- Updated On: May 30, 2025
Solar Leasing: A Smart Way to Reap Solar Benefits Without Upfront Cost
If you want to reduce high bills or get rid of long power outages but do not have much cash in hand to buy solar or qualify for a loan, solar leasing is the perfect option for you. This solar financing option is an opportunity to get all the advantages of solar power while making no large initial investments. A home solar lease allows you to use the solar energy produced by the solar panels to reduce or even eliminate your electricity costs, while the leasing company retains ownership of the panels on your roof. However, it’s essential to conduct thorough research and tackle any leasing arrangement with an open mind. Particularly, keep an eye on the escalation rate and try to bring it as near to 0% annually as you can.
In this article, we will explore the concept of solar leasing, how it works, and most importantly if solar lease is right for you.
What is a solar lease?
In a solar lease, you agree to pay the third-party owner a fixed monthly lease fee to use the solar energy system, installed by the owner. This fee is usually lower compared to your energy bills, so you can switch to solar energy at no upfront cost. This trend is gaining popularity because it allows many people to move to clean power without buying solar panels. However, it is only the company that will utilize the tax credits and state solar incentives.
Also, you will be able to purchase solar panels after the expiry of your leasing period. It is possible to buy your solar system directly from your solar provider at a retail price but this is not the best financial option because you will probably have to pay extra fees. In addition, you will have to pay high early termination costs if you want to break your lease early, which will offset any initial savings from switching to solar power.
How does solar leasing work?
It enables homeowners to have solar panels on their roofs at minimal or no upfront cost. However, they only pay a regular monthly fee. Lease agreements typically last 20-25 years and include a price escalator that can increase payments by 1-5% annually. For several years, many people have opted for a solar lease system, but as the cost of solar installation is decreasing, many people are opting to buy the system with cash or other flexible financing options.
Pros & Cons of Solar Leasing
Let’s analyze the benefits and disadvantages of leasing solar system:
Advantages:
- The main benefit of solar leasing is that you do not need to pay for the high upfront cost of buying and installing solar panels. This makes solar energy accessible to people who may not be able to afford to invest money in solar panels.
- As you are not the owner of the system, you are not responsible for any maintenance or repair. The leasing company will handle the repair of the leased PV system. This means that you can get advantages without having to bear additional costs.
- Without solar, your monthly bills may fluctuate but if you are utilizing solar power, you pay a fixed monthly payment in solar leasing.
- Since you only pay a lease often less than your energy bill, you start saving immediately.
Disadvantages:
- Since you are not the owner of the solar panels, you are not eligible to benefit from the 30% solar tax credit or other local solar incentives. Rather, these perks will go towards the leasing company.
- Solar panels can add an average of up to 6% to the value of your house when you buy them with cash or a loan. Since you don’t own the solar panels, leasing them doesn’t result in the same gain in property value. It can be difficult to sell a house with leased solar panels since many buyers might be reluctant to take up a long-term contract.
- Escalator provisions in solar leasing agreements specify the annual rise in monthly lease payments, so even though the system is getting older, you will still be paying more for solar.
- When you lease solar panels, you are entering into a long-term agreement that is expensive and difficult to terminate. Additionally, it might be challenging to determine who to contact and who is accountable because some solar installers sell solar leases through a different finance business.
Comparing Solar Leasing with Other Financing Options
The other two common ways to finance solar are compared with solar lease as follows:
Solar Leases vs. Power Purchase Agreements
PPAs, purchase power agreements, and solar leases are often considered quite similar! Both of these types of financing are closely related. The main difference is that a solar PPA enables you to buy the electricity generated by the solar system at a fixed rate per kilowatt-hour (kWh), while a solar lease comes with a monthly fee.
The monthly charges with a PPA depends on the electricity consumed and it may vary every month. Thus, if a fixed monthly payment suits your financial plans, then a lease is more suitable for you than a PPA.
Solar Leases vs. Loans
Under a solar lease, you must pay monthly fees to use the solar that is owned by the firm. Although there are no upfront costs, there may be annual fee increases. Whereas loans require an initial investment, they ultimately yield greater financial returns.
Whether to lease or loan, depends on your financial situation, long-term plans, and preference for ownership versus lower initial costs.
How to compare the top solar lease companies?
When you compare several companies for leasing agreement, you must consider:
Business Model and Primary Product:
Companies that offer solar leases gain profits by financing a solar panel system for your house and then selling you the electricity generated by the panels. Most of the time, the firms guarantee that you will save money on your electricity bills during the first year, which is advantageous for both parties. Also, each company has a different background, but most began with financing in mind from the outset. Others started as equipment manufacturers or installation companies.
Partnerships with Solar Installers:
It is essential to search about whether your leasing company also takes care of solar installation or they are partnered with local solar installers for installing solar panels. You should consider the one with a certified solar installer for an efficient system.
Financing Source:
It’s a long-term investment for the company that finances that system as they make money from the interest you pay them each month. Big banks and security firms have also started financing for solar as the cost of solar equipment continues to decline. However, before signing a contract, you must make sure that the financing source is authentic and is not a scam.
Solar Panels and Equipment:
You can only benefit from solar power if you have a solar panel system consisting of high-quality solar panels and equipment. A cheap system may not fulfill your energy goals. So, it is vital to check which solar panels brands and equipment will be used for your installation.
Customer Reviews:
Before deciding to work with any company, do some research and check customer reviews to ensure that you are in the right place.
Solar leasing is a good way for homeowners and businesses who prefer shifting to solar energy without paying a large amount of money for installation. Simplifying the process and providing predictable monthly payments, it makes renewable energy more accessible for everyone. By understanding the leasing process, and evaluating financial implications, you can make an informed decision.
If you are looking for solar financing options, Solar SME is here to help. Our energy experts assist you in making a suitable choice for your budget and needs. Book your consultation or get a FREE quote with our solar calculator.
