What Is a Solar Panel Lease and Is it Worth It?

Key Takeaways:

• A solar panel lease is a great way to enjoy the electric bill savings of a solar panel system without the upfront cost.

• Solar panel leases aren’t for everyone, so review your situation to determine if it’s the right decision.

• Solar panel leases have many benefits, but you must also consider their drawbacks, such as missing out on the federal tax credit.

Solar panels continue to rise in popularity, as people and businesses realize their dual benefits: reducing carbon footprints and energy independence. But not everyone is a good candidate for purchasing solar panels for various reasons. This is where a solar panel lease can help.

Solar panel leases allow homeowners to rent solar panels from a solar provider, eliminating many of the upfront costs that stand in the way of getting solar.

While this seems like a straightforward agreement, there’s more to a solar panel lease contract than that. Below, we’ll dive deep into these lease agreements, how they work, and if they are right for you.

What Is a Solar Panel Lease? 

A solar panel lease is an agreement between a homeowner and a solar leasing company. This agreement allows the homeowner to use the solar energy system for a fixed period — typically 20 years.

During the lease period, the solar provider handles the solar panel installation and maintenance, and the homeowner enjoys benefits, such as clean energy generated, reduced utility bills, and energy independence. In return, the homeowner pays a monthly lease fee. This fee is generally lower than their current electricity bill, so it’s a financial net positive for the homeowner.

Unlike a cash purchase, the homeowner does not pay upfront for the solar panel system. Nor is the homeowner responsible for maintenance and repairs. The solar lease company handles everything: installation, monitoring, maintenance, and solar panel efficiency. This ensures maximum energy savings with minimal work or cost for the homeowner.

Some solar panel lease agreements offer the option to purchase the solar panels when the lease term ends. This gives homeowners the option to eventually own the system and reap the clean, renewable energy benefits for years.

If you choose not to buy out the home solar system at the end of the lease agreement, the lease contract simply expires. At that point, the leasing company or a third party will schedule a decommissioning, which includes removing the solar panels and restoring your roof. This will likely not happen the day your lease expires, so there will be a delay between contract expiration and removal.

What Are the Benefits of a Solar Lease? 

We all know solar panels have numerous benefits. But what are the benefits of leasing them?

Lower Upfront Costs 

Solar panels generally require a large upfront cost that often involves the homeowner dealing with solar loan payments, interest rates, down payments, and more. Solar leasing bypasses all this, as the solar leasing company takes on the expense of purchasing and installing the solar panels, minimizing upfront solar panel costs. Some solar leases even require zero down payment, further reducing upfront expenses.

Immediate Savings 

Solar leases also allow homeowners to immediately reduce their electricity costs. The electricity the system produces power for the home, reducing or eliminating the demand on the electricity from the grid. This often results in huge energy bill savings over the lease term.

Find out why over half a million Texans trust Just Energy!

Zero Maintenance Responsibilities 

When you enter a solar panel lease, maintenance and repairs fall to the solar provider. If the solar power system encounters any issues, the homeowner can sit back while the solar provider handles everything.

Transferability 

In most cases, you can transfer a solar panel to a new homeowner if the original homeowner decides to sell their property. This not only eases the process but can also be a great selling point.

Long-Term Savings 

Another benefit of opting for a solar lease is the potential for long-term savings. Because the solar panel lease payment is generally lower than your electricity bill, you can stack up savings. For example, if your typical electricity bill is $250 and a solar system that fully offsets that cost has a $150 monthly lease payment, you save $100 per month. That’s $1,200 annually and $24,000 over a 20-year lease.

What Are the Drawbacks of a Solar Lease? 

The benefits of a solar panel lease may make this a great option. However, you should also consider a few of the drawbacks associated with these lease contracts.

Long-Term Commitment 

A solar panel lease generally requires the homeowners to commit to a long-term contract, often 20 years. This ensures energy costs and savings remain consistent, but it also means the homeowner often remains locked into the agreement—even if their circumstances change.

Monthly Payments 

A solar lease requires the homeowner to make monthly payments to the solar provider throughout the lease term. These payments are generally lower than the homeowner‘s previous electricity bills, but they can still be a burden — especially if their financial situation changes.

Yes, solar financing requires monthly payments too, but these payments go toward ownership. A solar lease does not — unless you opt to buy out the panels at the end of the lease term.

Limited Control 

When you enter a solar panel lease, you have limited control over the system. The solar provider has the right to determine the solar panel type and placement. They also determine what upgrades or modifications you’re eligible for throughout the lease term. This is especially important because solar panel systems are constantly evolving and improving.

Home Resale 

One additional drawback of a solar lease is the potential impact on selling the property. Yes, solar panels can attract more potential buyers, but the lease terms can complicate the sale process.

Certain buyers may balk at the thought of taking on a lease agreement, which can rule out some potential buyers.

