Advice on Leasing Solar Energy Systems
Last updated April 2016
If you live in the District or Maryland and want to go solar but don’t want to pay $20,000 or more up front for it, then leasing may be a better option. Unfortunately, because Virginia’s and Dominion Power’s policies are unfriendly toward solar, Virginia residents don’t have this option.
When you lease, the company installs a system of your choice on your roof, just as if you were purchasing it. But instead of paying the company for the system up front, you sign a contract that requires you to make monthly payments over the course of 15 to 20 years (sometimes with a small down payment at the start). During the lease period, you still pay your electric company for the power you need to buy from it, minus any credits you get when your panels create excess energy and supply it to the grid, just as you would if you bought the panels and system. Usually, the leasing company is responsible for maintaining the panels and equipment. Most leases require payment increases over time to account for rising energy costs. Because the leasing company owns the system, it gets the benefit of tax credits and other incentives.
Another type of lease is a power purchase agreement (PPA). Okay, it’s not really a lease at all, but almost everyone refers to it as a lease. Under a PPA, you and the company agree on size and placement of a system, and you sign a contract to buy the power the system produces. Like the leases described above, you don’t pay up front for the panels and equipment (although a small down payment might be required), and deals are usually long-term, often up to 20 years. But unlike a lease, you don’t get an electricity bill from your utility; instead, you pay the solar company a set monthly fee according to your contract. As with other types of leases, the company owns the system and gets the benefit of tax credits and other incentives.
Take care when entering into leasing deals or PPAs. Because the companies that sell them front very large expenses to provide their systems, and because the deals run for a long time, it can be very hard to get out of these agreements. Consider the following:
- When choosing a company, take into consideration the same factors you would if you were hiring a company for a purchase. It should be licensed, insured, and certified.
- Get proposals from several companies. The largest providers of leases and PPAs are SolarCity, Sunrun, and Vivint Solar, but smaller operators may also offer good deals. Compare costs for each. In this area, most homeowners can expect to pay $50 to $100 per month if they lease or get a PPA.
- Check the fees and what you’re paying for. In addition to the monthly fee, contracts should specify brand of panels, system size, and projected power the system will create. Use the Department of Energy PVWatts Calculator to check the math.
- Watch out for large annual increases. If a company proposes annual hikes of more than three percent, find a better offer.
- Check the down payment. Some leases and PPAs offer lower monthly rates in exchange for an upfront $2,000 or $3,000 payment. If you do this, you are in effect prepaying your electric bills in exchange for the lower monthly fee. That’s fine, but these agreements should not include the usual periodic cost increases.
- Check what happens at the end of the agreement. Most leases will let you buy the system at the end of the term at a price set in the contract, and some allow you to purchase it during the term of the lease itself. Look for a low purchase price. Though most solar energy systems continue to perform efficiently for many years, 20-year-old panels won’t be worth much.
- Note references to the minimum power a system will produce each month and, if it doesn’t create that amount, how credits will be apportioned to your monthly bill.
- Check warranties and maintenance plans. They should last for at least as long as the term of the agreement.
- For a lease, note especially how long the company has to make repairs if the system fails. If the company is slow to make repairs, you shouldn’t get stuck paying your full electricity bill while you wait.
- Find out what happens if you sell your house before the deal ends. Can you terminate the lease without penalty? Can you transfer it to the next owner without a lot of hassles? Some homeowners have reported difficulties transferring leases to would-be buyers.
- Some leasing and PPA companies make it extremely difficult to exit in the first few years of the deal because they’re depreciating the equipment while also capturing the federal tax credits and other incentives, and the resulting tax advantages are part of their business models. If there’s any possibility you’ll need to sell and move within a few years, make sure language in the deal lets you do so without having to pay off part or all of the remaining term.
- Don’t buy into sales pitches that emphasize how leased systems will add to the value of your home; there’s a good chance they won’t.
- Ask about liens. Leasing companies routinely take out liens against their customers’ homes to protect against nonpayment. We really dislike liens. Ask if liens can be excluded from your contract; if not, at least make sure the agreement provides for an immediate waiver of liens once the lease expires.