Last Modified on November 8, 2019 by Staff Writer
The increasing focus on climate change and rising energy costs are making many homeowners eager to invest in a home solar system. However, the $25,000 average price tag for a home solar system keeps many families from making the switch. A solar lease with an affordable monthly cost and an attractive down payment offer seems much more attractive, but it’s not right for everyone either. Find out what makes solar leases unique from other ways of getting solar panel systems.
Length of Lease
First, a homeowner must be committed to signing a contract with terms that stretch over 10, 15, or even longer than 20 years at a time. This means you’re expecting to stay in the home for at least most of that time to get any benefit from switching to green energy and enjoying a modest monthly savings on your current electricity bill. Some short-term solar leases exist, but they come with higher fees and more limitations. Obviously, a solar lease is not available for installation at a rental property you don’t own.
Many solar programs advertise a zero down payment offer for qualified homeowners. This makes entry into the world of solar power generation at home a lot less stressful on the family budget. Check out how your monthly fees stack up in comparison to a lease agreement including a down payment. You don’t want to pay more in the long run just because a very small fee has been added to 20 years or more of monthly payments. Paying a few hundred dollars upfront as a down payment often qualifies you for a bigger discount on the monthly fee, which adds up nicely over the years.
Large tax credits from the state and federal government often first attract homeowners to the idea of adding solar panels to their home. Keep in mind that a solar lease does not convey any tax benefits onto you, but rather only onto the owner of the equipment. Since the lease company retains ownership of the panels while you receive the power they generate, you can’t claim these credits on your taxes. This may make you reconsider the idea of taking out a low-interest loan and buying panels outright before a large tax break expires in the next few years.
Solar leases are projected to generate at least a 10% savings on monthly energy costs for most homeowners. Some homeowners in non-prime solar generation areas may break even and pay about the same amount they usually do for electricity. This can change from day to day and month to month as well. Maximum savings reported from solar leased equipment tend to top out around 30%, although there are rare reports of higher savings. Even a 10% reduction in your monthly energy costs adds up steadily as the years go by, and you’re helping the environment at the same time.
Solar leases are only legally recognized and currently sold in 25 U.S. states. Other states either limit the leasing of this kind of equipment or don’t have the solar generation value to make it worth offering the leases to local homeowners. If you can purchase and install solar panels legally in your area, you can still find a financing program or take out your own loan to pay for the panels over a longer period. You just can’t find a solar lease that includes those specific terms, including maintenance visits and a buy out option.
Selling the Home
Some real estate agents report that buyers are wary of choosing a home with a current solar lease. It’s understandable that a new homeowner doesn’t want to inherit a legal agreement. You may want to stipulate that you’re willing to end your lease for the termination fee and return the equipment when the sale closes, or even take the initiative to do so before putting your home on the market. On the other hand, a fully owned set of solar panels can make your home more attractive to buyers. If you expect to be able to afford to buy out the system when deciding to sell the house, a lease may still be your best bet.
PPA vs Lease
In many states you can choose between two different types of solar leases. One is the standard lease, in which your monthly payments go towards the cost of renting equipment and you receive the energy it generates for free. In a solar power purchase agreement (PPA), you pay a fixed cost for every unit of power generated that your home uses. This is closer to the arrangement you make with a standard utility company, but it’s not available in all areas either. There are also separate setup, down payment, and maintenance fees as well with PPAs.
Standard solar leases include contract terms that stipulate the owner of the solar panels is responsible for their maintenance and repair. This means that standard cleaning and testing is done by the lease company without you having to lift a finger or pay a dime. Of course, lease terms can always vary. Look for a solar lease with maintenance and repairs included since that is one of the biggest benefits of leasing the equipment over owning it. One falling tree branch or other accident can leave you paying nearly what you spent originally on a solar system for repairs and replacements. If the leased equipment is damaged due to no cause of your own, you just have to wait for the repairs to be completed without worrying about paying for it yourself.
Making a Buyout
Finally, solar leases almost always include a buyout option so you can take ownership of the existing equipment installed on your roof. If you managed to pay a zero down payment and negotiated good monthly terms, you may also find out there’s a discount for paying off the equipment early. Taking advantage of all three chances to save allows you to lease the equipment and still buy it at fair market price in the end. You’ll likely spend around the same amount or a little more by the end of the lease than you would on an outright purchase, but favorable buyout terms help level those odds in your favor.
Every solar lease is different, and there are dozens of companies offering them in most of the 25 states where they are available. Contact the solar leasing company directly to find out what kind of deals they are offering, and don’t be afraid to negotiate custom terms that fit your family’s needs.