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Leasing vs. Buying Solar Panels: What’s Better?

Solar for Homeowners | 5 min read
solar leasing vs buying solar panels

You want solar panels. Whether to go green, save green, or a combination of both, solar panels offer homeowners the opportunity to make a difference. But before you make the leap and install solar, you’ll have to make the decision between solar leasing and solar ownership. 

To choose between these two options you’ll first need to understand how each works. Then, you can compare the pros and cons of solar leasing vs. buying solar and apply it to your situation.

In this blog, we’ll help you do just that, so you can discover whether it’s better to lease or buy solar panels.

How Does a Solar Lease Work?

A solar lease is where you essentially lease your roof or a portion of your land to a solar leasing company. They’ll then pay to have a solar energy system installed on your property. While this is a cost-free way to have a solar system installed, you don’t own the system or the electricity it produces. 

Instead, you’ll purchase the electricity that the solar system generates from the leasing company. 

Before the system is installed, you and the solar leasing company will establish the period of the lease. Most leases last 15 to 25 years. You’ll also establish the rate you’ll pay for the electricity generated by the solar system.

 In theory, the rate you pay should be less than electricity from your utility company, reducing your monthly electricity bill. This rate will either be a fixed rate or a rate that increases from year to year. 

The solar leasing company will be responsible for any maintenance the system requires. And they’ll have the solar panels removed from your property at the end of the lease. 

How Does Solar System Ownership Work?

With solar system ownership, you’ll be responsible for the total upfront cost of the solar system. In exchange, you’ll receive all the cost-saving incentives associated with installing a solar system, and you’ll be the owner of all the free electricity your system produces.

You’ll also be responsible for any maintenance costs that arise. And once the system reaches the end of its lifespan (which could be 30 or more years), you’ll be responsible for removing the panels.

There are a few different options available to pay for or finance the installation of a solar system. Cash purchase or a loan from a financial institution.

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Owning vs Leasing Solar Panels: Pros and Cons

In a nutshell, leasing solar panels means going solar for no upfront cost but still having to pay for electricity. Purchasing your solar system means paying for it but benefiting from incentives and free electricity for the system’s decades-long lifespan.

But there’s a little more to it than just that. In this section, we’ll unpack some of the pros and cons associated with both solar leases and solar ownership. 

Tax Savings & SRECs

One of the pros of owning solar system ownership is being able to benefit from the tax-saving incentives and extra income from SRECs. These are not available to those with a solar lease.

One of the largest and most widely available tax-saving incentives is the federal investment tax credit. This offsets your owed taxes by 26% of the cost of the solar system. Businesses can also take advantage of accelerated depreciation, which moves all the federal tax savings from the depreciation of the solar system to the first year.

SRECs, or solar renewable energy credits, are another source of income for solar owners if their solar system is located in a state with an SREC market. Solar owners receive one credit for every 1,000 kilowatt-hours their system produces. This credit can then be sold on the SREC market at a variable price. 

Solar Maintenance Costs

One of the pros of leasing a solar system is that the solar leasing company is responsible for all system maintenance. With solar ownership, the owner is responsible for these maintenance costs.

However, it’s worth noting that solar energy is a relatively low-maintenance technology. With no moving parts, a well-designed, well-installed system with quality parts shouldn’t require regular or frequent maintenance. 

That said, there’s always a chance for things to go wrong. But that doesn’t necessarily mean you have to shell out a bunch of money for expensive repairs or replacement parts. 

Many solar panel manufacturers guarantee their products for 25 to 30 years, and inverter manufacturers guarantee theirs for ten for 25 years, protecting you against faulty equipment. If you’d like to learn more about solar equipment warranties, here’s a blog dedicated to that topic. 

Some solar panel installers also guarantee their work on top of the manufacturer warranties, further protecting your investment. At Paradise Energy, our systems come with a ten-year workmanship warranty as part of the Triple Ten Guarantee. 

It’s fair to say that warranties reduce the maintenance risk, but solar leasing essentially eliminates it. That said, if you explore a solar lease further, be wary of how they present the maintenance costs for solar. These costs can often be exaggerated to make leasing look more attractive and there could be other clauses in the contract to be aware of. For example, we were recently contacted by a person that was required by the leasing company to cover the cost to remove the panels for a roof repair. 

Electricity Prices

Another benefit of solar ownership is that the long-term electricity savings are often much greater than with a lease. 

Solar ownership gives you free electricity for the entirety of the system’s life. With solar panel warranties lasting 25 to 30 years, that life can extend for decades. In the beginning, those savings can go towards paying off the cost of the solar system. But once it reaches payback, you’ll be left with many years of cost-free energy.

With a lease, however, you’ll always have to make monthly payments for electricity. In the best scenarios, these rates are lower than what you would pay the utility company, saving you money throughout the lease. 

However, one thing you need to pay particular attention to is the escalator of these electricity rates. Escalators are built into the leasing contract to annually increase the rate you pay for electricity each year. These can sometimes accelerate more quickly than electric rates from the utility. That means you could even end up paying more for your solar electricity than you would have had you not gone solar at all. 

Selling Your Property

Another factor to consider is how leasing or buying solar panels will impact you should you need to sell your home. In some cases, solar leasing can make it more difficult, whereas solar ownership can make your home more desirable, driving up its value.

With a solar lease, you’ll need to find a buyer willing and able to assume your lease. This means they’ll need to meet the solar leasing company’s credit score requirements, which could shrink your pool of buyers. Additionally, if you have an aggressive escalator driving up the price of your energy costs, potential buyers may be turned off.

With solar ownership, you’ll also need to find a buyer willing to take on the responsibility of the system. However, studies show that owned solar panels increase the value of homes around $15,000. After all, who wouldn’t want to buy a house that can produce its own free electricity?

 

Solar Lease

Solar Ownership

Tax Savings & SRECs

The solar leasing company receives all the tax savings and SREC income (as available).

The solar owner receives all the tax savings and SREC income (as available).

Maintenance Costs

Solar leasing company responsible for maintenance costs and upkeep.

Solar owner responsible for maintenance costs and upkeep.

Electricity Prices

You pay the solar leasing company each month to use the electricity generated by the solar system on your property.

You have total access to the free electricity generated by your solar system.

Selling Your Property

Selling your property can be harder, as you’ll have to find a buyer with a credit score high enough to assume the lease. The buyer will also have to be satisfied with the terms of the lease, which could be difficult if there’s an aggressive price escalator.

Your property value increases by installing a solar system. Your home is more desirable and worth more to prospective buyers, as it comes with the means to produce free electricity.

Should You Buy or Lease Solar Panels?

When it comes down to it, the option that’s best for you will depend on your financial goals. There are advantages and disadvantages with both options.

If you have the money to invest in your own solar system, or you can get access to a solar loan, ownership can be better in the long run. If you cannot purchase a solar system outright, leasing may be the more appropriate option.

If you opt for solar system ownership, be sure to partner with a trusted solar installer that uses quality parts that are backed up with substantial warranties. 

If you opt for a solar lease, be sure to closely read the agreement and pay attention to the electricity rate over the entire lease.

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Originally published July 9, 2014. Updated March 31, 2021

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