How Does a Solar Panel Lease Work?

July 11, 2024

Are you considering using solar energy to supplement your traditional energy source? In the USA alone, 4% of homeowners equipped their houses with small-scale solar panels in 2020.

Even though solar panel technology has become cheaper in recent decades, most homeowners still need help to afford to pay for it. If you set your mind on using solar panels for home but don’t feel comfortable investing all your money into the technology, the solar leasing option can be the right choice.

Keep reading to understand better how solar energy works and whether a solar lease is still practical for your household.

How Do Solar Panels Work?

Let’s start with defining how solar energy works. In simple words, solar panels you place on the roof of your house convert the Sun’s energy into electricity. Typically made of semiconducting materials such as glass and silicon, each layer of solar panels has unique properties. When the sunlight hits the layer, it generates an electric field that is later transformed into an electric current.

So, if sunlight is necessary, what’s the point of installing solar panels if it is often cloudy in your area? Solar panels are indeed most effective during long sunny days. So, summer is the most productive season for generating solar electricity. However, solar arrays don’t stop working when the sky is overcast. Solar panels transform light particles into electricity as long as they are light enough for you to see.

What Are the Advantages of Solar Energy?

Despite the need to invest in solar panels initially, this form of energy stays the cheapest. First of all, it reduces the cost of your electricity bills.

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Source: FreckCheckWV

On top of that, you can sell excess energy back to the grid and improve your return on investment.

We composed a list of other benefits you can experience if you equip your household with solar panels.

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How Much Does Solar Cost?

The solar panel price varies depending on many factors. You can use a solar panel calculator to determine an approximate cost for your household.

Unless you have a physical inspection of your house and a personalized calculation developed for your specific case, no one can predict the costs of solar panels with 100% accuracy. However, some factors can affect the total cost of solar energy system installation.

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We also want to draw your attention to hidden solar panel installation costs. The price of solar panels is only around 35% of your total expenses. However, other non-hardware expenses can eventually rack up, making going solar much more expensive than you expected initially.

Among the most common non-hardware costs:

  • The installation labor price
  • Obtaining necessary permits and inspecting the house
  • Removing trees that cast a shadow on solar panel systems
  • Changing your insurance plan to cover solar panels
  • Paying maintenance fees

Even though the upfront costs may be expensive, solar panels are still worth it. They help you reduce your current electricity bills and increase your property price in the future. On top of that, you don’t necessarily need to pay upfront. Nowadays, there are multiple payment options available.

How Does a Solar Lease Work?

The idea behind solar leasing is simple: you pay a fixed monthly fee to use solar energy equipment. The homeowner who leased solar panels benefits financially from not buying electricity solely from a local power grid. Even though a solar lease doesn’t make you an owner of solar panels, the contract may indicate that you can buy a solar array later.

How Does a Solar Panel Lease Work

Source: Solar Negotiations

Imagine you signed a solar lease contract, and solar panels were successfully installed on the roof of your house. What happens next? The solar leasing company is responsible for all maintenance expenses. Your only job is to pay your monthly fee.

Solar panels are likely to cover all your electricity needs. It mainly depends on the size of your house. Complementing with local power utility energy can still be necessary for big households.

How Much Is a Solar Lease per Month?

Now, let’s talk money. On average, homeowners in the US pay around 50$-250$ per month for a solar lease. The price depends on the solar leasing company you choose and your location. The cost of a solar lease will rise with time. Your solar leasing contract will indicate the exact cost-rising procedure.

Mind that your credit score can also influence the total price for a solar lease. If your credit score is high, expect to receive better price deals and lower interest rates.

Leasing vs. Buying Solar Panels

Both leasing and buying solar panels have advantages and disadvantages. Regarding cost efficiency, purchasing a solar panel system will cost you less. However, it requires having enough money to pay for it upfront. If you are on a budget, leasing solar panels will work better. We compared the critical differences between a solar lease and purchasing solar panels.

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Summing up, consider your financial situation thoroughly if you choose between leasing and buying solar panels. Assuming you pay $150 for a 15-year lease, you will give $27,000 out of your pocket. It is considerably more than you would pay if you bought solar panels.

