Television commercials paint a wonderful picture of what life is like when you add solar panels to your home. The promoters claim that your energy bills will be lower, that you’ll have more independence from the power company, and that you are helping to reduce greenhouse emissions. At the end of each of these commercials, you’ll notice fine print that spells out the limitations and requirements of leasing solar panels.
Just like any deal that sounds too good to be true, many leasing programs have drawbacks that you should consider before signing. This article will explore the pros and cons of leasing solar panels so you will know the right questions to ask before you agree to a contract.
How Does Leasing Solar Panels Work?
Lease programs for solar energy are fairly simple, but it is always important to read the entire contract. At the most basic level, a lease program allows a homeowner to have solar installed at their home for little to no money upfront. The homeowner is then charged a monthly service fee for the use of the panels but generally does not have to pay the solar company for the power the panels produce.
Most solar lease programs last for 20 to 25 years, at which point the homeowner would need to make a decision on the next step to take. In most cases, the leased panels are removed at the end of the lease. Solar panels generally have an effective lifespan of 25 to 30 years, so by the end of a lease, the panels will not be as efficient or productive as they were at the beginning of the lease.
While the homeowner can benefit from lower energy costs, it is important to remember that the panels are still the property of the solar company. A homeowner that decides to move to a new house cannot take the panels with them. Further complicating matters, the new homeowner would need to make arrangements with the solar company to take over the lease or have new panels installed should they desire to keep solar energy.
In general, a solar lease program covers the maintenance and upkeep of the panels and prevents the homeowner from holding the responsibility to get permits, make modifications to the household electrical supply, and other aspects that can add to the expense of solar panel leasing. In this way, a solar panel lease is much like leasing a car. The leaseholder would be required to handle routine things such as replacing worn tires and paying for fuel, but would not be responsible for major problems.
Pros And Cons Of Leasing Solar Panels
There are many benefits and drawbacks associated with adding solar panels to your home. Some of the negatives can be major deal-breakers, but homeowners will need to understand the limitations of a lease before signing to prevent problems.
Leasing Solar Panels Pros
There are several benefits to leasing programs. These are the top pros of using a leasing program to add solar to your house.
1. Lower initial cost:
Most lease programs have a zero-fee installation program or offer other ways for homeowners to reduce the upfront costs. These costs are typically part of the contractual obligation the homeowner signs and is responsible for paying. The benefit is that homeowners do not need to take out a second mortgage or invest their life savings to purchase panels. The installation company is responsible for all permits which frees the homeowner from wasting time and money at city offices and dealing with inspectors.
2. Maintenance and repair are covered by the leasing company:
Solar panels are pretty durable devices, but they can have problems. Things like hail and snow, even wind and smoke, can have an impact on how well the panel functions. Over time, dust builds up which also plays a role in the panel losing efficiency. When a homeowner leases panels, the leasing company bears the responsibility of ensuring the panels are working properly.
This means everything from the mounting brackets to the wiring and the condition of the panels is not the homeowners' problem. This can be a huge saving, particularly for homeowners who do not want to get on the roof to clean the panels.
3. Up-to-date technology:
The leasing company will update the panels, wiring, and other aspects of the solar system as new, better products become available. This can be a tremendous savings in the long run, since the homeowner would pay out of pocket to replace panels they own. Solar technology has evolved quite a bit in just the last few years. New technologies are allowing smaller panels to generate more power over older solar panel designs.
4. Potential savings on energy bills:
When a homeowner leases solar panels, they receive all of the electricity the system develops. Depending on a number of factors such as the size of the system, the weather conditions, and the amount of electricity the household uses, a solar system can partially or completely offset an electricity bill.
Leasing Solar Panels Cons
1. Long-term commitment:
Most solar lease terms are for 20 to 25 years. Over the course of a lease, the amount of money will add up to several times the cost of purchasing and installing the equipment. In most cases, a homeowner will find the contract prevents early termination or includes a steep financial penalty for wanting to end the contract early.
2. Limits options for remodels or moves:
One common problem homeowners encounter with a solar lease is when repairs or renovations require the removal of the roof. In this case, the homeowner will need to contact the leasing company and explain the situation. The company may come out and temporarily remove the panels while the work is done or they may recommend an installer the homeowner would then be responsible to pay.
