The True Cost of Leasing Solar Panels (Pros & Cons of Solar Leasing vs. Buying)

Georgette Kilgore headshot, wearing 8 Billion Trees shirt with forest in the background.Written by Georgette Kilgore

Solar Panels | April 1, 2024

Confused man wants to know the true cost of leasing solar panels while having solar leasing explained by a dealer but wondering, is it better to buy or lease solar panels and where can I find leasing solar panels pros and cons?

Have you been thinking of going solar but are unsure about the true cost of leasing solar panels?1

Well, you are not alone. Solar energy is rapidly gaining popularity globally as an eco-friendly and cost-effective alternative to traditional energy sources and a way to remove your energy dependence from the grid.

But the upfront costs required for purchasing and installing solar panels are prohibitive, making many homeowners consider leasing instead.

But is leasing solar panels a smart move? Is it still practical in 2023?

What options do you have? Does leasing solar panels save money? What are the pros and cons?

This guide explains the true cost of leasing solar panels by comparing it to buying to help you determine if leasing is right for your specific situation and energy needs.

What Is Solar Leasing?

Solar leasing is a financing option through which homeowners pay a monthly fee to use solar panels’ power without owning them.4 The solar company will mount the solar panel on your property, allowing you to go green and reduce your electricity bills without buying the solar energy system.

Solar leasing has been the leading option for homeowners who wanted to go solar in the past because of the huge capital required to purchase them.

However, solar technology has greatly improved, and the costs have significantly gone down (compared to 10 – 15 years ago). So, is solar leasing a smart idea in 2023?

If you are all about saving, then buying a solar system is logical. But it is important to note that installing solar panels require substantial upfront costs, and if you can’t afford them, then one of your options is leasing.

But, before entering a contract, make sure to read the fine print so you can understand the true cost of solar leasing. This guide can help.

How Solar Lease Works

How does leased solar work? This is a popular question from homeowners who want to lease solar for the first time.

The solar lease works in a similar way as a car lease.

Photograph depicting a residential neighborhood where certain houses are equipped with solar panels for renewable energy generation.

(Image: Kindel Media6)

When you express interest in leasing the solar system, the leasing company will send a solar panel installer to assess your property. If all is well, the solar company will install the system, and you can start powering your home with solar.

If the solar panels produce enough power for your home, you could 100% move to solar energy and do away with the electric bill, but if not, you might still have to budget for it. Because you use solar energy and don’t own the panels, you must pay the leasing company an agreed monthly payment.

The amount is typically lower than your utility bill. The agreement will include a price escalator to factor in the electricity cost increase, meaning the monthly payment will increase yearly. The escalator usually ranges between 1% – 5%.

A typical solar lease will last 20 to 25 years, and the leasing company will be responsible for maintaining the solar system. In case of performance issues, the company caters to repairs.

However, it’s your responsibility to take care of the system.

For example, the leasing company may not cover damages from your negligence, like kids hitting the panels with stones or damages caused by pets.

At the end of the contract, you can buy the system at a discounted price, have it removed, or renew the lease. However, if you move before the contract expires, you will have to convince the new owner of the house to take over the lease, or you will have to buy it out.

Moreover, the length of the contract is about as long as a the panels will functionally last. So, at the end of the contract, it’s typically time to buy new panels, so many homeowners have discovered that the savings isn’t as awesome as it seems.

It is essential to understand the terms of your lease. Solar leases can be put into three groups- Operating leases, PPA, and Capital leases.

Operating Lease

With an operating lease, the solar leasing company owns the solar system, and you must pay a monthly payment to use the power generated. The payment is the same regardless of how much power is produced.

Moreover, you are not eligible for the Federal Tax Credit as it goes to the leasing company.2

Solar Power Purchase Agreements (SPPA)

SPPA is similar to an operating lease.

However, the monthly payment will vary depending on how much solar energy is produced.

Visual representation of the various roles played by participants in Solar Power Purchase Agreements (SPPAs), as shown in a chart format.

(Image: United States Environmental Protection Agency5)

These purchasing agreements are based on the energy you can generate.5

Capital Lease

Capital leases are usually for businesses. They allow you to employ solar’s tax and depreciation benefits.

The monthly payments are usually higher than an operating lease option. But at the end of the lease term, you have the option to buy

What Is the Cost of Leasing Solar Panels?

The average cost of leasing solar panels is $50 – $250 monthly. However, the rate can vary depending on the energy you use, your location, your credit score, and the leasing company.

Some states and local governments offer incentives and rebates to encourage the adoption of solar energy. Customers with higher credit scores are usually offered better lease terms and lower interest rates, which can help reduce the cost of leasing solar panels.

Some companies require a down payment for the lease, but most don’t.

The cost of leasing solar panels will rise yearly, but the exact percentage will be indicated in the solar lease escalator clause.

