When it comes to installing solar power, some homeowners want the benefits of powering their home with solar, without the burden of ownership of the system. For these homeowners, solar panel lease programs can be a great option, as they allow homeowners to get solar installed and eliminate their power bills without having to make the commitment to owning a system. Let’s take a look at how solar panel lease programs work and the benefits of going with a solar lease.
How Do Solar Panel Leases Work?
Solar panel leases work similar to car leases. Much like with a car lease agreement, the leasing company owns the solar panels, and the homeowner pays a monthly payment to that company to use them. In the case of leased solar panels, the “use” of the panels is the use of the power they create.
The homeowner typically doesn’t have to pay anything for the installation, or the panels, and the monthly payments are fixed, though sometimes there may be a 1%-3% yearly escalator. Solar leases typically have 20-25 year terms.
How Do Solar Leases Save the Homeowner Money?
Solar leasing enables homeowners to save money by setting up their monthly payments such that they are less than the homeowner was paying for power every month prior to the solar installation. The solar energy consultant should size the system such that the energy it produces during the day is enough to offset the homeowner’s usage. The way this works is through a system called “solar net metering”, which is a credit-earning and using system that allows the homeowner to zero out their monthly electric bill.
Solar Net Metering
Solar Net Metering is a California state law that allows solar homeowners to earn credit for how much solar energy their system generates over the course of an entire year instead of day by day or month by month.
The way that solar works is that, in the middle of the day, when the sun is up and shining bright, the system produces more energy than the homeowner needs, and at night, when it’s dark it doesn’t produce any energy. The system also produces more power than is required in the summer, when days are long, and not enough in the short winter days.
With solar net metering, homeowners earn credit when their system produces more power than their home is using by allowing them to feed the excess energy back into the grid and earn credits at the same retail price they would be paying for it at that same time. At night, when the system isn’t producing and the homeowner has to buy back power from the utility, they can then redeem those credits they earned earlier, and assuming they created enough credits earlier, offset that power purchasing completely by using those credits.
This credit producing and redeeming process over the course of the year can allow solar homeowners to minimize their power bill such that they only have to pay the very small monthly service charges, as well as the monthly solar lease payment. The amount they are paying for actual power from the utility will be close to zero.
So this situation, where the homeowner utilizes net metering and has a monthly lease payment much less than the power bill, allows homeowners to start saving money in month one. That leaves the homeowner with cash in hand month over month, and a guilt-free conscience, as they are producing their own power, and are no longer relying on the power company for fossil fuel based energy.
Protection From Electric Rate Hikes
The other way that solar leases save the homeowner money is by protecting them from inevitable electric rate increases in the future. SDGE increases rates every year and recently announced a 28% rate hike over the next four years. Taking into account increasing temperatures every summer which requires increased A/C usage, that’s a huge amount of money that homeowners will be paying to the power company in the coming years. Going solar allows homeowners to protect themselves from those increases, which makes their savings compound, and in SDGE territory specifically, compound a significant amount.
The Types of Solar Leases
There are two types of solar leases, a typical lease, and a Power Purchase Agreement (PPAs). With both, the homeowner is paying the leasing company for the power the solar panels produce. The difference between the two lies in how the homeowner is charged for the solar.
With traditional solar leases, the homeowner pays a fixed monthly payment to the leasing company for the power that the solar produces. This covers an agreed upon amount of production in the form of kilowatts per month; if the homeowner uses less than that agreed upon kW, they pay the same monthly payment, but if the homeowner uses more than that agreed upon amount, they have to pay for that power.
In a PPA, the homeowner agrees to pay a certain amount per kWh, and their payment changes based upon how much power they use. So, if the homeowner’s solar panels create more power one month, the bill will be higher. If there is less power used the next month, the payment will be lower. Hence the name “Power Purchase”.
In both leases and PPA’s, the leasing company may add an escalator to the monthly payment, which can raise the price of the power or the monthly bill around 1%-3% a year. Homeowners should be sure they know all the details of their agreement before they enter a lease or PPA. It may save them a lot of money in the long run.
Other Benefits of Solar Leases
Maintenance and Repairs are Covered
One of the most attractive aspects of solar leases is that the maintenance and repairs are taken care of by the leasing company. Due to the fact that the homeowner and the solar company agree upon a set amount of energy production per month, the solar company is required to make sure that the system is working and producing, otherwise the leasing company has to reimburse the homeowner for the power they had to buy from the power company when the solar was down. So the solar lease customer can rest easy knowing that, even if their solar goes down, they still won’t have to for the power they had to buy during that outage.
No Collateral Involved
One good thing about solar leases as compared to some solar power loans is that there is no collateral involved in obtaining a solar lease. So while many solar loans require that the homeowner borrows against home equity, homeowners who go solar with a lease can have their equity free to use on other home improvement projects. This can be advantageous to homeowners looking to add a pool or hot tub, and that need that home equity to borrow against.
What Happens at the End of the Lease?
At the end of the lease term, when it reaches it’s last scheduled month, the homeowner typically either extends the lease or request removal of the solar system. Many times, if the homeowner does not choose either of the aforementioned solar financing options, the lease will renew on a month-to-month basis. Homeowners should be clear on these terms before entering the lease.
Selling the Home With a Solar Lease
Homeowners looking to sell their home with an attached solar lease typically have two options:
They can either:
Reassign the Lease – If the buyer’s credit is good, typically the solar lease can be transferred to the new homeowner, along with the terms and conditions. In this case, the lease will be transferred to the new homeowner’s name upon the sale of the home.
Do a Buyout – The buyer of the home can also have the option to buyout the remainder owed on the system to own the system when they move into the home. This is typically the best and easiest way to do a transfer of a system.
Who are Solar Leases for?
Solar leases are great for homeowners who may not have the home equity for a solar panel loan, or who may not have the federal tax liability to be eligible for the Federal Solar Tax Credit. The 30% Federal Solar Tax Credit is saved only for homeowners who own their solar, so, unfortunately, homeowners who go with solar panel leasing do not qualify for it. In this way, leases are great for retired people who likely don’t have that tax liability.
For homeowners who have been considering solar who may be turned off by panel ownership, or who may not have the tax liability to take advantage of the federal solar tax credit, solar leases may present a more appealing option that can allow the homeowner to go solar zero down and start saving immediately. Solar leases are a great option for homeowners who are looking to switch to solar energy without the responsibility of panel ownership. To learn more about solar leases, contact us at Stellar Solar today.