How Does a Solar Panel Lease Work for a Homeowner?

Solar panel leases offer homeowners a way to use solar power without significant upfront investment. This arrangement makes solar energy more accessible by shifting ownership and maintenance responsibilities to a third party.

Defining a Solar Lease

A solar panel lease is a contractual agreement where a third-party company, the solar provider, owns, installs, and maintains a solar energy system on a homeowner’s property. The homeowner, as the lessee, pays a fixed monthly fee for the system’s use and the electricity it generates. This arrangement is a form of third-party ownership, meaning the homeowner benefits from solar power without holding title to the equipment.

This model differs from a direct purchase, where the homeowner buys and owns the solar panels, or a Power Purchase Agreement (PPA), where the homeowner buys electricity produced by the system at a set price per kilowatt-hour. With a solar lease, the payment is typically a consistent monthly amount, providing predictability in energy expenses. The solar provider assumes responsibility for the system’s performance and any necessary repairs.

The Solar Lease Stages

The process of entering into a solar panel lease agreement begins with an initial inquiry and consultation with a prospective solar provider. During this phase, the provider evaluates the home’s suitability for solar installation. This evaluation includes a site assessment to determine factors such as roof orientation, shading, structural integrity, and an analysis of the homeowner’s historical energy consumption.

Following the assessment, the solar provider designs a system tailored to the home’s energy needs and proposes a lease agreement. Once the homeowner reviews and accepts the terms, the lease agreement is formally signed. The provider then handles all necessary permitting and approvals from local authorities and utility companies.

After securing all required permissions, the physical installation of the solar panels commences on the homeowner’s roof. This process involves mounting the panels, installing inverters to convert direct current (DC) electricity to alternating current (AC) for household use, and connecting the system to the home’s electrical panel. The final stage is system activation and connection to the electrical grid, which often requires a final inspection and “Permission to Operate” (PTO) from the utility company. Once PTO is granted, the solar system begins generating electricity.

Financial Aspects of a Solar Lease

Under a solar lease agreement, homeowners make fixed monthly payments to the solar provider for the use of the solar panel system. These payments can range from approximately $50 to $250 per month, depending on factors such as the system’s size, energy output, and the homeowner’s location. Many lease agreements include an annual escalation rate, meaning the monthly payment may increase by a predetermined percentage each year, commonly between 1% and 5%. This escalation often aligns with potential increases in utility rates over time.

A financial benefit for homeowners is the potential for reduced electricity bills from their utility company. The electricity generated by the leased solar panels directly offsets the amount of power drawn from the grid, leading to lower monthly utility charges. Homeowners can often see savings between 10% and 40% on their overall energy costs. In some instances, the combined solar lease payment and remaining utility bill could be less than previous utility expenses.

The solar provider, as the system owner, typically claims any available federal and state solar incentives or tax credits, such as the Investment Tax Credit (ITC). These financial benefits are generally factored into the lease payment structure, allowing the provider to offer lower monthly fees to the homeowner. Homeowners do not directly claim these incentives themselves. The lease agreement usually stipulates that the solar provider is responsible for all maintenance, repairs, and performance monitoring of the system throughout the lease term. While many solar leases require little to no upfront costs, some agreements may include an initial payment, such as a security deposit, which can range from $1,000 to $3,000 to reduce subsequent monthly payments.

Lease Duration and Options

Solar lease agreements typically span 20 to 25 years. This term length aligns with the expected lifespan of solar panels, which can often exceed 25 years.

At the conclusion of the lease term, homeowners generally have several choices. One option is to renew the lease, potentially under new terms. Another option is to purchase the solar system from the provider. The purchase price is often based on the system’s fair market value at that time, though some contracts may specify a predetermined price. Alternatively, the homeowner can opt to have the system removed by the solar provider. Lease agreements typically stipulate that the provider is responsible for the removal of the equipment and restoring the property to its original condition, often at no cost to the homeowner.

Should the homeowner decide to sell their property during the lease term, the lease agreement often includes provisions for transferability. In most cases, the new homeowner will need to assume the existing lease agreement. This transfer process requires review of the lease terms by the prospective buyer, as it involves taking on the financial obligations and conditions of the remaining lease.