Installing an at-home solar system can provide multiple benefits for homeowners. Not only are you supporting the renewable energy movement, but you may also be able to save some money. The average cost to lease solar panels ranges from about $50-$250 per month. A solar energy system is something many homeowners can buy or lease to generate energy savings and decrease the energy bill in your home.
There are several ways to finance your solar installation. Leasing is one of the options available to homeowners. This allows for anyone to go solar without paying the hefty upfront cost associated with installation. However, you can also look into a favorable solar loan if you would like to purchase your system.
According to Doug Snower, President of Wind Free, an alternative energy company, the discussion of buying versus leasing in solar technology is not much different from the discussion we have around leasing cars. You can even leverage leasing to build your credit score.
Snower notes, “If you choose to lease an electric or hybrid car, tax credits and gains in energy efficiency offset monthly lease costs to make the option of a lease more affordable. At the end of the lease, you’d also have the option to purchase your car from the dealer. This model is very similar to what’s in place for solar system leasing.”
So, let’s take a more in-depth look. Why do some people choose to lease solar panels instead of purchasing them outright? Here are 5 reasons people may choose to go solar with a lease.
1) Cash Flow and Affordability
Choosing to lease solar panels can be a great financing option for many individuals or businesses. The average cost of leasing solar panels runs anywhere from $50-$250 per month.
With little to no down payment for leasing, this fixed monthly cost can meet the energy needs and budget for many consumers.
Solar leases can be especially attractive to people who see an urgency in using environmentally friendly energy but are unwilling to commit to the upfront cost. With a lease, you can enjoy the benefits of a solar system without buying solar panels or having to come up with a large down payment.
2) Tax credits
A solar panel system doesn’t only help your energy bill. Leasing a system can help your credit score, become an investment tax credit, and contribute to local solar energy production. Whether you buy or lease your solar panel system, a tax credit could be coming your way.
Here are the possible tax credits, rebates, and programs available to those who own their solar system:
- The Federal Investment Tax Credit is available to all homeowners regardless of where they live in the U.S. and will offset the cost of purchase and installation by 30%. This applies to solar systems installed before 2020.
- State and local tax credits and utility rebates will vary by region, but these additional perks can add to the benefit of owning a solar system.
- Net metering means that you capitalize on the energy your solar system produces to even out your bill. For example, when your system has more energy than you can use in the long days of summer, you can build that up against the short cloudy days of winter. Instead of getting energy from the grid in lower sunlight months, you can pull from the energy reserves you built during sunnier times.
- Solar Renewable Energy Certificates (SRECs) are energy credits homeowners receive from selling their solar energy to utility companies.
If you own your solar power system, you are responsible for repairs and management on your own. If you decide a lease on solar panels is right for your home, the cost of maintenance will likely be included in your monthly fee.
The leasing company will want to protect their investment, so they will provide services to keep the solar panel system in working order.
4) Ownership of a Solar Panel System
If you lease your solar panel system, you do not own it. However, many solar leases offer an option to purchase once the lease ends. That being said, if you sell your home before the lease term is over, you will typically need to make arrangements for the new owner to assume the solar lease.
While we are focusing on the benefits of leasing solar panels, there are still benefits to outright ownership. Owning your solar power system will not only raise the value of your property but will also offer a great return on investment. You can save on energy costs at home and potentially monetize your solar energy in the SREC market.
5) Energy Costs
There are various structures for solar leases, and in your zip code you could be eligible to lock in favorable power rates. Additionally, many states offer local and federal tax incentives if you are leasing your solar panel system.
Buying and owning your solar panel system outright comes with many energy cost benefits as well. In the long term, you can bring energy costs down, save on lease payments, and contribute to local energy production.
What factors affect solar installation costs in my area?
Leasing costs are determined by factors such as your home’s location, zip code, credit score, home size, and usage rates. Many factors may contribute to the long term cost of your solar panels.
Geography and Zip Code
Leasing solar panels makes the most sense where electricity costs are higher and where the benefits of tax rebates and other incentives are plentiful. Living in a sunnier part of the country benefits owners of solar panels – for obvious reasons!
For example, a homeowner in Arizona (a sunnier state) can capture more sunlight to offset energy costs. But residents in colder, less sunny, or seasonally affected states like New York, New Jersey, and Massachusetts would fare better with solar installations due to the tax incentives available.
If you’d like to know where your state stands on solar energy friendliness, here is a report that grades states on factors like incentive, the cost of electricity, and the internal rate of return.