No Tax Credit 

One of the huge selling points for solar panels is the federal solar tax credit. This is worth up to 30% of the cost to install solar panels, so it could potentially be thousands of dollars. Unfortunately, solar panel leases don’t qualify for the federal solar incentive.

How Do I Know if a Solar Lease Is Right for Me? 

Is a solar lease right for you? It depends on various factors. Let’s run down how you can determine if a lease is right for you.

Financial Situation 

If the solar’s upfront costs are out of your budget or you’d rather not make a significant upfront financial investment, a solar panel lease may be the best option. You can enjoy solar energy’s benefits without laying out a bunch of cash upfront.

Long-Term Plans 

Review your long-term home plans. If you plan to remain in your current home for many years, a solar panel lease can provide energy savings during this period.

If you’re unsure of your plans or plan to move within a few years, other options, such as a solar loan or power purchase agreement (PPA), may be better for you.

Current and Future Income 

Owning solar panels comes with long-term maintenance and repair costs. If you’re on a fixed income or will be on one soon, that added cost could strain your budget. With a solar panel lease, your monthly costs are fixed, and the solar panel lease company handles the added cost of maintenance and repair. This makes a lease a good option for you.

Live in Texas?
Learn more about Just Energy’s Texas Buyback program

How Do I Choose the Right Solar Lease? 

So, you’re ready to dive into a solar panel lease. Great, but you first need to find the right solar lease company. Consider these factors when choosing a company.

Solar Provider Reputation 

When you buy anything, your first step is likely to read reviews online. You should do the same for your potential solar panel lease company.

Check out a company’s online reputation and track record. Dig into online reviews, customer testimonials, and industry certifications to ensure you choose a reliable and trustworthy provider.

Look especially hard at negative reviews or feedback. Every company suffers from bad reviews at times, but how it responds is critical. 

Did the company simply ignore the review or try to argue with the customer, or did they apologize and strive to fix the situation? In the latter case, you’re likely safe even if you have a bad initial experience.

Lease Terms and Conditions 

Ask all potential lease companies for copies of their lease terms and conditions and review them thoroughly. Focus on lease duration, monthly payments, and any escalator clauses that can increase lease payments. Also, check for any early-termination terms in case your situation changes in the future.

System Performance and Warranty 

Check with each potential solar lease company about the solar system’s expected performance and the warranty. Reputable providers will guarantee the system’s energy production and provide coverage for any potential issues or malfunctions.

What Are Some Common Misconceptions About Solar Leasing? 

If you’re considering a solar panel lease, you’ve likely heard your fair share of bad things about this option. Fortunately, many of these are simply misconceptions we can clear up for you. 

Let’s review some of these myths about solar leasing:

• Leasing solar panels is too expensive: Purchasing a solar system outright is often a rather pricey undertaking, and leasing offers a different route. Leasing solar panels allows you to bypass all that initial high upfront cost and focus only on the monthly payment. The best part is that the monthly payment is often cheaper than the bill from your utility company.

• Leased panels are less efficient: While you generally don’t have the chance to customize a leased solar panel system to ensure top efficiency, they are still the same panels you can purchase. So it’s not the fact that it’s a leased panel that impacts the efficiency, it’s the panels the lease company uses for your home. You can ensure optimal efficiency by asking the leasing company which panels they plan to install and their efficiency rate. Then you can compare this to the average solar panel efficiency rate of 15-20%.

• Home value will decrease: On the contrary, solar panels often increase a home’s desirability. While leased panels may not positively impact the value because they are not owned, they can be a selling point to attract more buyers.

What Happens if I Sell My Home With Leased Solar Panels? 

A big deterrent to leasing solar panels is what to do when you sell the house. If you decide to sell your home with leased solar panels, you have a few options:

• Transfer the lease: Many solar leasing companies allow you to transfer the solar panel lease to the new homeowner. The new owner can now benefit from the clean energy and potential savings associated with the leased solar panels, all with one monthly cost. You need to chat with your solar provider to understand the transfer procedures and requirements.

• Buy out the lease: If you’re concerned about buyers who have no interest in a solar lease, you may be able to buy out the lease and include the buyout cost in the home’s sale price.

• Lease termination: As a last resort, you may need to terminate the lease before you sell your home. Speak with your solar provider and carefully review the terms of your lease agreement for early termination fees and terms.

A Solar Panel Lease Could Be the Right Option 

No matter how you handle them financially, a solar panel system is a win for you and the environment. But they come at a cost that some cannot afford upfront.

In some cases, a solar panel lease can be a beneficial option for homeowners who want solar panel benefits without the upfront costs. You can decide if a solar panel lease is right for you by weighing the benefits and drawbacks and considering your own circumstances. Before jumping into a lease, always research and choose a reputable solar provider, so you can be confident the process is smooth and the ongoing service is reliable.