You have more options than buying home solar panels. If you’re interested in solar to save money or make your home greener but want to avoid the upfront expense, solar leases are worth looking at.
This guide breaks down the differences between buying and leasing so you can make the right decision for your budget, your energy needs, and your home.
See how much you can save by going solar with Palmetto
Leasing Solar Panels
Like with personal vehicles, a solar panel lease agreement enables you to lease, or rent, a renewable energy system for a monthly payment. With a solar lease or power purchase agreement (PPA), (a similar but distinct agreement), you receive long-term energy savings when your energy bill savings exceed your lease payments.
Pros of a solar lease
The exact financial benefits of leased solar panels vary by company and by homeowner. Generally speaking, the key advantages of a solar lease are:
- Little or no upfront costs during design, installation, and interconnection
- Complete lifetime system coverage with no additional fees for maintenance
- Instant electric bill savings with fixed monthly payments to lower long-term energy costs
Cons of a solar lease
Before you sign with your leasing company, there are a few important things to know about solar panel leases. Potential drawbacks of solar leasing include:
- Plans may have an annual payment escalator
- May require extra steps when selling your home
- Lower lifetime savings potential versus buying solar panels outright
- Missing out on most tax incentives and rebates
Buying Solar Panels
Before leasing solar panels, consider whether buying your system is possible. A cash purchase for solar panels usually delivers the most lifetime savings. Most solar buyers finance their purchases with a solar loan.
Pros of buying solar panels
If you purchase solar panels, you can unlock many benefits beyond reducing your carbon footprint. As a homeowner in the US, this includes:
- Qualification for the federal tax credit and other solar incentives
- Higher long-term savings potential compared to a solar lease
- Increased property value
Cons of buying solar panels
When buying solar panels, your experience will depend on your installer and the terms of your contract. Although not true for every transaction, potential downsides to buying solar panels include:
- Maintenance and repair responsibilities beyond included warranties
- Loans may require a down payment or large monthly installments to maximize value
- High interest rates can limit long-term savings
An Alternative to Utility Company Electricity Bills
When you install solar panels (purchased or leased), you can achieve lower and more predictable energy expenses than the variable and rising costs of grid-supplied electricity. After substantial increases in the first half of the decade, the International Energy Agency expects the average price for grid power at home to continue rising through 2025 and beyond.
The cost of leasing solar panels vs your electric bill
Leasing solar panels enables electricity bill savings without any upfront cost. Another great source of value is that there are rarely any out-of-pocket lifetime expenses beyond your monthly lease payments.
Therefore, a solar lease presents a more predictable alternative to ongoing electricity bill payments over its multi-decade lifetime.
To illustrate, let's do a little bit of math.
In 2023, the average residential electricity rate was 16 cents per kWh. In 2013, the average US rate was 12.13 cents per kWh. In 1990, the average rate was 6.57 cents. The average annual increase is about 3.2% a year from 2013-23. A lease’s or PPA’s price escalator is often about 3% a year.
When utility rates rise faster than lease escalators, homeowners stand to save even more money over the lifetime of their lease.
Cash flow of an outright solar purchase vs electric bill
If you purchase a solar panel system outright, your cash flows will be relatively simple.
Let's say you buy solar panels for $15,000 and qualify for a federal tax credit worth 30% of your total project costs. In this scenario, you would pay $15,000 upfront and receive federal tax credits worth $4,500, resulting in a net investment cost of $10,500
Your solar panels would "pay for themselves" once you've reached $10,500 in utility bills avoided.
With 10,800 kilowatt-hours of annual electricity consumption as the average for a US home, at 16 cents per kilowatt-hour, the average home paid about $1,728 for grid-supplied electricity in 2023. Therefore, if the above system lowered that average bill to zero, based on the $10,500 estimate, it would "pay for itself" in 6.1 years of energy bill offsets or even sooner if electricity rates continue to rise as expected.
These numbers are just simplified estimates and may not reflect your situation. Unavoidable utility charges, your net metering or net billing plan, and your changing electricity use could change your savings and payback period.
Cash flow of solar financing vs electric bills
When you finance solar panels, your monthly payments depend on a few factors: whether you elect to make a down payment, the length of your agreement, and the total price of your investment after interest and lender fees.
