Solar leasing has been a popular option for homeowners who want to go solar without investing in the upfront cost of a solar system. However, in recent years, the cost of solar panels has decreased significantly, making it more affordable for homeowners to purchase their residential solar systems.
So, is solar leasing still worth it in 2023? Let’s break the numbers down.
What is solar leasing, and how does it work?
First, let’s understand what solar leasing is and how it works.
Solar leasing is a financing option allowing homeowners to install solar panels on their roofs without making a significant upfront investment.
Instead, the homeowner pays a monthly lease payment to a solar company. The solar company owns the solar panels and is responsible for their installation, maintenance, and repairs.
Suppose you’re a homeowner in the great state of California who decides to lease a residential solar power system. The solar company would install the entire solar panel system. You’d pay them a monthly lease payment of, say, $100 per month for 20 years. They’d take care of everything during that time.
After 20 years, the solar panels will be at the end of their useful life. You, the homeowner, can renew the lease, purchase the solar panels from the solar company, or have them take them down.
Even with tax credits and rebates, the cost of installing a residential solar power system is still high. On average, purchasing and installing a 6Kw solar panel array for a regular 1500 square foot home will set you back at least $16000.
A little thing called net metering.
Net metering is a billing arrangement between a utility company and a customer with solar panels. Under net metering, the customer is credited for the excess electricity they generate from their solar panels, even if they don’t use it all when it’s generated.
Any excess electricity is sent back to the grid, and the customer is credited for it on their utility bill.
For example, let’s say a customer with solar panels generates 100 kilowatt-hours (kWh) of electricity in a day but only uses 80 kWh. The customer would be credited for the 20 kWh of excess electricity, which would be applied to their next utility bill.
Net metering is available in most states except Alabama, South Dakota, and Tennessee.
The pros of solar leasing
Here’s what we’ve established so far. Solar installation costs are still high (but coming down quickly).
Solar leasing has been a popular alternative to the high upfront costs. And with good reason(s):
- Low upfront costs: Solar leasing allows homeowners to install solar panels without a large upfront investment. Ordinarily, it’ll take you anywhere between 8-12 years to recoup the initial cost of your solar panel system from the cost savings on your electric bill. With leasing, you don’t have to worry about any of that.
- No maintenance or repairs: The solar company is responsible for the maintenance and repairs of the solar panels. And yeah, the cost of repairs can run up. For instance, the price of a new solar inverter will set you back between $1000 – $1500. If you’re leasing, the company absorbs this cost.
- Save money on electric bills: Solar leasing can save homeowners money on their electric bills. The savings you’ll see will depend on the size of your solar system and your local electricity rates.
- Easy to qualify: Solar leasing is a good option for homeowners with good or bad credit.
- You won’t own the solar panels. This means you won’t receive any tax breaks or rebates for homeowners who purchase solar power systems.
- Your monthly payments may be higher than if you had purchased your own solar system. This is because you’ll be paying for the solar panels and the cost of financing and maintenance.
- You may have to pay an early termination fee if you cancel your solar lease early.
- Complicates a home sale: Suppose you decide to move and sell your house after a few years. However, your solar panel lease runs for 20-25 years. You’re in a bind. You’d have to convince the buyer to take on the lease or buy it out and have the panels removed. Either way, it might cost you.
- Declining savings over time: Solar lease companies are in the business to make money. So, they typically have escalator clauses that increase your leasing charges between 1-5% annually. When you combine that with solar panel degradation, you may end up paying more in lease charges than what you get in utility savings.
- Lower savings than solar financing: With good credit, you can get a solar loan that covers 100% of your solar installation costs. You’d only be paying monthly installments, which is the same as you’d be paying for your solar lease. However, you own the panels outright with the loan when you finish paying, unlike with leasing, where you get nothing.
So, is solar leasing still worth it in 2023?
The answer to this question depends on your circumstances. Solar leasing may be a good choice if you’re looking for a low-risk option that can save you money on your electric bill.
However, if you plan on staying in your home for a long time and want to own the solar panels, you may be better off purchasing your own solar system.
There are a few more considerations:
- More people have opted for solar financing and cash purchases to lease. In fact, homes with solar leases have dropped sharply from 62 percent in 2014 to about 28 percent in 2022.
- The cost of solar panels has come down significantly in recent years. This means it’s now more affordable for homeowners to purchase their solar power systems.
- Several government incentives are available for homeowners who purchase solar panels. These incentives can offset the upfront cost of a solar system.
- Solar panels can increase the value of your home. According to a study by the National Renewable Energy Laboratory, solar panels can add an average of $15,000 to the value of a home.
Bottom line: If you have the money or qualify for solar financing, buying solar panels outright is the better option. You’d have a better return on investment than if you leased the solar power system.
However, if you, for some reason, don’t qualify for solar financing or prefer a simpler option, leasing might be a better option.
Regardless, it’s important to research and compare different options if you’re considering solar leasing. You should get quotes from solar installers offering leasing and purchase options. This will help you to make an informed decision about which option is best for you.