Leased solar, commonly known as third-party owned solar has earned attention as an alternative to purchasing. Despite historically low solar panel costs, the cost of installing a PV system still leads some homeowners to consider leasing solar panels instead of owning them. But leasing solar panels is not always a smart option. One thing for sure is that the stock market loves it when you take on a solar lease, just as much as when you lease a car, or any other large piece of equipment. Especially in incentivized state such as California. The leasing companies however, take all the advantage of the incentives, putting that money into their pockets immediately by paying for the equipment outright and banking on a 10 – 20 year lease payment from the homeowner.
Still, many homeowners are curious about the differences between leasing a home solar system and buying one out right. There are advantages and disadvantages to either method. Here is a look at how leases work and the pros and cons of leasing vs owning.
First of all, how does solar panel leasing work?
When homeowners lease solar systems, they actually buy electricity from a company who owns the solar panels installed on their roof. The price a lessee pays may be significantly lower or the same to what the utility company would charge for electricity. The homeowners can sometimes lock in this rate over the term of the lease, or see their lease payment increase at a slightly lower percentage year over year to what the TPO “thinks” the utility rates will do. These are called escalation and de-escalation clauses.
Some companies like Sungevity and SunRun are third-party financers, and they don’t actually install the solar system. Instead, they contract with local contractors to have the panels installed onto the roof. Others are companies like SolarCity actually handle both the financing and installation. In both these cases, we have found that installer has a lower vested interest in doing the job well and are more interested in the total volume of installs they can do as the leasing companies pay a significantly lower price per watt for the labor than what an installer can charge if they were do a system with that homeowner directly.
Solar leasing terms vary considerably, and they usually allow homeowners to start their solar leasing program with no money down. Leasing contracts are available in increments of twenty, fifteen or ten years, where homeowner’s are given the option to buy the system, if not, fully own the system outright at the end of the lease. Many of these companies continue to offer ongoing maintenance of the system, however with the solar, aside from warranty issues with the product themselves, maintenance is pretty low. With leasing in its infancy, and most warranties on inverters being around 5 – 10 years (the shortest warranty period of any of the equipment), we have yet to see how the maintenance contracts will play out. In the case of roof leaks, many of these companies have clauses that exclude roof damage as part of their contract, especially on a roof that is pre-existing and not being re-roofed at the time of install.
In which states can homeowners find solar leasing programs?
Solar leasing contracts can be found in 13 states (there could be more now): Arizona, California, Colorado, Connecticut, Delaware, Hawaii, Maryland, Massachusetts, New Jersey, New York, Pennsylvania, Oregon and Texas. It’s also available in Washington D.C. Homeowners need to know that solar leasing, coincidentally, is only available in locations in these areas that offer measurable state, local or utility rebates. In California, for example, TPO systems account for 74% of residential solar installations state wide.
The (minimal) PROS:
Four Reasons to Consider a Solar Lease:
1. Leasing doesn’t come with the same upfront costs that buying does. Most homeowners who consider solar installation are worried about the upfront costs. Although terms vary based on one’s credit rating, local or state incentives and the solar capacity of one’s home, solar leasing usually allows people to go solar without putting any money down. This is one way for consumers to access solar energy who otherwise wouldn’t be able to put down the investment capital. And since fewer American homeowners have equity now than in the past, home equity loans that were once easy to obtain aren’t always available to finance solar installations.
2. Leasing doesn’t come with maintenance costs. When something malfunctions, lessees tied into a lease aren’t responsible. Repairs, maintenance and replacement are the responsibility of the solar leasing company. For example, if a panel underperforms on delivering adequate power supply, or an inverter fails, or comes up for end of life replacement after ten years; it’s the solar lessor who promises and pays under warranty. Considering this costs a few thousand dollars, leasing can provide the financial peace of mind free from maintenance and uncertainty. However, as mentioned previously, we have yet to see the maintenance clauses play out with many leasing companies. Also, all installers of purchased systems and those components carry the same coverage and warranty’s and a simple call to the manufacturer can get replacement equipment on its way, and most reputable installers include the labor to replace failed equipment as part of their contract.
3. Leasing may cost less for energy verses the utility company. Some leases allow consumers to lock in static pricing on electricity rates for a decade or longer. But again, this is a gamble.
4. Leasing allows you some choice in how you design your lease terms. Some leasing products allow you to choose how much money you want to put down toward the lease, as well as the escalation rate.
As mentioned earlier, when you lease solar panels, you surrender many of the advantages that come with buying solar panels. Instead of enjoying solar tax credits and rebates, those benefits will go to the owner of the solar installation, or the leasing company. So will the rights to earn and sell renewable energy credits. One of the primary advantages of solar power is independence from the utility company. By installing rooftop or ground-mounted PV arrays, homeowners are able to generate their own electricity even selling electricity back to the utility company, in some cases. Leasing solar panels creates another binding monthly payment for homeowners.
A typical 5kw system begins paying for itself immediately. In California, a 5kw solar installation can pay for itself in as little as 5 years through lower electricity bills, rebates & incentives, tax breaks and other cost recovery methods.
Six Reasons to Opt for the Outright Purchase of Solar:
In the end it comes down to what each individual consumer deems valuable to himself or herself. Whatever the reason it is clear to us that those homeowners, who can make the financial investment up front, will have a clear Return on Investment (ROI). As we mentioned earlier “buyer beware” there are clear advantages and disadvantages to either direction you choose.