Using alternative energy sources like solar power is great for the environment and reduces your household expenses. Photovoltaic (PV) systems usually require high upfront investments, which is why many homeowners consider leasing solar panels. You can lease solar panels by paying a regular fee to solar panel installers, enjoying the energy generated by the PV modules for a cheaper kilowatt-hour rate than the one charged by your electric utility.
If you want to know more about solar panel leasing, this article is for you. Here we will detail the basic concept of solar panel leasing, explain the key features involved, the pros & cons, and talk about many other interesting aspects of this scheme for acquiring and consuming solar energy.
What Is Solar Panel Leasing and How Does It Work?
Solar Panel Leasing is a simple way to enjoy solar energy without paying a high upfront investment for the technology. In this section, we explain the basic concept of how it works and the key features involved.
To generate solar energy, the usual method is making an upfront investment to acquire the solar system, paying a certified installer to set everything up in place, and waiting a few years until you have achieved the Return of Investment (ROI) for the system. With solar panel leasing, everything works differently.
Solar Panel Leasing is a paying scheme where you sign a contract with the solar installer or leaser, and they take care of any large upfront investment. Of course, this also means that you do not own the PV system installed on your roof, instead you have to pay the solar company a monthly fee for the right to use the energy generated by the system.
As you would expect, the solar company does not only take care of the cost for the modules and the solar panel installation, they also perform monitoring, repairing, and maintenance on the PV system. The only thing you need to do is pay the monthly fee and enjoy all the solar energy produced by the panels.
What Is Better, Solar Panel Leasing or Solar Panel Financing?
Solar Panel Leasing can prove to be quite beneficial. While you are not eligible for solar incentives, the savings could get to reduce your electricity bill down to 60% of the original cost. This means that for the 25 years term of the lease, you save around $17,700 for a historical monthly bill of $147 with a 40% saving.
Financing a PV system makes you eligible for most solar incentives, and it usually involves interest ratings range in from 4.49% to 16.99%, depending on your solar financer. Some states have financings options with very low-interest ratings of 1.5%.
A PV System could see its Return of Investment in around 10 years in some states, factoring in a 16.99% interest, this could increase the ROI to 11.7 years. Considering the $147 electricity monthly bills, during 25 years a PV system, after considering payment for the loan, could produce savings of around $23,461.20, making it a much better investment than Solar Panel Leasing.
What Is the Difference Between Solar Panel Leasing and Power Purchase Agreement?
Many solar enthusiasts looking to use solar energy and reduce their electricity bills have heard of the Power Purchase Agreement (PPA) and solar panel leasing. Some make the mistake of thinking that they are interchangeable terms, but this is not the case. Both of them are different schemes, although they have in common that there is no high upfront investment for the PV system.
As aforementioned, solar panel leasing means the company owns the PV system and they charge you a monthly fee for having the right to use the energy produced by the modules. Under this scheme, you get to enjoy all of the generated energy for that fixed tariff, disregarding how well or poorly the PV system performs.
Power Purchase Agreement is only similar in the fact that you also do not have to worry about paying for the solar panel cost or installation, nor own the PV system. The main difference is that with a PPA you will be paying the company for the solar energy (kWh) that the system produces, and you only have to pay your electric utility if you consume more power than what the PV system produces.
How Does Net Metering Relate to Each Scheme?
Solar Panel Leasing and PPA, work as if you owned the PV system under the net metering incentive. In the case of solar leasing, if the PV system delivers an excellent performance, your energy consumption will be entirely offset and you might even acquire net metering credits for future months.
For PPA, you usually consume more energy than what the system produces. If you end up consuming less than the produced energy, the electric utility under the net metering incentive, will grant you credits for that energy, especially since you paid for it to your solar company.
What Are the Most Common Terms for a Solar Panel Leasing?
The terms for solar panel leasing tend to vary between installers and states. There are some particular terms common in most contracts, in this section, we will cover some of them.
- The contract for solar panel leasing lasts for around 20 to 25 years, which is the same as the solar panel lifespan.
- There is a price escalator attached to the solar panel leasing contract. This means that the fixed monthly tariff will go up by 1 – 5% each year.
- Any type of maintenance, repairing, or similar tasks required by the solar panels, will be performed by your solar leaser.
- A leasing contract can be transferred to new homeowners in the case of selling the house.
Pros and Cons of Solar Panel Leasing
There are several pros & cons attached to solar panel leasing. In this section, we list the most important ones, allowing you to contrast them and analyze how beneficial solar panel leasing can be for you.
- Solar panel leasing does not require any high upfront investment.
- You will get a reduced electricity bill when compared to your previous utility.
- Any cost required for maintenance and repairing of the PV system will be covered by the solar leaser.
- Months with higher power generation will cost the same as any other month.
- You will consume clean energy for a cheap price.
- You are not eligible for most solar incentives like the solar panel tax credit.
- The acquisition or installation of any deep cycle battery energy storage system for off-grid homes will have to run on account of the owners.
- Some leasing contracts make it difficult to sell the home.
- You do not own the PV system.
- The savings are much lower when compared to owning the PV system.
Conclusion: Solar Panel Leasing, Is It the Best Option for You?
Solar panel leasing is one of the best ways to reduce your electricity bills without high upfront investments. Solar panel leasing has many pros, but also several cons, like the price escalator term attached to the contract.
While leasing a PV system is not recommended in some particular cases, it is a great option for most homeowners looking to enjoy solar energy without having to disburse a large amount of money. Even though this option is better in the short run, acquiring a PV system will provide you with a faster ROI and it can even deliver a higher savings in the long run.
Most solar panel leases can be installed with a grid-tie system or as an off grid solar system, but the leasing does not include the batteries. If you are considering leasing PV modules, you should be aware of the types of solar panels and the solar panel efficiency regarding the fixed tariff, ensuring that you are actually getting the best deal for your money.
If you do not consider solar panel leasing to be a good deal for you, you can always opt to finance a PV system. By doing this, you will be eligible for solar incentives like the solar investment tax credit and several other incentives available in your state.
Frequently Asked Questions (F.A.Q.)
The contract for solar panel leasing lasts for 20 to 25 years, which is the same as the lifespan of the solar panels. After the contract has ended, you can either choose to enter into a new solar panel leasing contract, acquire your PV system, or remove the solar panels and consume electricity from the grid.
Most solar leases have terms attached to the aspect of remodeling and repairing jobs performed at the roof of the home, especially when they are close to the PV system. Whenever you want to do any of these, you have to get in touch with your solar leaser to get permission to work around the system and work out the details for the job. They might even send a supervisor to check on the system.
In the grievous case that the homeowner or whoever signed the contract for the solar leasing dies, the contract gets automatically inherited by the person or persons who inherit the home. If you inherit a home and you want to opt-out of the solar lease, you have to contact the leaser to query about the cancellation terms for the leasing and the protocol attached to it.
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