Solar power is one of the most affordable renewable energy options for both businesses and individuals. Companies offering solar products are everywhere these days, but to enjoy the benefits of solar energy, homeowners must make an important decision: the solar rental or leasing versus purchase of photovoltaic panels.
A solar lease is a long-term contract between a customer and a solar panel supplier.. For homeowners who want to cover their energy needs without incurring high bills, but don’t have the upfront capital to purchase a solar system, solar rental or leasing may seem like a viable option. We examine whether solar leasing is really a smart investment.
What is solar leasing or leasing?
Solar leasing is a financing option whereby customers pay a monthly fee for solar panels and can use the energy produced by the system.
However, they do not own the panels. It’s a similar arrangement to renting a car: the idea is to provide a simple option for those who want to live a more sustainable life and lower their electricity bills, without the overhead of buying a solar power system. .
Solar leasing has certain advantages such as reduces the customer’s initial costs to install the panels. Using a solar lease means that maintenance and responsibility for damaged panels rests with the solar company, not the owner. However, by not owning the panels, you are missing out on incentives such as state and local tax credits.
Typical solar leases are for 20 years and include a solar lease scale that increases monthly fees once a year based on current market prices and the energy outlook. Many solar leases include the option to buy the solar panels at a discount at the end of the lease (similar to a car).
Solar leasing was particularly important at the start of the solar transition, when systems were more expensive, but as the cost of solar panels has fallen, leasing doesn’t make as much sense as it once did.
Difference between leasing and a solar power purchase agreement (PPA).
In many ways, solar leasing presents a competitive option over a solar power purchase agreement (PPA). In the case of solar leasing, customers pay a monthly rent for the panels; Instead, with a PPA, customers pay per kilowatt-hour (kWh) of electricity produced.
In other words, the amount customers pay for a solar lease is determined based on the capacity of the panels, while solar PPAs are paid based on actual production.
This difference means that solar tenants will have a more fixed price, benefit more during the sunny summer months, and save even more money in the long run through lower energy bills.
Although solar leases and solar PPAs are contracts where the customer does not actually own the solar panels, the specifics of cost, reliability, savings and the like differ and must be considered by each building owner.
Typical conditions of a solar lease.
The terms of a solar power lease are key to knowing if it’s a good option for you. Depending on the needs, solar leasing companies can offer different rental durations, ranging from short to long periods. However, solar leases generally last between 20 and 25 years.
Since solar panels have an average lifespan of 25 to 30 years, customers end up being able to use the solar panels for their entire potential lifespan. Different solar leasing companies also offer opportunities for advanced services, such as monitoring, payment and observation via mobile and web applications.
These digital offerings include online applications through which customers can view their contract, make monthly payments and view usage over time. As in the utility industry in general, solar customers are looking to choose companies that offer better service and customizable solutions, providing a better user experience.
Customers should also be aware that solar leases typically require an annual payment increase of 1-5% per month due to rising electricity costs. However, these conditions are clearly spelled out in the contract, so they should come as no surprise.
Termination of solar energy lease.
Customers who decide to lease solar panels may find themselves in circumstances where they wish to terminate their contract, such as moving to a new home. Solar panel rental companies try to make this process as easy as possible, offering the option of transferring the rent to the new owners or breaking the contract and removing the panels.
Even if the contract is not terminated prematurely, at some point it will end. When this happens, customers can renew the same lease or terminate the solar contract. In the latter case, the solar company will dismantle and remove the panels.
A final option is for customers to be able to purchase the solar panels at a reduced price (a price that is sometimes specified in the contract at the time of the initial solar lease).
Is Solar Power Rental Right For You?
The decision to rent solar power, buy solar panels, participate in a PPA, or simply ignore solar power as an option is a very personal and important decision. To help you make that decision, here are some pros and cons of solar leasing to consider:
Advantages of solar leasing.
Solar leasing has many natural advantages, including:
- There is no need to pay the high upfront costs of installing solar panels.
- It locks in energy prices for the future when the market can be volatile.
- Eliminate the headaches of maintaining and monitoring equipment.
- Significant savings on the electricity bill.
- Reduce the carbon footprint of the house.
- Power guarantees on solar leases mean that payments can drop if the panel fails to produce as expected, minimizing risk.
Disadvantages of solar leasing.
However, solar leasing is not for everyone, as these contracts can carry a certain level of risk and worry:
- As utility rates increase, the lease price also increases each year and could reduce the expected cost benefits.
- As you do not own the solar panels, you are not entitled to tax breaks or incentives for installing solar power or local benefits.
- Although the initial cost is not high, over the life of the system you will likely end up paying an amount equal to or greater than what you would have paid had you purchased the solar panels.
- Rented solar panels do not add value to your property like your own panels do, because they are not part of your property.
- Breaking the lease can be a problem if you want to move.
Renting solar panels vs buying solar panels.
The first generations of solar panels were expensive, so renting was a more attractive option. But over the past decade, the cost of solar panels has plummeted, changing the rules of the game and making owning your own solar system more affordable and affordable.
The main difference between solar leasing and buying solar panels is ownership.. If you buy a solar system, you own it, which means you are responsible for its maintenance and running costs. However, if you rent a solar system, the company offering you this option is the real owner and must bear this charge.
Buying a solar system is the best option when you want to take full advantage of the possible economic benefits. These economic benefits include reduced state taxes through investment credits, government rebates (sometimes up to 30%), and additional credits for renewable solar energy. In addition, owning solar panels increases the market value of a property.
Therefore, although solar leasing can be profitable throughout the life of the contract, customers who have the ability to purchase the systems directly receive more economic benefits. Solar leasing, however, is the best option when you only want to use the electricity produced by the solar panel as a clean energy source.
Even if you don’t own the panels and aren’t eligible for any state tax benefits, you can still enjoy the financial benefits of solar power without the high installation costs, ever-present risk of having to repair damage, etc
In the case of buying solar panels, if you don’t have the money to pay up front, the big solar companies offer many options for financing them.