Homeowners who decide to move can find themselves in a financial hole when dealing with a solar lease. Deending on the language in the contract, the homeowner could be responsible for purchasing the remainder of the lease. In other cases, the leased panels can be released to the new homeowner who agrees to take over the contract.
3. Not eligible for tax credits:
In many instances, homeowners who own solar panels are eligible for state and federal tax credits and rebates from the energy company when the solar production exceeds usage. When leasing, these credits go to the leasing company, not the homeowner.
4. Increasing monthly costs:
Most solar lease plans have a monthly modifier added to the cost that covers the changes in rates of electricity. Generally, the amount is anywhere from one to five percent and will increase gradually over time. A bill that begins at $100 per month could be $300 per month by the end of the lease term.
5. Long-term costs are higher:
The reality is that a lease is a good way to prevent upfront costs and get some benefits from solar, but the lease term and costs will eventually add up to significantly more than outright purchasing.
Homeowners who purchase solar have benefits that include tax breaks and rebates and will have lower monthly expenses once the cost of the panels is paid. In many cases, it is less expensive to refinance the home and purchase solar than it is to lease.
Leasing solar isn’t the only way to get the benefits, but it has the lowest upfront cost. Here are some options that homeowners might consider before signing a solar lease.
Buy Solar Panels
Solar technology is changing all the time, and today’s solar panels are less expensive than the panels of just a few years ago. Over the last decade, installation companies have grown all over the country and it is less expensive now to pay a company to install solar than it was just a few years ago.
Take Out A Loan For Solar Panels
Many financial institutions and banks have specific programs available for homeowners to borrow money for upgrades to their homes. In some cases, these loans can offer lower interest rates than other types of borrowing.
Power Purchase Agreements (PPAs)
A PPA is a contract in which a third-party installs and maintains an energy project on a property, then sells the electricity generated to the utility company. In some cases, landowners may be able to use a PPA to allow the building of a solar project and then can purchase energy directly from the generator rather than the utility. This arrangement can result in significantly lower energy bills.
Leasing vs Buying Solar Panels: Which Is Best?
Leasing is the best option when the upfront costs of installing solar are not possible, but the electricity rates in the area are too high. Purchasing is a better option in the long run or if the homeowner is looking to add value to the home. Purchased solar panels add about four percent to the value, while leased solar panels deduct about the same percentage.
Most homeowners should look for ways to purchase panels and pay for installation themselves before considering a lease. A lease might be a good idea for a rental property that generates its own income and could make more sense over time than purchasing panels.
Now that you’ve known the advantages and disadvantages of leasing solar panels and how does it work. The key thing that all homeowners considering a solar lease option need to do is read the contract carefully and ask questions when they don’t understand what something means. Often, contracts are written in vague terms and frequent use of legal jargon. Many people may not realize the extent of responsibility that they bear because the terms of the contract are unclear.
There are many good companies out there that offer a great way for homeowners to add solar power at a low cost and get benefits, but you shouldn’t believe all of the claims you hear in commercials, either. It pays to do your homework before signing a solar lease contract.
Frequently Asked Questions
1. Is it a good idea to lease solar panels?
Leasing solar panels can be a benefit for some people. The biggest benefit is the low upfront cost, while the long-term maintenance by the solar company may provide a big benefit to leasing.
2. Is leasing solar panels worth it?
The value of leasing solar panels will depend on the amount of power, the cost of the lease, and the reduction in energy bills. Some homeowners will benefit more than others from a lease.
4. How do you know if solar panels are a good investment?
Recent research has shown that new construction that includes solar panels and existing construction with properly installed panels increases the market value of the home. Leased panels reduce the value as they will either be removed before the new owner moves in or the new owner will assume the lease.
5. What is the downside of leasing solar panels?
The biggest downside is the lengthy contract and the fact that the solar panels are never owned by the homeowner.
6. Can you lease solar panels in California?
California has many companies available that offer lease options for solar panels. Many companies offer lease programs to California homeowners.