Thinking About a Solar Lease? Here’s Why You’ll Regret It

Is buying a house with a solar lease in Connecticut worth it? In most cases, probably not. Here’s why:

Lack of Ownership and Tax Credits

• With a lease, the homeowner does not own the solar panels and therefore cannot claim the federal tax credit (26% in 2022) or any state incentives. The leasing company gets those benefits instead.

Complicates Home Sales

• Having a leased solar system can make selling your home more difficult. Potential buyers may be scared off by having to assume a 20-25 year lease contract and the extra monthly payments that come with it.
• Some buyers will insist that the seller buys out the remaining lease before they purchase the home, which can be very costly.

Potentially Higher Long-Term Costs

• Many leases include an annual “escalator” that increases the monthly payments by a set percentage (often 2.9%) each year, which can result in paying substantially more in later years of the lease term.
• If electric rates don’t increase as fast as the lease payments, the homeowner could end up paying more for solar than if they had no solar at all or purchased a system outright.

Less Flexibility

• Being locked into a 20-25 year contract means less flexibility if energy needs or utility rates change. With ownership, the homeowner has more control.
• Leases can make it harder to make other home improvements like roof repairs/replacement since a 3rd party owns the equipment on the roof.

So in summary, while a solar lease may seem attractive for the low upfront cost, buying a home with an existing lease comes with some major drawbacks and risks that often make it not worth it in the long run, especially compared to purchasing solar panels outright.

Homebuyers should fully understand the lease terms and crunch the numbers carefully before taking on someone else’s solar lease.

The main exceptions would be if the lease has exceptionally good terms (low payments, no escalator) or if the buyer cannot utilize the tax credits and other financial benefits of ownership anyway due to their tax situation.

Discover the surprising solar financing options that could save you thousands on your solar installation. Learn more →

How Solar Leases Work

Under a solar lease agreement, the leasing company is responsible for the installation, ownership, and maintenance of the panels on your home.

You enter into a contract, typically for 20-25 years, to purchase the power generated by the system at a predetermined rate per kilowatt-hour, which is usually lower than your current utility rate.

The key difference versus other options like buying panels outright or using a solar loan is that with a lease, you don’t own the system.

This means you miss out on certain benefits of ownership, but also avoid responsibilities like repairs and maintenance.

Is solar worth it in Connecticut? The real costs and incentives may surprise you. Get the full scoop here.

Pros of Solar Leases

The main advantages of choosing a solar lease are:

• No or low upfront costs compared to the significant expense of purchasing a system
• Maintenance, monitoring, and repairs are all handled by the leasing company
• Allows you to lower your electric bill, though savings are typically lower than with ownership

Advantages of Solar Leases

While buying solar panels outright provides the greatest long-term savings and return on investment, leasing can be an attractive option for homeowners who face certain financial or logistical constraints. The main advantages of choosing a solar lease include:

No or Low Upfront Costs

One of the biggest barriers to going solar is the significant upfront investment required to purchase a system. Solar leases allow homeowners to install panels with little to no money down, making solar accessible to those who lack the cash reserves for an outright purchase.

Wondering what the cost is to go solar in CT? Here’s a detailed guide you can’t miss.

Maintenance Covered by Leasing Company

When you lease solar panels, the leasing company retains ownership and responsibility for the system’s upkeep. This means any repairs, part replacements, or other maintenance needs are handled by the leasing company at no additional cost to you. For homeowners who want a “hands-off” solar experience, leasing can be appealing.

Ability to Go Solar with Low Tax Liability

To take full advantage of solar incentives like the federal investment tax credit (ITC), you must have sufficient taxable income. For retirees or those with lower tax bills, these valuable incentives may be difficult to utilize. With a solar lease, the leasing company claims the tax credits and passes along some of those savings to the customer through lower monthly payments. So leasing can be a good option if your tax situation prevents you from realizing the financial benefits of solar ownership.

Lower Electricity Costs

Although the savings are more modest than with a solar loan or cash purchase, leasing panels can still help reduce your monthly electricity costs. The lease payments combined with your remaining utility bills are typically lower than your pre-solar electricity expenses, allowing you to realize some degree of energy savings.

Solar leases provide a way for homeowners to go solar with no upfront investment, avoid maintenance responsibilities, and still save some money on electricity costs each month. For those who don’t have the financial means or tax appetite to purchase solar panels outright, leasing can be a viable alternative to reap some of the benefits of renewable energy.