Another factor to consider is the cost of your electric bill. If your bill is less than $50 each month, leasing solar panels may not be the most cost-effective option. You won’t save money with a solar lease, and the rates are considered expensive compared to traditional energy sources.
However, if your electric bill tends to be more than $100-$200 per month, there may be an abundance of options in your zip code for a solar lease.
You’ll also want to consider the structure of the home itself. Can you install solar panels on your roof? Is there a lot of shade that could cover your panels and prevent the effective absorption of sunlight?
Other factors include the direction and age of the roof and how much weight it can safely support. Home solar panel systems can easily be installed if your home meets the structural criteria.
This is one of the most important factors when committing to a solar panel lease. It will be written into your solar power purchase agreement and will directly affect your lease payment. The payment escalator clause should help you save money on rising energy costs, but this may not always be the case.
To get started, if your lease payment escalator is 3% per year, but the inflation rate for energy costs in your state hovers around 2.5% per year, then you are paying more for energy costs over time with a lease.
To give you an idea of energy costs for your state, read this U.S. Energy Information Administration report on the energy costs for your state show 25 years of history.
Once you understand the anticipated rate of inflation for your state’s energy costs, make sure your payment escalator does not exceed that rate. This way, you won’t overpay for your solar lease.
What are the different types of solar leases?
There are three types of solar leases:
- Finance (or capital) lease
- Operating lease
- Solar power purchase agreements (PPA)
Capital leases are typically for commercial or business use. You make monthly payments to a financing institution and eventually have the option to buy the solar panels. Standard solar lease terms last for 5-15 years but can extend to 20 years. Under this arrangement, individuals with a solar lease can get benefits, including cash rebates, utility credits, and tax credits.
More features of a capital lease include:
- The lease accounts for company credit rating, which also affects the interest rate (usually fixed).
- The interest portion of the lease is tax deductible.
- The solar panels typically secure the loan as an asset.
- The solar system assets appear on a business’s or person’s balance sheet as an asset.
- Interest rates can be higher than other types of collateralized loans.
An operating lease means the lessor truly owns the solar system while the lessee simply makes monthly payments to use the solar panels. The lessor receives the benefits of tax credits, depreciation, and other incentives.
In this case, the cost of a solar panel lease does not require any down payment. This could also be beneficial to individuals or entities that do not have much of a tax liability.
If you can’t take advantage of the Federal Investment Tax Credit due to limited income, then a solar lease is ideal. Be mindful of how much your energy rates could increase with the payment escalator clause in your solar lease.
As mentioned, you could end up paying more for your solar lease if your annual increases outpace actual energy inflation costs.
Solar Power Purchase Agreements (PPA)
A PPA is very similar to an operating lease with one main difference.
Instead of paying a rental rate for the solar panel and the power generated from it, you only pay for the power generated by the solar system. You’ll be paying per kilowatt-hour in the range of 10-13 cents per hour.
How does a solar lease compare to buying a solar power system?
Making the right choice can depend on a variety of factors. It may be helpful to get a third party, such as SunRun, involved in order to make the right choice. These companies can often provide quotes online.
Whether you are interested in owning your system outright or pursuing a monthly lease payment, there is a solar company out there that is right for you. Below we have some statistics, as well as products and services, that might shed some more light on the decision for you.
Buying Solar Panels
Consider an average home in the state of Illinois with power usage equal to 600-kilowatt hours (kWh) per month. The house would require a 5-kilowatt system. An outright purchase would be about $15,000 and cut a homeowner’s electric bill by as much as 50%.
With a 30% federal tax credit and a combination of other rebates and incentives through the state of Illinois, it could take about 5 years for the product to pay for itself.
Solar Panel Lease Cost
With a 10-year lease, your monthly payment would be $100-$150, meaning you will spend $12,000-$18,000 over the lease’s life. At the end of the term, you’ll end up owning the solar panels. By committing to a lease, your overall cost could be more than an outright purchase without the burden of an upfront payment.
For an analysis that considers all of the factors about your situation or system, consider using a solar calculator to estimate costs and savings associated with installing a solar power system in your home.
The Bottom Line
The fact of the matter is that everyone’s situation is different. The best type of solar solution for your neighbor might not be the best solution for you. If leasing isn’t the right move for you, you can look into getting a quote for a solar loan here.
If you prefer the benefits of owning your solar power system but don’t have the cash to afford it upfront, a solar loan could be just what you’re looking for.
Use SuperMoney’s loan offer engine to discover the best loan options for your situation. Then, head over to our reviews page to compare lenders. Once you decide which financing path you want to take, you’ll finally be one step closer to moving forward with a solar energy system that is right for you for your home and your bank account.