end of the lease. Sources: 4, 6

A solar leasing company sells you electricity at a reduced price, generated by the installed solar panels. You can also swap electricity bills with your utility company to get a cheaper bill from the leasing company. Some solar installers work with separate leasing companies to offer solar leasing. Sources: 0, 7

Solar leasing is an arrangement in which a solar finance and installation company agrees to install solar panels on the roof of a home, but does not provide money for the connections needed to power the homeowner. The current homeowner pays monthly payments with car leasing to the owner of the system (in this case the company that installed the system) and pays for installation. You can also lease a solar system for your house if you want to try to sell and pay the rent before listing the house for sale. Sources: 8, 12, 13

Homeowners who want to reduce their electricity bills but can’t afford the upfront cost of buying solar panels will be able to lease them. Solar companies focused on lease options such as Solar City and Sunrun claim that they make it easy to transfer rent payments from selling the house to leasing the modules. If you are thinking about leasing solar panels in San Diego, this is your best option, but it requires some money. Sources: 5, 13

In fact, selling a house with rented solar panels can drive up the sale price. When homeowners who lease solar panels try to sell, there are two options. One option is solar leasing, which allows the homeowner to lease the solar panels to a company for money, and in theory the monthly payment is between the homeowner and the company. Sources: 9, 13

You pay a fixed monthly installment to rent your solar system to a solar company that installs and maintains your system much like you would finance a car. By leasing solar panels, you replace your monthly electricity bill with monthly lease payments paid in advance in cash. Power Purchase Agreements (PPAs) are similar to solar leases because the current home owner pays monthly payments to the company which owns the solar system. Sources: 3, 8

When you hear that you get free solar panels, you often talk about solar leasing. As you can lease a car and drive a used car without paying the price of the car, solar cell leasing allows you to lease solar panels to generate electricity. When we hear about “solar panel leasing,” it is usually referred to as solar finance, solar power purchase contracts, or solar rental programs. Sources: 7, 11

They lease solar panels and get the energy they produce, but they don’t own it. Rented solar panels are connected to the grid, i.e. You get electricity from your utility company if you need it (6). Once the system is installed, you and the solar leasing company enter into a lease agreement. Sources: 2, 4, 12

You also have the possibility to purchase your solar system at a predetermined time during the term of the lease. Similar to a conventional lease for solar modules, the advantage of a PPA is that the solar company installs and maintains the plant and covers most of the upfront costs and logistics. Solar leasing companies also receive discounts, incentives and federal tax credits for purchase of solar panels. Sources: 3, 10

If you decide to move, you can transfer the rent to the buyer of your home, move the solar system to your new house or pay someone else to remove the panels from your roof. A typical lease for solar modules does not include a purchase option at the end of the contract term. If you lease instead of buy, you add another level of spending, but given the federal tax credits, government incentives, and rebates for utilities, you will benefit. Sources: 3, 10

A solar lease is a solar power purchase agreement, also known as the Solar PPAS, in which a solar developer installs a solar system on your roof that you do not own. With solar leasing, you cannot claim any kind of tax credit because you do not own the solar panels. To learn more about solar leasing, read our How to Pay for Solar Panels article. Sources: 0, 11

One of the advantages of leasing a solar plant is that the solar leasing company is responsible for the maintenance of the plant. With solar leasing, there is no tax savings for solar property (SRECs), but the leasing company receives tax savings from SRECs if the income is available. Sources: 4

Be aware that the homeowner does not receive the 30% ITC tax credit from solar leasing, but under the PPA agreement, the solar company retains the tax credit for the homeowner. The house seller can get a solar rent even if he or she is not the owner of the solar system installed in the house. Sources: 1, 8

Banks, Credit Unions, Independent Financing and Solar Installation Companies now offer solar loans to qualified homeowners. If you have the financial means to make monthly payments and buy solar panels, your interest will only be 16%. Sources: 12

Solar leasing makes solar energy more accessible to homeowners who do not have the means to install solar panels on their roofs. Solar leasing is faster and more convenient than buying solar panels, and there are many reasons why buying a solar system is a sensible choice. From a financial point of view, leasing solar panels for your own home is not always the best idea. 

The Advantages Of Choosing A Solar Lease

One important advantage to choosing a solar lease is that it doesn’t carry the same costs that buying does. A homeowner can pay monthly, which is much easier on the pocketbook than purchasing a system outright.

Another advantage is leasing doesn’t require the homeowner to pay the cost for maintenance. Instead, the solar company who offered the lease is responsible for this.

Lastly, the energy cost reduction for a homeowner with a solar lease may allow for a much longer lock-in rate than a utility company might offer. A homeowner may be able to lock in their rates for a decade or more with a solar lease.

The Disadvantages Associated With Solar Leasing

Homeowners who lease their solar power systems may have less flexibility due to the specifications within their contract. These specifications dictate how big an array for a particular home can be, where purchasing an array outright will not.

Having a solar lease may make it more difficult for those homeowners looking to sell their properties. This is because some may not be interested in taking on a lease in addition to the other costs associated with home ownership.

Finally, a homeowner may not be able to pay off their system early, meaning monthly payments for many months or years before the lease contract can be considered fulfilled.

Getting a solar lease also involves passing a credit check, which is something that not all homeowners may be able to do. However, recent news has revealed that solar leasing is gaining momentum, which can mean falling costs to homeowners.

Here’s a look at the top 5 reasons why leasing solar may be right for you:

Cold, Hard Cash

The simple facts of solar power are that the equipment is expensive, but pays for itself over the lifetime of the product.  Unlike purchasing costly equipment, with leasing, you’ll see the financial benefits from day one.  Most solar lessors will look at your electricity bill and design your system to save you 10-20% each month, that’s it.  The rate never goes up and you never have to pay for the equipment.

Equity Boost

As solar power becomes more and more popular each year, having solar equipment installed can be a very attractive box to check when it comes time to sell your home.  In many metropolitan areas, green construction and alternative energy are some of the highest priority features home buyers look for.  Leasing solar lets you get your home in front of more buyers without having to front-load the cost of equipment and installation.

Stabilize Energy Costs

If you’re near retirement or live on a fixed income, switching to a solar lease will let you lock in a fixed electricity rate that will never go up for the duration of the lease.  This is because the lease payment is based on the amortized cost of the equipment and not on comparable electricity rates.

Go Green on a Budget

Going green may be trendy, but in many cases, it’s a luxury for most Americans.  Leasing solar, among its many other benefits, allows you to join the green movement without having to jump into a huge financial commitment.  If tomorrow someone offered you equipment that could run your car on the water for $3/gal, would any of us hesitate?  This is essentially the deal when you sign up for a solar lease.

Option to Buy

While the savings are somewhat small month to month for a solar lease (usually $20-$50/month), owning solar equipment outright can yield savings of $1200-$2000/year for the typical household.  Many solar leasing companies will allow the option to purchase the equipment while in the middle or at the end of a solar power lease.  This allows you to convert your meager savings to big savings without having to turn in your equipment and reinstall newly purchased panels.

The decision to install a solar array, whether the array is leased or not should not be one that is made lightly. Installing a solar power system means being committed over the long term to not only the generation of cleaner energy but the learning curve that having a solar array installed at home involves.

As you can see, a solar lease is a great choice for most homeowners, but admittedly, it’s not for everyone.  Consider your options.  Calculate the cost to own vs. lease over the amount of time you intend to stay in your home.  Most importantly, do your research, because the longer you put it off, the longer you pay more than you need to for energy. 

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