How Long Is A Solar Lease?
What is a Solar Lease?
A solar lease is an agreement that allows homeowners to install solar panels on their property with little to no upfront costs. Under a solar lease, a solar company owns, installs, maintains, and insures the solar energy system on a customer’s home, while the homeowner agrees to monthly lease payments to essentially “rent” the system (Forbes, 2023).
This arrangement allows homeowners to go solar without paying the high upfront costs of purchasing and installing solar panels. The solar company covers all costs and owns the system. In exchange, the homeowner signs a long-term contract and agrees to make regular lease payments to the solar company for use of their system (Sunrun, 2017).
A key benefit of solar leases is that they allow homeowners to lock in competitive electricity rates for the duration of the lease term, often around 15-25 years. While utility rates typically increase over time, solar lease rates often have pre-set annual escalators around 2-3% to account for inflation (Palmetto, 2023). This protects homeowners from rising utility costs.
Typical Length of a Solar Lease
The standard length for a solar lease is typically 20-25 years. According to Ecowatch, most solar leases last for 20 to 25 years, which lines up with the average lifespan of solar panels in the 25 to 30 year range. This allows customers to utilize the solar panels for essentially their entire usable lifespan (1).
However, solar lease terms can range anywhere from as short as 10 years to as long as 30 years. As noted by SolarReviews.com, solar leases tend to be between 20 and 25 years since this matches the functional lifespan of most solar panels. But lease terms can be tailored based on specific needs of the homeowner and project (2).
The key factor is that solar leases are intentionally long-term agreements to provide the homeowner with lower monthly payments spread out over decades, while also covering the operating lifespan of the system.
Why Solar Leases Are Long-Term
Solar leases are typically 20-25 years long for a couple key reasons:
First, the long lease term allows the solar company to recoup the upfront costs of purchasing and installing the solar panels on a customer’s home over an extended period of time (https://www.solarreviews.com/blog/solar-lease-everything-you-need-to-know/). Since solar panels have become much cheaper over the past decade, financing the system over 20+ years allows companies to offer solar to homeowners with little or no money down.
Second, the long lease locks customers into a pre-determined rate for solar electricity over the life of the contract. This protects the homeowner from rising utility rates and provides stability in energy costs over the next couple decades (https://www.marketwatch.com/guides/solar/leasing-solar-panels/). While electricity rates from the grid often increase year-to-year, solar lease payments stay constant.
Can a Solar Lease Be Transferred?
Yes, a solar lease can typically be transferred to a new homeowner if the home with the leased solar system is sold. According to Sunrun, transferring your existing solar system to your new home is an option when moving, although it may make more financial sense to sell the system with the home and invest in a new system.
When a home with a leased solar system is sold, the new owner takes over the remaining lease payments and terms. This allows them to continue benefiting from the solar system without having to purchase it outright. According to Homelight, transferring the solar lease gets the seller off the hook for any remaining payments.
There may be some fees associated with transferring a solar lease, such as an inspection fee or documentation fee. The solar company will need to be notified in advance (typically 30 days) to complete the paperwork and perform any necessary inspections before the lease can be officially transferred to the new homeowner.
Overall, transferring a solar lease provides flexibility for both home buyers and sellers when a home changes ownership. With proper planning and coordination with the solar provider, the transition can typically be handled smoothly.
What Happens at End of Lease?
When your solar lease ends, you have several options:
Make sure to review your contract and discuss options with your solar provider as the end of lease approaches. Proper planning ensures a smooth transition whether you keep the system, extend the lease, or have it removed.
Early Termination of a Solar Lease
Most solar lease agreements require a 20-year commitment from homeowners. However, there may be situations where a homeowner needs to terminate the solar lease early. Unfortunately, early termination of a solar lease often involves paying penalties and fees.
Solar leasing companies include early termination fees to cover the lost revenue from ending the lease before the full term is up. Fees typically range from $1,000-$5,000 depending on how early you cancel the lease and the size of your solar system.[1] The solar company may charge a fixed dollar amount, a percentage of the remaining lease value, or the present value of remaining lease payments.
Before canceling, review your solar lease contract to understand the specific fees you’ll incur for early termination. Getting out of a solar lease is difficult but may be possible in certain situations, such as if you need to move or have financial hardship. Work with your solar company to negotiate the fees or seek legal counsel if needed.
Compare Lease vs Purchase
One of the main differences between leasing and purchasing solar panels is the upfront cost. With a solar lease, there is typically no upfront cost to the homeowner. The solar company owns the system and handles the installation. This allows homeowners to start generating solar energy without any large initial investment.
In contrast, purchasing a solar system requires paying the full price upfront. According to Consumer Reports, buying a solar system outright usually costs $15,000 to $20,000 after tax credits and incentives. While this is a significant upfront investment, purchasing the system means you own it outright.
Another key difference is the ongoing costs. With a solar lease, you pay a fixed monthly payment to essentially “rent” the system. Typical lease payments range from $100 to $200 per month. There are no ongoing costs with a purchased system outside of maintenance.
Overall, for those looking to avoid upfront costs, a solar lease is preferable. For those who can afford the upfront investment, purchasing the system can provide greater long-term savings. When deciding between leasing versus buying solar panels, it’s important to consider both the short-term and long-term costs and benefits (Consumer Reports, 2016).
Are Lease Payments Fixed?
One of the most appealing aspects of solar leases is that your monthly payments usually remain the same over the entire term of the lease. According to EnergySage, most solar lease contracts lock in a fixed monthly payment that will not increase over time [1]. This allows households to accurately budget for their solar panel payments each month.
For example, if you sign a 20 year solar lease at $100 per month, you can expect to pay $100 every month for the entire 20 year term (barring any pricing terms for escalation). This is different from purchasing a solar system outright, where your monthly savings may fluctuate depending on energy rates and production. With a solar lease, you don’t have to worry about production and can simply pay the fixed monthly amount.
While most solar leases have fixed payments, there are some that have escalation clauses allowing the payment to increase by a certain percentage each year. Be sure to read the fine print of any solar lease agreement to understand the payment terms and if they will change over time.
Tax Benefits of a Solar Lease
One of the key benefits of leasing solar panels is being able to take advantage of tax credits and incentives without having to pay for the system upfront. With a solar lease, the leasing company owns the equipment and can claim the federal tax credit for solar. According to Energysavingpros.com, “The zero down solar leasing company will take your 30% Federal tax credit that should have gone to you.”
While the solar leasing company receives the tax credit directly, they typically pass on the benefits to the homeowner in the form of lower lease payments. As Pacific Power explains, “For your business to get a 30% refund on your solar lease, the panels must be brand new or have limited previous use. This means no more than 1/5 of your PV system has been previously used.”
So by allowing the leasing company to claim the 30% federal tax credit, homeowners can get lower rates on their solar lease without having to pay the high upfront costs of purchasing a system.
Key Takeaways
The typical length of a solar lease is 20 years. This long-term lease allows homeowners to save money on electricity without large upfront costs. While lease terms are not very flexible, you may be able to transfer a lease when selling your home or end it early for a fee. At the end of the lease, you can extend, buy the system, or have it removed. While lease payments are fixed, they likely escalate by a set percentage each year. There are tax credits but no direct rebates. Overall, a solar lease lasts 20 years with minimal flexibility, but allows you to save on electricity with no money down.
