How Does a Solar Lease Work? What You Need to Know

A solar lease allows homeowners to access solar energy without purchasing the system outright. This model allows individuals to benefit from renewable energy by paying for the use of equipment owned and maintained by a third-party provider. It functions similarly to leasing a vehicle, paying for use without holding title. This approach makes solar energy more accessible by eliminating significant upfront costs.

Defining a Solar Lease

A solar lease involves a homeowner paying a solar provider for electricity generated by panels installed on their property, rather than purchasing the system. The solar provider retains ownership of the solar energy system, including panels, inverters, and associated equipment. The lease agreement typically covers installation, maintenance, and performance monitoring.

Payment structures often involve fixed monthly payments for the contract’s duration. Some agreements may include an annual escalator, causing payments to increase by a small, fixed percentage each year, commonly 1% to 3%. The homeowner benefits from the electricity produced by the system, which can lead to reduced monthly utility bills. Because the solar provider owns the system, they typically claim any federal, state, or local solar tax credits, rebates, or incentives, such as the federal investment tax credit (ITC).

Lease terms commonly span 20 to 25 years, aligning with the expected lifespan of solar panels. The provider handles any necessary repairs and ensures the system operates efficiently. This arrangement shifts responsibility for system performance and upkeep from the homeowner to the leasing company.

The Solar Lease Activation Process

Initiating a solar lease begins with a site assessment, where the solar provider evaluates the property’s suitability for solar panel installation, considering roof space, sun exposure, and electrical capacity. Following this assessment, a detailed proposal outlining system design and financial terms is presented to the homeowner. If the proposal is accepted, the homeowner signs a legally binding lease agreement.

After the agreement is signed, the solar provider handles obtaining necessary permits and approvals from local authorities. This permitting phase can vary significantly, often taking two to four weeks, but potentially longer depending on jurisdiction and project complexity. These permits ensure the installation complies with local building codes, safety standards, and electrical regulations. Once permits are secured, physical installation of the solar panels and associated equipment takes place, which for residential systems can often be completed within a few days or a week.

The final step before the system becomes operational is obtaining Permission to Operate (PTO) from the utility company. The utility reviews the installation to confirm it meets safety and interconnection standards, allowing connection to the electrical grid. This approval process can take several weeks, after which the homeowner can begin using the solar energy generated.

During Your Solar Lease Term

Once the solar energy system is activated, the homeowner makes predictable monthly payments to the solar provider. These payments can remain fixed or, more commonly, increase annually by a small percentage, often around 3%, as specified in the lease agreement. The solar provider assumes responsibility for all system maintenance and repairs throughout the lease duration. This includes performance monitoring, ensuring panels generate electricity efficiently, and addressing any issues.

Should there be a system malfunction or underperformance, the solar provider is typically obligated to troubleshoot and resolve the problem without additional cost to the homeowner. Many lease agreements also include performance guarantees, stipulating a minimum amount of electricity the system is expected to produce annually. If the system fails to meet this guaranteed output, the provider may compensate the homeowner.

A common consideration during the lease term is selling the property. When a home with a solar lease is sold, the lease agreement generally requires the new homeowner to assume the existing contract. This transfer process typically involves the prospective buyer undergoing a credit check by the solar company, with some providers requiring a minimum credit score, often 680 or higher. If the buyer does not qualify or is unwilling to assume the lease, the seller may be required to buy out the remainder of the lease or pay a termination fee.

End of Lease Choices

As a solar lease term approaches its conclusion, homeowners are presented with several choices regarding their solar energy system. One option is to renew the lease for an additional term, which may involve updated equipment or new contractual rates reflecting the system’s age. This allows for continued use of the solar panels without assuming ownership responsibilities.

Alternatively, the homeowner may purchase the solar energy system from the provider. The buyout price can be a predetermined amount specified in the original agreement or the system’s fair market value at the time of purchase. Acquiring the system allows the homeowner to gain full ownership and potentially benefit from future energy savings and new incentives.

A third choice is to have the solar provider remove the system from the property. This means the homeowner will no longer receive solar-generated electricity and will revert to relying solely on utility grid power. The lease agreement typically outlines the provider’s responsibility for panel removal and any necessary roof restoration at no additional cost to the homeowner.