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What is a Solar Lease?

Solar Leases are very much like “renting” your solar PV system.  The financing company retains ownership of the system. All ownership benefits (rebates, tax credits, incentives, etc.) as well as responsibilities (maintenance and repair) are taken care of by the company.  Upfront costs can range from no money or $0 down to a small down payment (usually $1,000) to pre-paying the entire cost of the lease. With the first two options, you make monthly lease payments over the term of the solar lease. With a pre-paid lease, the entire cost is paid upfront at the contract signing.  A solar PPA is similar except that instead of “renting” the solar system, you agree to buy the power generated at a set price per kWh.  

How to Read Your Solar Quote

Price quotes for solar energy systems can be complex. There are a lot of variables -- size of the system, hardware, cost of electricity, etc. -- plus different financing options. You may purchase the system outright or choose a solar lease, which can require no money down, a small down payment, or be fully pre-paid.
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Here are five metrics to help you evaluate your solar quote:

  1. System Price in $/kilowatt (kW) [for purchase & pre-paid]:
    When you buy a house, $/square feet is a useful metric for comparing different properties. For a solar energy system, the equivalent metric is $/kW. Currently residential systems are priced under $5/watt (before rebates, tax credits, and other incentives).  A pre-paid lease can range from $1/watt to $2.5/watt, depending on incentives available in your state. The $/kW metric offers an apples-to-apples comparison to determine the lowest cost, particularly when comparing differently sized systems.
  2. Return on Investment or Internal Rate of Return [for all except for $0-down option]:  
    Purchasing a solar system can be a lucrative investment.  Calculating the investment return helps you understand how much your solar system will generate in “earnings.” This number also helps to determine whether borrowing money to finance the upfront investment in the system makes sense. As a rule of thumb, if the rate of return exceeds the cost to borrow money, a loan is good move.
  3. Cost of electricity per kWh [for all options]:
    The cost of electricity / kWh helps you understand the effective rate you will pay for electricity generated by the system. This metric is an average rate calculated over the duration of ownership or the term of the lease.  It takes into consideration the upfront investment, monthly payments and any annual rate increases.  The lower the number, the better it is. Annual price escalation in solar lease payments can significantly impact the cost of electricity / kWh metric and reduce savings, so review the rate of increase stated in your quote.
  4. Total savings over the life of system [for all options]:  
    This metric tells you how much money you will save over the duration of ownership or term of the lease.  It’s best to look at the total savings net of any upfront investment.  As a rule of thumb, your savings will be higher, the more money you put down. Your savings will be a function of the price of grid-generated power over the life of your system or the term of your lease. Ask your solar consultant about the assumed rate of increase of the price of conventional electricity in your quote.
  5. Equipment quality and performance [for all options]:  
    While this is not a metric per-se, it’s still an important consideration.  Understand the quality and performance levels of the equipment that will be installed.  Solar panels should carry a performance warranty of 25 years, while inverters should carry a warranty between 10-25 years. grid-generated power over the life of your system or the term of your lease. Ask your solar consultant about the assumed rate of increase of the price of conventional electricity in your quote.

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Lease or Buy?

Today, homeowners have incredible flexibility in how they pay for solar PV systems. In addition to traditional methods such as outright purchases and loans, new plans such as solar leases have been added to the mix. They are increasingly becoming the preferred way for consumers to finance the installation of a solar PV system, as they significantly reduce the required upfront investment. See also: How To Read Your Solar Quote
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Consider your Goals: Not unlike the decision about which technology is best, the decision about how to pay for it is also a function of your particular goals. The main things for you to consider are:

  1. How much do you want to invest upfront?
  2. Is your goal to save money or make a good investment?  In both cases, you are cutting your carbon footprint by the same amount. 
  3. How long will you own this property? 

Regardless of which financing option you choose, you will save money, protect yourself from rising energy prices, add value to your property, and reduce your environmental impact. The decision comes down to what you are most comfortable doing. 

SOLAR LEASEPREPAID
SOLAR LEASE		OUTRIGHT PURCHASE
 UPFRONT PAYMENT 

Pay zero upfront or a custom down-payment on a lease or PPA*. A small upfront payment could reduce lifetime cost.

Pre-pay the entire amount of the lease (should be less than the outright purchase price).

Larger upfront investment. You pay full cost of the system.

 MONTHLY BILLS 

Leasing company owns the system. You pay a fixed monthly solar payment for duration of lease. Rate may increase at a fixed amount but you should see immediate savings on total electricity costs.

Leasing company owns the system, but because you pay entire lease upfront, there are no monthly solar payments.

No monthly solar payments. System produces electricity for 25+ years at no additional cost.

 MAINTENANCE & REPAIRS 

Covered by the leasing company.

Covered by the leasing company.

As owner of the system, you are responsible for maintenance and repairs. Most solar panels carry a 25 year performance warranty.

 INCENTIVES 

The leasing company will manage and keep all tax and rebate incentives and associated paperwork and pass the savings to you.

The leasing company will manage and keep all tax and rebate incentives and associated paperwork and pass the savings to you.
If SRECs** are available, they could reduce the upfront pre-payment.

You are eligible for the Federal Investment Tax Credit and possibly cash rebates offered by your state or local utility. It is your responsibility to file paperwork for these incentives. If SRECs** are available, you are eligible to benefit from associated revenue.

 SELLING PROPERTY 

If selling before the end of the lease, you will need to ensure the buyer is credit-worthy and willing to assume the solar lease.

No impact on sale of property. Lease continuation options differ. Check with solar provider.

The system may be sold with the home.

 

  

 

Notes: 

* Solar PPAs (Power Purchase Agreements) are offered by some solar companies.  They are very similar to leases but the payment is set per kwh produced by the system instead of per month.

** In a few states you may be able to benefit from the sale of any available Solar Renewable Energy Credits (SRECs) either directly (with an outright purchase) or through a reduction in the lease amount. With a lease, the solar leasing company will keep the SRECs and the associated revenue.  With a pre-paid lease, the company could substantially reduce the upfront payment amount if it keeps the SRECs. With a purchase, you will be eligible to keep the SRECs and the associated revenue from their sale. 

 

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