Leasing Solar Panels: Benefits and Drawbacks
Residential solar panel leases are rapidly gaining acceptance across the US, and it’s for a good reason. Most people want to embrace solar energy due to its cost-effectiveness and sustainability. However, the high costs of installing solar energy systems make this a distant reality for most homeowners in the US. Property owners are now preferring leasing solar panels rather than purchasing the systems, as a cost-effective way of obtaining solar energy and going green.
A proactive understanding of leasing vs buying solar panels structure and the best options will help you avoid disappointments especially when you list your home in the property market.
How Does Leasing Solar Panels Work?
Solar lease is becoming a common financing strategy, whereby homeowners receive solar panels and pay a monthly fee to the provider.
The homeowners do not have ownership rights over the solar system. The leasing company or the provider does. Leasing solar panels is an attractive idea to homeowners who want to go green and reduce their energy bills without making the initial huge investment of installing a solar system.
Usually, solar lease duration is approximately 15-25 years. The lease agreements have an escalator clause that increases the monthly payments annually based on the energy landscape, current market rates, and cost of living. At the end of the lease, the lessee is presented with the option of buying the panels at a discounted rate or renewing the lease.
Pros and Cons of Leasing Solar Panels
Upfront buying of solar panels is a large financial investment. It is not financially possible for some homeowners to put down huge investments for a transformative and important investment like solar energy. This is certainly the reason why leasing exists. Are you thinking of leasing solar panels? Here are some of the pros and cons.
Pros of Solar Leasing
- You do not incur the high upfront costs of purchasing and installing solar systems.
- The provider company is responsible for repairs and regular system maintenance during the lease period.
- Leasing solar panels gives you flexibility at the end of the lease term. You can choose to renew the lease, cancel the lease, purchase, and upgrade to newer solar technology.
Cons of Solar Leasing
- Leased solar panels will not improve the value of your property.
- You are likely going to save less with leased solar panels, compared to buying and installing solar panels.
- Lease agreements have contractual limitations and restrictions. Some of the restrictions might limit you from modifying or selling your home.
- The escalator clause in lease agreements allows for rent increments at a rate of 1% to 5% annually.
- If you choose the lease pathway, you will lose out on tax credits, incentives, rebates, and other financial benefits.
- Selling a home with leased solar panels is an uphill task. Most buyers will shy away from such properties.
What Are the Costs of Leasing Solar Panels?
The average amount you are likely to pay the provider ranges from $50 to $250. The duration of the lease period varies from company to company but is usually 15 to 25 years. A homeowner with rented solar panels will likely pay around $12,000 to $75,000 throughout the lease period.
Comparison: Leasing Vs. Buying Solar Panels for Homeowners, which is Better?
Dynamics like personal preferences, financial abilities, and future home ownership plans are key when deciding whether to buy or lease solar panels.
Leasing Solar Panels
- Costs - On average, the monthly costs of leasing solar panels range between $50 to $250. However, the actual costs are influenced by factors such as the length of your lease, the size of the system, credit score, cost of living, and the providing company.
- Effects on Home Value - Leased solar panels do not add value to your home. Installing leased solar panels can make your home unattractive in the property market. Transferring or termination of the lease is a daunting and expensive process.
- Maintenance – Homeowners are not responsible for the maintenance and repairs. The burden of maintenance belongs to the third-party providing company.
- No Incentives and Rebates - Lessees cannot benefit from the financial incentives and rebates.
Buying Solar Panels
Some of the key considerations to evaluate when buying rather than leasing solar panels include:
- Costs - Solar system for homes costs approximately $13,620 to $26,686. If you claim the 30% federal solar tax credit, the costs will come down to around $9,534 to $18,680. This is significantly lower than the costs of leasing solar panels in the long run.
- Increased Home Value - Solar panels automatically increase the value of the property. It makes your home highly attractive in the property market.
- Financing and Payment - The total costs of buying solar panels depend on your payment method or mode of financing. You can either pay the upfront costs in full or loan financing.
Selling a House with Leased Solar Panels: Things You Must Know
Homes with solar panels attract higher value in the property market. On the other hand, leased solar panels do not improve the property value. Here are some of the reasons why selling a house with solar panels is complicated.
- Lease Transfer - The lease transfer to the new owner is a complex process. The new owner must be willing to take up the leasehold. Additionally, they must qualify for the lease based on their financial abilities and credit score.
- Unwilling Buyers - Most potential buyers are not willing to take over a solar panel lease. A limited pool of home buyers may affect the value of your home in the property market.
- Property Lien - Some of the leasing requires homeowners to place their homes on a lien. A lien over a property makes the selling process complicated.
- Long-Term Financial Obligation - New home buyers are not willing to commit to long-term financial commitments.
- Prepayment Drawbacks - If you decide to buy out the lease early, you might be charged a huge sum of money for dishonoring the contract. This aspect makes it impossible for homeowners to sell their homes.
Key Things to Consider Before Leasing Solar Panels
You must read and understand the terms of a lease agreement, to enable you to make a fully informed choice. Solar leasing companies have short and long-term leases. However, a typical lease is 20-25 years. One of the key terms that homeowners should know is the payment escalator at 1% to 5% per year. The escalator is due to the ever-rising energy costs among other factors.
All the terms are explicit in the contract and you must understand the meaning of every clause to avoid disappointments or conflicts in the future. Solar leasing companies provide homeowners with advanced services such as monitoring, system evaluation, and lease payment using mobile applications.
The lease agreement must contain the following clauses:
- Term of the lease specifying the duration of the lease
- Monthly payment indicating the amount you should pay to the company each month.
- An escalator clause specifying the percentage of rental increase
- The maintenance and repair clause indicating who is responsible for system maintenance and repair.
- Termination clause detailing the conditions under which either party can terminate the agreement. It should spell out the penalties and charges for terminating the contract.
Conclusion
As discussed above, a one-size-fits-all answer as to whether to lease or buy solar panels does not exist. Every option has its distinct advantages depending on your financial circumstances. Major benefits of the solar lease include managing the upfront cost barriers, regular maintenance, and repair costs. Although leasing solar panels allows all homeowners to enjoy the benefits of solar energy, it is a long-term financial commitment. It has several limitations as compared to buying and installing your own solar system. Therefore, if you are considering leasing, access your energy needs and financial situation.
FAQ
1. I’m I eligible for tax credits with leased solar panels?
No. You do not own the solar panels. The third-party provider or the leasing company is the legal owner of the solar panels and is eligible to claim the incentives.
2. Is It a good idea to lease solar panels for your home?
Leased solar panels may not be a wise investment idea in the long run. The monthly fee escalator will see the monthly rent increase each passing year. You are likely to pay even a greater amount than it would have cost you to buy and install solar panels.
Also, leased solar panels do not add any value to your home. It makes selling your home complicated and it may attract less pool of buyers. Additionally, you cannot claim rebates and incentives. You can still save on energy bills but not significantly in the long run.
3. What are the consequences of calling off the lease?
Solar leasing companies have strict terms. If you opt to end the lease agreement, the company will require you to pay a huge sum of money.
4. What options do I have after the completion of the leasehold?
At the end of the lease, you can renew, discontinue, or remove the panels. You can purchase new solar panels from your leasing company at discounted rates.