However, a solar lease remains the right choice for homeowners with limited finances and those who don’t own the house.

Solar Lease and a Power Purchase Agreement Compared

You can install a solar panel system on your roof through a fixed monthly lease or a Power Purchase Agreement (PPA). A few years ago, leasing was the standard option for homeowners to go solar. However, now, more and more people have started to use PPA. Is there any difference between these two renting options?

Indeed, they have much in common. Both offer you a way to start using solar panels without paying upfront for the equipment. However, none makes you an owner of a solar system. Let’s talk about other differences between solar leasing and PPA.

A key difference between leasing solar panels and using a PPA is the energy price-reduction model. Solar leasing means you, as a homeowner, rent solar panels and pay monthly fees. You start generating your own electricity while saving money.

With PPA, a developer installs solar panels as a part of the construction process. Later, if you become a homeowner, you can buy this power at a reduced fixed price.

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Leasing Solar Panels Pros and Cons

Let’s discuss the advantages of leased solar panels.

1. You Make Monthly Payments

Again, the biggest advantage of solar leasing is that it doesn’t require you to make a downpayment. Even if you don’t have enough on your account, you can start benefiting from solar technology immediately without damaging your finances.

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2. You Save on Energy Bills

Homeowners typically save around 20% on electricity bills. You also become more independent from a local power utility and unexpected power cuts.

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Source: EcoWatch

3. You Don’t Pay Maintenance Fees

Maintenance and diagnostics of your solar arrays are on a solar leasing company. The lessor will compensate for repair work or reduce your monthly payment if any technical issue occurs.

4. You Use Clean Energy

You won’t feel eco-guilty anymore. Solar panels provide a clean, environmentally friendly power source that doesn’t contribute to air pollution.

However, there are certain disadvantages to solar panel leasing.

1. Selling Property May Be Burdensome

Unlike buying a solar panel system, solar leasing doesn’t increase the property price. In addition to a decreased property value, some owners find it difficult to sell their house if a solar lease contract doesn’t expire.

2. You Save Less Than When You Own Solar Panels

Though saving 20% on your energy sounds tempting, in the long run, buying solar panels allows you to accumulate more savings.

3. Annual Fee May Increase

Mind, a solar leasing company, can increase the annual fee to 5%. As a result, it will limit your saving capacity.

It’s a Wrap

We hope we convince you that solar energy is an excellent power source that can help reduce your monthly expenses. We discussed several payment options you can use if you want to start generating solar energy. Each has its pros and cons.

By going with leased solar panels, you will start saving on the energy bills when solar panels are installed. In addition, you will avoid expenses associated with regular diagnostics and repair of solar arrays. To sum up, even though purchasing solar panels is cheaper, a solar lease is a valid option for homeowners who are on a budget.

Frequently Asked Questions

Should I buy or lease a dollar array system? 

If you have financial resources, go with purchasing solar panels for your home. It will save you a considerable sum. However, if you don’t have enough to pay upfront, a solar lease is a good option to follow. 

How long can I use a solar lease contract?

The contract duration typically ranges between 10-25 years. It is worth mentioning that more extended contracts offer smaller monthly payments.

What is the duration of the leased solar panels warranty?

The warranty period varies depending on the solar leasing provider. Solar panel battery warranty is 10-25 years.

What happens when the solar lease ends?

Solar leasing companies generally offer three scenarios. You may simply terminate the lease. Another option is to prolong. A usual prolongation period doesn’t surpass five years. Finally, you can buy a solar panel system at a market value.

What is a payment escalator?

“Payment escalator” is an implied solar leasing interest rate. It ranges anywhere between 0 – 4%. Suppose you agree to a solar lease with a 2% payment escalator. It means your monthly payment will be increased by 2% every year.

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Andy Worford
Andy Worford

Andy is a Founder, Chief Content Officer, regular contributor, and idea generator behind Solar Power Systems. He is well-versed in various aspects of solar energy, including photovoltaic systems, solar policy trends, and green technology innovations.

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