Solar Lease vs. Buy: Should I Lease or Buy Solar Panels?

To start using solar panels, you can either buy or lease them. But, why are solar panels so expensive?

They are expensive because producing them requires advanced manufacturing and expensive raw materials, so leasing is the easiest way because you don’t need to pay any upfront cost.

Photograph featuring a house with a solar panel system installed on its roof, with an SUV parked outside the house.

(Image: Raze Solar7)

You only need to sign a lease contract with the solar company and immediately start enjoying the benefits of going solar such as reducing your carbon footprint and electricity bill.

Buying, on the other hand, is a long-term investment. But, how long do solar panels last? Solar panels, when properly maintained, can last for more than 30 years; on average, they have a payback period of 6 – 10 years.

This means buying solar panels can allow you to enjoy more than 20 years of solar energy without paying for the system. However, you will still pay for your energy use.

Leasing Solar Panels Pros and Cons (Cost of Leasing Solar Panels)

Leasing solar panels have both positive and negative effects.

Graphics of solar leasing showing the list of leasing solar panels pros and cons.

Here are some of the pros and cons of leasing solar panels.

Pros

  • You avoid upfront costs: The cost of solar panels is between $3500 – $35000, depending on your energy needs. But with leasing, little or no downpayment is needed.
  • Reduced energy bills: You will be required to pay the solar leasing company a monthly payment for the electricity they generate. But, the monthly cost of leasing solar panels will be lower than the rate of your utility company.
  • You are not responsible for installation, maintenance, and repair: The leasing company is responsible for installation, maintenance, and repairs, which will save you time and money. However, you might be liable for damages caused by negligence, such as kids hitting the panel with stones.
  • You can buy the solar system at the end of the lease at a discounted price.

Cons

  • Since you don’t own the system, you can’t benefit from tax credits or incentives.
  • Leasing is a long-term commitment, typically lasting for 15-25 years. This means you’ll be committed to paying the monthly lease payments for a long time which can be a turn-off for most people.
  • Compared to buying, solar leasing will cost more in the long run.
  • Selling your house before the end of the lease can be difficult because potential buyers may not want to take up the lease. You may be forced to buy out the lease, which is not cheap.
  • The leased solar panels will not increase the value of your home.

Buying Solar Panels Pros and Cons (Cost of Leasing Solar Panels)

Solar panels have helped reduced the carbon emissions from coal plants. However, there are pros and cons when buying new solar panels.

Graphics of solar buying showing list of buying solar panels pros and cons.

Here are the lists of of some of the pros and cons of buying solar panels.

Pros

  • Higher long-term savings: Although you will incur considerable costs in purchasing and installing the solar system, you will immediately start using solar energy, reducing your electrical energy bill. Solar panels can generate electricity for about 25+ years and have a payback period of fewer than 10 years.
    You will have about 20 years of saving on the energy bill.
  • Solar panels add value to your home: Unlike leased solar panels that might scare buyers who don’t want to enter into the lease agreement, owning the solar panel will make your home attractive to buyers.
  • Buying solar panels allows you to take advantage of federal tax and state tax credits. You are also eligible for local incentives such as net metering programs, which can help you save more electricity.2

Cons

  • You need a high upfront investment to buy solar panels. If you don’t have the money, you will have to take a loan which adds to the cost of the panels.
  • As the solar panel owner, you are responsible for maintenance and repairs. You may also have to increase your property’s insurance coverage which amounts to higher premiums.

Is It Better To Buy or Lease Solar Panels?

While leasing solar panels is the quickest way to go green, it doesn’t mean it is the best.

Photograph depicting a lengthy house structure with a solar panel system installed on its roof, and a ladder leaning against the exterior of the house.

(Image: Raze Solar8)

Suppose you enter into a 20-year-long lease contract where your monthly cost of solar panels is $150.4

In 20 years, you will end up paying $36,000, much more than you’d pay had you bought them. And when you add the escalator price, the amount will be higher.

On the other hand, buying might be the best way to go solar, but the upfront costs are a limiting factor.

Should I Buy or Lease Solar Panels?

Before buying or leasing solar panels, ask yourself the following questions.

  • Do I have the money to invest?

Buying solar panels requires a substantial amount. However, it’s not a must to pay cash as you can take solar loans.

But if you can’t afford to pay in cash or repay the loan, the best option is to lease.

  • How long do I intend to stay in my current residence?

Solar panels are a long-term investment with an average payback period of six to ten years. However, this period is not guaranteed as many factors determine the time solar panels can take to pay back.

Buying solar panels is better if you intend to stay at your current residence for more than 10 years. But leasing would be suitable if you intend to move and don’t want the hustle of moving the panels.

  • Do I plan on selling my house?

Solar panels will increase the value of your home. But, if you lease the system, you will need to transfer the lease to the new owner, which can complicate selling your home.

