Pros and Cons of Solar Leasing

A solar lease is an beneficial solar financial option that allows you to benefit from solar-generated electricity without the upfront costs of purchasing a solar system. Instead of paying for the system, you agree to a fixed monthly fee to the leasing company.

Solar leasing offers several advantages, such as no upfront costs, maintenance included, predictable expenses, and immediate energy savings. However, it also comes with drawbacks, including lack of ownership, ineligibility for tax benefits, lower long-term savings, potential complications when selling your property, and possible price escalations over time.

Here, We will explore the pros and cons of solar leasing, helping you make an informed decision on whether this option is right for your energy needs.

Pros of Solar Leasing

No Upfront Cost

One of the most valuable advantages of solar lease is no upfront costs, which makes solar energy accessible to a wide range of homeowners. It helps those who might not be financially strong invest in a solar panel system.

There are a few benefits of not paying upfront as with the solar lease, panels are installed on your property, and you don’t have to worry about the investment burden. And, this is especially beneficial if you do not have enough savings or prefer to invest the funds elsewhere. So, you don’t have to pay thousands of dollars upfront, instead, you can opt for leasing where you pay a fixed monthly fee for using the solar panels. However, this monthly payment will cover installation, maintenance, and system operation.

The most important benefit is that the monthly lease payments are structured to be less than solar panel-generated savings on electricity bills. It simply means that you can simultaneously start saving money on energy costs, enjoying the positive benefits of renewable energy.

Generally ranging from 15 to 25 years, the solar lease agreement provides you with long-term access to solar energy, and you don’t have to worry about the initial financial commitment.

Yet another benefit is the net metering, by which you receive credits for excess energy produced from your solar panels and sent back to the grid. Also, it further improves the financial feasibility of leasing and leads to reduced electricity bills or increased credits that compensate for future energy costs.

Maintenance Included

When you are opting for a solar lease, one of the major advantages of a solar lease, is having the maintenance of solar panels included in the lease agreement. This eliminates the burden for you to regularly maintain and ensures the efficient operation of the solar system throughout its lifespan.

Usually, the leasing company or the solar installer manages the solar panels in a lease agreement. These companies have enough resources to handle the maintenance tasks including panel cleaning, damage inspection, and system functionality.

Maintenance for leased solar panels involves the following activities:

• Regular Cleaning: You need to take care of periodic cleaning to remove the dirt and other remaining on the solar panels that obstruct the sunlight. Sometimes, the trees might drop their leaves or sap on the panels, which has to be observed and removed. Frequently, the leasing company takes care of this part by scheduling cleaning and making sure that panels are in good condition.
• Inspections: The leasing company will be performing regular inspections and checking for any damages. It includes physical damage, checking inverter wiring, and ensuring panel performance and whether it can produce an adequate amount of energy. Also, if any issues are found, the leasing company holds the responsibility of resolving them free of cost.
• Monitoring Performance: You will get monitoring services while opting for a solar lease and the installer companies provide this service to keep track of the solar panel performance remotely. It is designed in a way that it indicates to the company by giving an alert about the performance drop and possible problems, so the leasing company will be solving the issue at the earliest.
• Repairs and Replacements: The leasing company takes care of replacement under the terms of a lease, which means you don’t have to worry about unexpected repair costs.

Predictable Costs

One of the major advantages of a solar lease is its predictable costs of monthly payments. You can pay a fixed monthly fee to the solar installer company which will be owning and maintaining the solar panels installed on your roof. This fixed payment structure makes it easy for you to budget and plan your monthly expenses.

Usually, traditional electricity bills tend to fluctuate based on energy usage and changes in utility rates. However, the predictable costs of solar lease payments let you have a clear understanding of your monthly costs. This can be beneficial when you are trying to manage your budget and avoid unexpected spikes in your energy bills.

In addition to that, the solar lease contracts include an annual escalator, which indicates the cost of monthly payments that might increase every year. Therefore, the predictability keeps you well-informed and lets you plan accordingly, including any variations in their long-term budgets.

The fixed monthly payments will simplify your budgeting by providing you with a level of cost certainty and lead to proper financial planning. Therefore, this predictability is the key advantage that contributes to making solar leases a preferred and attractive option for many consumers.

Energy Savings

When you opt to choose a solar lease, you can immediately start saving on your electricity costs. With a solar lease, you agree to purchase the solar system-generated power at a fixed price per kilowatt-hour. By this, you benefit from using solar-produced electricity without having to pay any upfront cost for system installation.

However, the amount of money that you will be saving on your electricity bill depends on a few factors like your local electricity rates, solar energy system’s size, and your energy consumption. Studies are proving that, on average, homeowners save around $1,500 per year on their electricity bills.

In addition to that, a solar lease provides you with a protection guarantee against increasing electricity rates in the future. This is because the monthly lease payment is most often fixed or has a low-price escalator, which means that you can lock your energy rates for decades. In this way, you are protected from the inflation impact and increase in utility costs.

Yet another major benefit of the solar lease is that the installer company is solely responsible for managing the installation, maintenance, and system repairs. It simply means that you don’t have to worry about issues such as faulty wiring or inverter problems because all of that would be covered by the installer’s warranty.

The fixed or low-escalating monthly payments, along with regularized maintenance and warranty from the solar company, make solar leases a preferred and attractive option for many homeowners.

Cons of Solar Leasing

Lack of Ownership

Although you get some immediate benefits with leasing, you will have a downside regarding the ownership of the solar panels.

• Losing of Tax Benefits

If you had purchased the solar system outright, you could take advantage of the federal solar tax credit, by which you deduct a substantial percentage of the installation costs from your taxes. As of now, this credit is set at 30% of the total installation cost. But when you opt for a solar lease, the installer company profits from the tax benefits, along with other state and local incentives.