The key benefit of a solar loan (compared to a lease) is you’ll eventually own your solar panels outright. And, in most cases, your solar panels will continue to produce electricity well after you've paid them off in avoided utility bills, leading to further lifetime savings.
Before you purchase solar panels, know that you may be responsible for repair or maintenance costs outside of manufacturer or installer warranties. For this reason, read all of the fine print before signing your contract and working with a solar company that offers lengthy, comprehensive coverage.
See how much you can save by going solar with Palmetto
Making the Decision: Lease or Buy?
So, to lease or buy your solar system? That is the question.
Any of these options may work, but deciding which is best for you is about your unique circumstances.
While paying outright for your panels will likely deliver the most long-term savings, choosing a loan, lease, or PPA with no upfront cost may be best. Reach out to a Palmetto Solar advisor for personalized guidance and assistance.
Every homeowner is different, but here are a few scenarios in which buying or leasing your solar system may make more sense.
Solar leasing may be a better option if…
- You do not qualify for the full federal tax credit (as well as local tax credits).
- You prefer third-party ownership that includes all solar system maintenance.
- Your financing options are not worth it due to high interest rates or extended terms.
Buying solar panels may be a better option if…
- You qualify for solar tax credits to reduce the total cost of your investment.
- You plan to move within the operating lifetime of the solar panel system.
- You can save more on utility bills over time than with a solar panel lease agreement.
Going Solar With Palmetto
Palmetto Solar offers custom home solutions for purchasing, financing, and leasing solar panels.
LightReach Energy Plan
When you choose Palmetto's LightReach Energy Plan, you can avoid upfront costs and guarantee energy savings. When you enroll in LightReach, Palmetto owns the system and is responsible for its performance while you reap the cost-saving benefits of solar.
Your Palmetto LightReach Energy Plan means consistent monthly payments designed to reduce your electricity bill. You’ll also get a 90% production guarantee and 25 years of system monitoring and maintenance.
Purchasing a solar panel system with Palmetto
If you decide to purchase solar panels, Palmetto offers competitive prices, comprehensive protection, and unparalleled customer service for homeowners in the US. When you buy solar panels with Palmetto, our team will help facilitate the ideal purchase for your property with flexible system design and multiple options for financing and service.
Palmetto Protect system monitoring and maintenance
To safeguard your renewable energy investment, the Palmetto Protect plan includes industry-leading warranty coverage for solar panels, inverters, workmanship, and roof penetrations.
All Palmetto Protect customers benefit from proactive remote system monitoring, real-time energy savings insights, and 5-star customer service.
In the Performance Plan powered by Omnidian, Palmetto Protect guarantees your panels will generate at least 95% of the solar energy production estimated in your contract.
Palmetto customers with a LightReach Energy Plan are automatically enrolled in Palmetto Protect for the duration of their agreement.
If you want to learn more about buying or leasing panels, explore your possible savings with Palmetto’s interactive solar benefits calculator, or contact a solar professional today.
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Frequently Asked Questions
When can a solar lease make more sense?
A solar lease can make sense for you if you want little or no upfront cost to have home solar power and see savings on energy. You can also have peace of mind with maintenance.
How do I choose the right system for my home?
The right solar energy system for your home will depend on a variety of factors, including your current electricity usage, the size and layout of your roof, and your preferred level of energy independence. A reputable solar company will design a custom solution to meet your needs whether you decide to buy or lease.
Will I be eligible for tax credits or other incentives with a lease or a PPA?
In most cases, no, you won’t be eligible to use tax credits, rebates, or incentives with a lease or power purchase agreement. In some cases, the company you lease from may lower lease costs because of credits or incentives the company uses, like we do at Palmetto.
Note: This content is for educational purposes only. Palmetto Cash flow of an outright solar purchase vs. electric bill does not provide tax, legal, or accounting advice. Please consult your own tax, legal, and accounting advisors.
Andrew GiermakWriter and EditorAndrew joined Palmetto in Charlotte in August 2024. He’s been a writer in journalism, then in business, going back to almost the 20th century. He’s lived in Indiana, Virginia, Pennsylvania, Virginia again, and now North Carolina for the last 12 years. He likes golf. Is he good at it? Not so much.
