Should You Lease or Buy Solar Panels?

While the residential solar tax credit has ended for homeowners who purchased systems, federal tax credits still exist for solar companies that offer leases and power purchase agreements (more on PPAs just below). Those savings could be passed on to consumers through 2027, says Sean Hayes, an executive at Palmetto, a clean energy company. Hayes oversees Palmetto’s solar leasing program, called LightReach. 

“There’s definitely been a lot of momentum in the industry of shifting from cash and loans to now power purchase agreements and leases, because that tax credit still exists,” Hayes says.

Here are some things to keep in mind if you’re considering a solar lease.

Solar leasing falls under the category of “third-party ownership,” which is also known by the trendier term “solar subscription” services. When you lease a solar system, you do not own any of the solar equipment. Instead, the leasing company owns and manages the hardware, and the consumer pays for–subscribes to–solar energy. 

This all means that you do not have any up-front costs when you lease. Instead, you have a monthly payment, ideally one that beats what you currently pay for electricity (you may still have a utility bill, but hopefully the solar lease plus utility payment would beat or match your current electricity costs). And since most solar leases last about 25 years, you would stabilize your electricity costs over the long term. Your lease may even come with production guarantees. That means if your system does not meet a minimum energy production standard over its lifespan, the leasing company may cut you a check for the difference.

Solar systems are generally low-maintenance. But if any issues arise, the installer or leasing company is generally on the hook for fixing them. For instance, panels may need some maintenance or cleaning after a heavy storm or other natural disaster. Or the solar inverter–the crucial component that converts the energy your panels collect into electricity you can actually use–may need to be repaired or replaced. Inverters usually last about 10 years, while solar panels tend to last for at least twice that long. Find out what kind of upkeep and repairs are included with a contract before you sign.

When talking to your solar installer about leasing, Hayes says you’ll want to pay attention to whether the lease has what’s called an “escalator,” which would increase your payments over the term of the lease.  

“The monthly rate that the customer signs up for may change from year one to year two to year three,” Hayes says. “So consumers should be very clear–will my monthly payment change year to year?”

Getting a pre-paid lease means you are essentially purchasing the solar energy you’d get over the course of an entire lease upfront, for a greater discount than if you opted for a monthly lease. You would still get the benefit of maintenance and monitoring of your solar system. Some companies may allow you to get a prepaid lease with the option to own the system in subsequent years.

A power purchase agreement is another third-party ownership model similar to a lease, in that you don’t own the solar equipment and instead pay a monthly fee for energy. But under a PPA, you pay for the amount of energy your solar system produces. That means your monthly payments would vary, costing more in, say, summer, when the days are long, and less in winter. As with a lease, your PPA payment would ideally be less than your electric bill without solar.

Whether you choose a lease or a PPA may simply depend on what you want monthly payments to look like. People may prefer to pay only for the energy they generate; others may prefer a consistent monthly bill. Like leases, PPAs are long-term agreements, commonly lasting 25 years.

And whichever arrangement you choose, remember that you are entering into a long-term contract. You may not have an option to end a lease early, unless you are transferring your lease to a new homeowner. Leases vary, and you’ll want to review terms to make sure you understand the specific options under your agreement.

If you are considering purchasing a solar system, there are still good reasons to own one–especially if you can pay with cash and avoid a loan at today’s high interest rates.

“We do still think that if people have that cash to pay, the best deal is to outright purchase your system,” says Franko, of Sugar Hollow Solar. 

For context, Franko says that many more of her customers in Western North Carolina are choosing to lease, especially since companies can leverage those tax savings to offer customers better leasing deals. But purchasing a system outright allows you to save more over its lifetime. It’s like paying for 25 years of energy up front, a bulk purchase for a lower rate. Again, you’re playing the long game.

Here are some ways you can financially benefit by being a solar owner.

Some state and local savings are available. The North Carolina Clean Energy Technology Center maintains a nationwide database of state incentives for solar and other energy-efficiency projects.

This is one way to benefit financially from the excess energy you generate and send back to the grid. When you produce more electricity than you’re using, for example, during the daytime or during months with longer days, your utility may offer you a bill credit. Those credits can be stored and used to offset electricity costs when your panels are not producing enough to meet your needs. Note that net metering arrangements vary widely by utility and location–another reason to work with a vetted solar installer who can talk you through the policies in your area.

In a handful of states, solar owners can arrange to sell their excess power to utilities that must meet renewable energy requirements. They sign up with a marketplace that assigns the excess electricity a certain number of solar renewable energy certificates (SRECs); those SRECs are then traded in a marketplace with fluctuating prices.