Solar Leasing 101: To Lease or Own?

A rapidly growing number of homeowners are choosing to lease, rather than own, their rooftop solar panels. This trend is facilitated by the high upfront costs of solar installation and the low-risk nature of the venture. Homeowners pay little to nothing initially, and then pay a fixed rate for the system over a period of 15 to 20 years on average. The leaser/installer covers the system costs (and enjoys subsequent rebates and incentives), maintains the system, collects on any net excess generation (NEG) the system sells back to the power grid and collects that check from the homeowners every month.

It’s typically a win-win for both parties. Homeowners save a significant percentage on their utility bills, while the installer collects rebates and any perks from excess solar electricity produced. Solar leasing eliminates the biggest hurdle for wannabe solar homeowners — upfront costs — while smoothing the way for a cleaner energy grid and a healthier environment.

A host of companies have entered the leasing game, led by SolarCity and SunRun — two California companies operating in several states — with SunRun taking its solar leasing model all the way to the East Coast, including states like New Jersey, Massachusetts and Pennsylvania. Typically, the states with burgeoning solar leasing markets are those with solar-friendly government incentives.

The SunRun Model

The SunRun model works like this: Homeowners pay about $1,000 up front (but as little as $0 and nothing compared to tens of thousands without a lease), and SunRun installs a solar system on their rooftop. Homeowners then pay for the electricity it produces. SunRun plans are either a solar lease or a power purchase agreement depending on where one lives, and last 18 to 20 years. Homeowners may choose to put more money down up-front and lock in lower rate for the term of the lease, or pay less and spread the costs out over time.

To Lease is Not to Own

That model is fairly representative of the norm. However, it is important to understand that solar leasing programs are not rent-to-own schemes. As SolarCity spokesperson Jonathan Bass was careful to point out, “If you want to own a system, buy it up-front, but if you want to maximize up-front savings and immediately lower your electricity bills, lease.”

While Bass is obviously a leasing proponent, his point is an important one. While leasing arrangements will save money immediately, they are not a path to the “free” solar electricity often touted as a long-term benefit of home solar power. After the lease term is up, homeowners may choose to renew the lease under a new contract or have the panels removed.

If ownership is preferred, then there are other financing paths, typically bank loans (often subsidized by the state government to guarantee low interest rates). While ownership does usually result in debt and more responsibility for the system, it also leads to bigger savings down the road and more control over one’s personal energy future. Solar leasing is a matter of convenience.

How Leasing Helps

Solar leasing companies make the transition to solar power much easier and affordable immediately. These are key ingredients to success, evidenced by SunRun’s more than 5,000 customers (in only three years of operation) and SolarCity’s stance as the top solar installer in the nation (according to their website). Also, the leasing model is spreading quite fast, with lesser known regional companies jumping on the bandwagon, and for good reason, as there is really no downside (only less of an upside compared to ownership). But solar leasing is there for everyone who can’t afford the $30,000 or more for a home solar power system but wants one anyway. With a lease, they can have it.

“There’s no reason 1 in 10 homes shouldn’t have a solar system on the rooftop,” said SunRun director Grayson Morris in a CalFinder interview. “This is the way people will buy the bulk of their electricity going forward. It just makes a lot of sense.”

Posted on August 13th in Going Solar by Dan.