• Letting go of Home Resale Value Benefits

Solar Panel ownership will increase your home’s resale value, and many studies have already proved that solar-installed homes sell 15% more and 24% faster than homes without solar system installation. But it is completely contrasted when you have leased solar panels because buyers might hesitate to take over the lease payments. In simple words, a lack of solar ownership can be a real estate headache as you have to negotiate the lease transfer or buy out the lease to make your home more appealing to buyers.

• No Control Over the System

You neither have ownership nor control or authority over the solar panels installed on your property. And, if you have any issues with the panels like malfunctioning or underperformance, the leasing company is solely responsible for the maintenance and repairs. Although this may be advantageous, it leads to service delays or quality dissatisfaction in maintenance provided.

• Long-Term Financial Implications

If you are leasing solar panels, you get lower savings in the long term because you will keep paying a fixed monthly payment without even owning the system. Whereas, if you own the solar panels, you will enjoy free electricity after the system price is paid off.

No Tax Benefits

One of the most serious disadvantages of the solar lease is that it has no tax benefits and no access to tax incentives.

Ownership and Tax Incentives are interlinked to each other as if you don’t own the solar system you don’t receive tax incentives. Moreover, you tend to lose benefits like the federal solar tax credit, because according to the U.S. Department of Energy, you must own the solar system to qualify for the solar ITC (Investment Tax Credit). However, to own it you can either purchase it or finance it which doesn’t involve leasing because that way only the installer will receive the tax benefits, you might not own the system.

Impact of Leasing on Financial Benefits is observed, which includes tax credits and rebates directly transferred to the solar manufacturer instead of granting it to you. For example, the ITC covers 30% of the installation costs (systems installed between 2022 and 2032), but you don’t benefit from this because it entirely goes to the leasing company.

Long-term financial Implications in solar leasing are observed compared to owning the system because if you own it, you can benefit from it. You can take advantage of many incentives, which include state and local rebates that reduce the system’s overall cost. But when you don’t own the solar system, you will find the scenario completely in contrast to owning one. It is because you need to make regular fixed monthly payments, which will not equate to the savings that could have been gained by owning the system and benefiting from tax credits.

Lower Long Term Savings

While opting for solar energy options, you will face the choice between choosing a solar lease or purchasing or financing through a loan. But if you decided to lease the solar panels, you would face the disadvantage of lower long-term savings compared to saving in cash purchases or loan payments.

Ongoing monthly payments without ownership are another disadvantage, and even after the term ends, you do not own the panel. When you purchase the solar system, you initially pay for it, but for the rest of its lifespan, it earns you benefits with greater long-term savings. Whereas, in the solar lease, you have to make fixed monthly payments which will not equate to the savings of owning it, and you tend to have lower long-term savings.

For Example, if you have purchased solar panels outright or financed through a loan, then it will eliminate the electricity bills after the system price is paid off. By this, you will have greater long-term savings for more than 25 years. Whereas, in a solar lease, you will have to continue paying monthly payments upto the lease duration, which might range from 20 to 25 years and result in poor long-term savings.

Moreover, you end up locking yourself in a long-term financial commitment where you don’t benefit from ownership or tax incentives. It will require you to continue making payments for decades and limits your financial flexibility.

Difficulty In Selling Property

If your home has solar panels leased instead of owned, then you would face difficulty in selling the property. And, that is because it involves several complications as follows:

• Transfer of Lease Complications

When you decide to sell your property, the new buyer must be willing to take over the existing lease. Most of the buyers hesitate due to the hurdle of committing themselves to a long-term financial contract ranging upto 20 years. Also, it involves the completion of paperwork, and getting credit approval from the solar company, and due to these buyers would not show interest in taking on additional financial obligations.

• Impact on Property Value

The value of leased solar panels is not taken into account, so the home value would remain the same as it was before the installation of the panels. Additionally, it would cause a burden to new buyers, which might lead to lower selling prices.

• Negotiation Challenges

When your solar lease is still active at the time of sale, you might have negotiation challenges with your buyer if the lease terms are not favorable or if the buyer is unfamiliar with how the solar lease works. A possible solution to this is, that you can buy out the lease to avoid such complications but will involve significant upfront costs.

• Legal and Regulatory Issues

There might be cases where you will face issues regarding building regulations or the structural well-being of the property because of solar panel installations. Your selling process could become more complicated if the installation does not comply with local regulations. In addition to that, if the solar company that provided you lease goes out of business, then you will have to face serious and critical complications in selling the property.

Price Escalator

A price escalator in a solar lease or PPA (Power Purchase Agreement) refers to a part of the agreement that regulates the monthly payments to increase according to a predefined rate throughout the contract span. Generally, the duration ranges from 1% to 5% per year, which means that your initial payments might be lower than your at-present electricity bill. For example, if you are starting with a monthly lease payment of $200, it would escalate by 2.9% or 3.9% each year, compounding over time.

Also, the price escalator affects your electric bill, and the gap between utility rates and your lease payments tends to diminish. Initially, you might feel like a cost-effective solution because the payments could be lower than your current utility costs. During the end of the lease term, your solar payments might surpass the amount that you would have paid to the utility company for the same amount of electricity.

Despite using solar energy, you end up paying more for what you would have without a lease.

Most customers underestimate the impact of yearly increases, which makes solar leases appealing, and attractive than they are in true nature.

In addition to that, the solar provider will be retaining the ownership of solar panels so they benefit from the tax incentives or rebates where you will have limited financial advantage.