How To Finance Your Solar Panels Instead of Incurring Cost of Leasing Solar Panels

How much do solar panels cost? is a typical concern for homeowners who wants to invest in solar panels. Whether for home use or investing in solar farms, the cost of solar panels determines the type of solar panel to buy and, consequently, your solar farm income per acre.

Below are ways you can finance your solar panels.

  • Cash

Buying cash is the best way to finance your solar panel with clear benefits. This is because you don’t pay for interest or loan processing payments; you also take advantage of the federal solar tax credit.

However, you must have some cash because quality solar panels don’t come cheap.

  • Solar Loan

A solar loan is another option if you can’t afford to buy your solar panel in cash. Like other loans, you will be required to make payments, and you will be charged interest which adds to the cost of the solar panel.

Solar loans can be secured or unsecured. A secured loan is backed by collateral, like your house or solar panels.

This means that if you fail to pay, the lender can sell your collateral to pay off the loan.

For instance, with a home equity loan or home equity line of credit, you can borrow against the equity of your house (total house value less mortgage.) But can you buy leased solar panels on loan? Yes, you can get a solar loan to buy leased solar panels outright.3

Can You Get Free Solar Panels in California?

It is impossible to get solar panels for free due to their high cost of production. “How to get solar panels for free” is a misleading marketing tactic used to target solar users.

But in the real sense, you will be getting solar panels on a lease (you don’t pay anything during installation, but you will be paying a monthly payment to the leasing company to use the solar energy).

Photograph capturing a sunny day, featuring a house with a solar panel system installed on its roof, with the panels clearly visible in the sunlight.

(Image: Raze Solar9)

However, there are many options for solar loans California that you can explore to get funding to buy solar panels instead of leasing. This will also help you get tax incentives as there is no leasing solar panels tax credit.

Switching from traditional energy sources to more sustainable and eco-friendly sources like solar energy is essential for the environment. But before deciding whether to buy or lease solar panels, consider the above-mentioned pros and cons.

While buying helps you save in the long run, it requires an upfront cost that you can finance through cash or solar loans. But if you can’t afford to buy in cash or take a loan, you should consider solar leasing.

Hopefully, this guide has answered all your questions on the cost of leasing solar panels.

Frequently Asked Questions About Cost of Leasing Solar Panels

Is Investing in Solar Farms Lucrative, and What Is the Solar Farm Income Per Acre?

Yes, investing in solar farms is lucrative. You can earn an income ranging from $21,250 to $42,500 per acre annually, but the conditions can impact the rate of return.

Can You Buy Leased Solar Panels?

Yes, you can buy out a solar lease to own the solar panels outright.

Can You Get Leasing Solar Panels Tax Credit?

No, you don’t get tax incentive for leasing solar panels. The 26% federal solar tax goes to the leasing company.

Can You Get Solar Loans California?

Yes, you can get solar financing in California. But remember to do due diligence to get the best terms of repayment.


References

1Solar Energy Technologies Office (n.d.). Homeowner’s Guide to Going Solar. Office of ENERGY EFFICIENCY & RENEWABLE ENERGY. Retrieved March 24, 2023, from <https://www.energy.gov/eere/solar/homeowners-guide-going-solar>

2Solar Energy Technologies Office (n.d.). Homeowner’s Guide to the Federal Tax Credit for Solar Photovoltaics. Office of ENERGY EFFICIENCY & RENEWABLE ENERGY. Retrieved March 23, 2023, from <https://www.energy.gov/eere/solar/homeowners-guide-federal-tax-credit-solar-photovoltaics>

3Federal Trade Commission (n.d.). Home Equity Loans and Home Equity Lines of Credit. FTC Consumer Advice. Retrieved March 24, 2023, from <https://www.consumer.ftc.gov/articles/0227-home-equity-loans-and-credit-lines>

4National Renewable Energy Laboratory.(2009, January 17). Solar Leasing for Residential Photovoltaic Systems. NREL. Retrieved March 24, 2023, from <https://www.nrel.gov/docs/fy09osti/43572.pdf>

5United States Environmental Agency. (2023, February 5). Solar Power Purchase Agreements. EPA. Retrieved March 24, 2023, from <https://www.epa.gov/green-power-markets/solar-power-purchase-agreements>

6Photo by Kindel Media. Pexels. Retrieved from <https://www.pexels.com/photo/aerial-view-of-houses-with-solar-panels-along-the-road-9875673/>

7Photo by Raze Solar. Unsplash. Retrieved from <https://unsplash.com/photos/Q5W5-X85LqQ>

8Photo by Raze Solar. Unsplash. Retrieved from <https://unsplash.com/photos/cbCR1P9ngM0>

9Photo by Raze Solar. Unsplash. Retrieved from <https://unsplash.com/photos/VPn2pADCn5o>