Did you know solar is now cheaper than grid power in CT? See how much you can save with $0 down solar financing. Calculate your savings »

Cons of Solar Leases

However, there are several potential drawbacks to be aware of with solar leases:

• You forfeit valuable incentives like the 26% federal solar tax credit, which goes to the leasing company as the system owner
• Solar leases can make selling your home more difficult, as potential buyers must agree to take over the remaining lease payments
• Savings over the 20-25 year lease term are lower compared to buying panels with cash or a solar loan
• You are locked into a long contract with the leasing company, limiting your flexibility
• Some leasing companies have aggressive sales tactics or unfavorable contract terms like price escalators that need to be carefully reviewed

 

Other Solar Financing Options for Connecticut Homeowners

While leasing is one possibility, Connecticut homeowners have other options to affordably go solar:

• Buying panels outright with cash provides the highest long-term savings and return on investment
• Solar loans let you own your system with no or little money down and low interest rates. For example, Connecticut’s Green Bank offers Smart-E Loans with rates as low as 4.49%
• The state also provides incentives for solar ownership, like sales and property tax exemptions

 

Read our detailed guide on CT solar rebates and incentives to maximize your savings.

Comparing quotes from multiple solar installers can help you find the best financing option for your needs and budget.

Understanding Solar Lease Terms and Conditions

When evaluating solar leases, it’s crucial to carefully review the terms and conditions, as they can vary significantly between providers. Here are some key factors to consider:

Comparing Lease Terms Between Providers

Solar lease terms typically range from 15 to 25 years, but the specific duration and details can differ by company. Some key variables to compare include:

• Monthly payments and escalation rates: Most leases have a fixed monthly payment, but some include an annual escalator that increases the payment by a set percentage each year, usually between 1-5%. A lower or no escalation rate is preferable.
• End of lease options: What happens when the lease ends? Can you renew the contract, purchase the system at a discounted rate, or have the panels removed? Make sure the options align with your preferences.
• Warranty coverage: Lease terms should clearly state who is responsible for system repairs and maintenance. Confirm the lease includes comprehensive coverage with an extended warranty.

Hidden Fees to Watch Out For

While solar leases often have no upfront costs, there may be additional fees buried in the contract. Some common ones include:

• Origination or documentation fees to cover the costs of setting up the lease agreement
• Broker fees if a third-party company arranged the lease deal
• Removal fees if you need to take the panels off your roof before the lease ends, such as when selling your home
• Early termination fees if you need to break the lease before the term is up, which can be substantial

Read the contract carefully and ask the provider to clearly explain any extra fees before signing.

Maintenance Responsibilities

One advantage of solar leases is that the leasing company typically handles all system maintenance and repairs at no extra charge to you. With a direct purchase or loan, you are responsible for monitoring performance and fixing any issues that arise, either on your own or by paying for a service plan.

However, even with a lease, you still need to keep the panels clean and make sure they are not shaded by trees or debris. Clarify with the provider what routine upkeep you are expected to perform.

Transferring or Buyingying Out a Lease When Moving

If you sell your home before the lease ends, you usually have two options:

1. Transfer the lease to the home buyer, who takes over the remaining payments. This requires the buyer to qualify with the leasing company, which can complicate or delay the sale.
2. Buy out the remainder of the lease yourself. Most contracts include a pre-set buyout price, but it may be at a premium. You are then responsible for having the system removed or asking the buyer to purchase it outright.

Evaluate the lease transfer and buyout terms carefully, as they can create difficulties when selling a home with leased panels.

Connecticut’s New Net Metering Program – what financial benefits and savings does it provide? Learn now.

Customizing a Lease for Your Energy Needs

Solar leases offer some flexibility to tailor the agreement to your situation. Most providers will design a system based on your past energy usage and goals for electricity bill savings. They will also factor in your location, roof size and sun exposure to determine the appropriate system size.

However, with a lease, you have less control over the specific equipment used compared to purchasing panels yourself. You are also locked into the monthly payments for the lease term even if your energy usage changes. Some contracts allow you to upgrade the system partway through, but usually at an increased cost.

Before signing a lease, have the provider clearly explain your options for customizing the system and contract to fit your needs. Get performance estimates in writing and understand any limitations on modifying the lease in the future.

By carefully evaluating the terms, fees, maintenance, portability and flexibility of solar leases, you can make a more informed decision about whether this financing option is right for you. While leases can save money with no upfront cost, they provide less control and may have more complications than purchasing panels directly. As with any major contract, read the fine print closely to understand your rights and obligations over the full lease term.

Final Word

While solar leases may seem like an attractive option due to low upfront costs, they often come with significant long-term drawbacks. These can include complicated contracts, escalating payments, and the inability to benefit from tax incentives and other financial incentives that come with ownership.

For most homeowners, purchasing a solar system outright or financing it with a solar loan will provide a better financial return and more flexibility in the long run. Doing your research and comparing quotes from multiple installers is key to finding the best option for your specific situation.

Ready to see how much you could save with solar? Get started today by requesting a free, no-obligation quote from trusted local installers. They can help you explore all your financing options and find the perfect solar solution for your home and budget. Take the first step towards energy independence now!