What is a Solar Lease?
While it is possible to have solar leases that are similar to leases of other types of equipment when you talk about solar leases in America you are typically talking about is a contract where a solar company agrees to fund the installation of panels on your roof and charge you a monthly fee for the use of these panels for the lease term.
The term of a solar lease is usually between 15-20 years.
The solar company owns the panels during the term and is typically responsible for maintenance.
This is known as a third party solar lease because the panels are owned by a third party and not the homeowner during the term of the lease.
While lease payments are expressed in $ per month (rather than in cents per kWh in a PPA) they can be converted to cost per kWh.
As you currently pay for electricity per kWh and as you measure kWh first to determine the savings offered by installing solar panels it is sometimes useful to convert a monthly lease fee into a cost per kWh.
Once you do this you are able to compare the returns and savings from a solar lease to the returns made from buying solar panels outright.
Is a solar lease better than buying solar panels?
In most cases you will save a lot more money over the 25 year life of a solar system by buying the solar panels rather than leasing them. However, the exception to this rule is when you do not have the federal tax liability to use the 26% federal solar tax credit.
However, for most of us that do pay federal income tax and so can get cash value for the tax credit then here is a comparison between the savings on a typical purchase of a 5kw system and the savings with leasing the same system.
|System Size 5kw||Purchased System (fund with HELOC loan)||PPA|
|Total Output per annum||7,851 kWh||7,851 kWh|
|Monthly payment to solar company||N/A||$102.00|
|Escalation percentage||N/A||Assume 0%|
|Annual Payment to solar company||$0||$1216|
|Total output over 25 year life||196,280 kWh||196,280 kWh|
|Cost of a replacement inverter after 12 years (may not be required||$1,300||N/A as solar company responsible|
|26% tax credit||$4,160||Solar company keeps your incentives|
|Total Payments to generate this amount of power||$18,753||$30,185 plus any residual payment at end of PPA|
|Savings on power over 25 years (assume 2.5% utility power price inflation)||$56,316||$56,316|
|Source of funding||HELOC loan at 5% originally for $16,000 but then paid down to $11,840||Funded by solar company|
|Profit (savings less total payments)||$37,563||$25,931|