Solar lease guide: How does a solar lease save you money?
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Author
Andrew Blok
Electrification and Solar Writer and Editor
Editor
Andrew Giermak
Solar and Electrification Writer and Editor
If your electric bill keeps climbing and buying solar panels isn't in the budget, you've probably heard about leasing. You may also have heard that leasing is the best thing since sliced bread, a scam, or something in the middle.
Solar leases can save you money by reducing your energy bills without the upfront cost of buying home solar panels. Whether you come out ahead depends on three numbers: your lease payment, your remaining utility bill, and your escalator, which is the yearly increase built into some lease payments. This guide shows how they fit together, and when a lease can cost you more.
How does solar leasing work?
With a solar lease, a company installs solar panels on your roof, owns them, and maintains them. You pay a monthly lease payment and use the electricity the panels produce. Your utility still supplies power when the panels aren't producing, so you’ll likely get an electric bill alongside your lease payment.
Read more: Why you get two bills with a solar lease and can still save
Here are the key features of the Palmetto Energy Plan, our solar leasing option.
- Zero money down with no processing fees.
- Predictable monthly payments over a 25-year contract.
- Maintenance included.
- A production guarantee. Ask to see the exact terms in your contract.
- A buyout option starting after year five.
Does solar leasing save you money?
Often, yes, but not for every home. You save when your lease payment plus your remaining utility bill is lower than your old bill. Energy Plans directly from Palmetto are designed to save homeowners money starting in year one. Your results depend on your usage, your utility's rates, your roof, and your escalator.
Read more: How solar lease savings work
Here is a hypothetical example. Assume you pay 16.48 cents per kilowatt-hour of electricity (the last full year average available from the U.S. Energy Information Administration, and you use close to the average for an American home: about 900 kWhs a month. You’d pay about $164 per month, on average.
Say panels cover 70% of your electricity needs. The remaining utility bill is about $49. Add a hypothetical $85 lease payment and the total is about $134, or roughly $30 less per month.
Three things can shrink that gap:
- A high escalator. With a 2% yearly escalator, that $85 payment would reach about $104 by year 11.
- Less sun. If trees grow up to shade your panels, or dirt and dust block sunlight, you’ll generate less electricity.
- Low usage. If you start with a small bill, you have much less to offset.
If utility electric rates rise faster than your escalator, your savings can grow. If they stay flat, a lease with an escalator could save you less over time.
Buying can also save more over the long run, since owners keep all of the savings once the system has paid for itself. Leases have other non-savings benefits, too. Here’s how the two options compare.
| Solar lease | Buying solar | |
|---|---|---|
| Upfront cost | Often none (zero money down with the Palmetto Energy Plan) | Entirety with cash; down payment with loan |
| Monthly cost | Fixed lease payment, which may rise with an escalator | Loan payment if financed, none if paid in cash |
| Maintenance | Leasing company | You |
| Ownership | Leasing company | You |
| Federal tax credit | Paid to leasing company | No longer available |
| When savings can start | Possibly year one | After the system pays for itself |
| Long-term savings | Can be lower than buying | Can be higher than leasing |
| Selling your home | Buy out the lease or transfer it | System goes with the house |
Read more: Leasing vs. buying guide
Pros and cons of solar leasing
Solar leasing has benefits and downsides.
Pros
- Low upfront cost, so you can go solar without a loan or cash outlay.
- Maintenance is handled by the company that owns the panels.
- Payments are predictable, and savings can start in year one.
Cons
- In some cases, you may save less over time than if you bought.
- Too high of an escalator can erode savings.
- Selling your home takes extra steps.
Will solar leasing work for you?
A lease tends to fit a home with a sunny, unshaded roof and an electric bill large enough for panels to offset in a meaningful way. It also fits a homeowner who wants lower bills more than ownership. If your roof is shaded or your bill is small, solar panels may not pay off.
To find out where you land, ask for a quote that shows the lease payment, the escalator, and estimated yearly production. Compare it to your last 12 months of bills. Then read the contract for the term, the buyout terms, and what happens if you sell. Our guide to avoiding a bad solar deal covers the warning signs.
If you're curious about leasing solar panels for your home, explore a free savings estimate from Palmetto, or learn more about the Palmetto Energy Plan.
See how much you can save by going solar with Palmetto
Frequently asked questions
Is it harder to sell a house with a solar lease?
It takes a few extra steps. You can buy out the lease, or transfer it to the buyer, who must qualify for it. See our guide to selling a house with solar panels.
Do solar leases really save you money?
They can, when your lease payment plus remaining utility bill is lower than your old bill. A high escalator, or a home poorly suited to solar can erase that. Ask for your escalator and estimated production in writing.
What happens at the end of a solar lease?
Typically you can have the panels removed, buy them, or renew. Terms vary by contract, so check yours. Read about your options regarding what happens at the end of a solar lease.
Disclaimer: This content is for educational purposes only. Palmetto does not provide tax, legal, or accounting advice. Please consult your own tax, legal, and accounting advisors.
