How Does Solar Panel Leasing Work? What Homeowners Must Know

Many people come across ads promising “free solar panels” or “zero-down solar”, and chances are, they’re referring to a solar lease. I wouldn’t be surprised if that’s how you first got curious about solar panel leasing too. And while the offer can be really tempting (solar leases have become quite popular among homeowners), that doesn’t mean you should jump in right away. Truth is, it could either work out for you — or it could end up being a contract you regret signing. That’s exactly why, in this article, I’ve taken a deeper look into how solar panel leasing works. Keep reading to learn about the typical terms, the pros and cons, and what to expect from start to finish, so you can figure out if it really makes sense for your situation.

What is Solar Panel Leasing?

A solar panel lease is basically a solar rental arrangement, where you agree to have solar panels installed on your home without having to pay money upfront.

Instead of buying the panels outright (which can be pretty expensive), you pay a fixed monthly fee for the electricity the panels produce. More often than not, that monthly lease payment is lower than your current utility bill. And yep, that’s one of the main selling points: Savings from day one.

If you’re already familiar with solar leases, chances are you’ve also come across Power Purchase Agreements (PPAs). 

The two are quite similar, but there’s a key difference. With a PPA, you’re billed for the exact amount of energy your system produces, rather than paying a set fee each month.

In both cases, though, the solar company still owns the system — you’re just paying to use the power it generates. You get the full solar experience without having to fork over the full cost of ownership out of pocket.

What Are the Terms of a Solar Lease Agreement?

Typically, here’s what you’ll find buried in the fine print of a solar lease agreement:

• Contract Length: Most solar leases run between 20 to 25 years, about the same lifespan as the solar panels themselves.
• Monthly Payments: These are usually set at a fixed rate, though some may climb slightly each year based on inflation or energy trends.
• Escalation Clause: Some leases include a yearly increase (typically 1–5%) to account for rising utility rates.
• Maintenance and Repairs: Since the solar company owns the panels (not you), they’re typically responsible for all maintenance and repairs.
• Performance Guarantee: Many providers add a performance clause. If your system doesn’t generate as much power as promised, you might be eligible for reimbursement or compensation.

Now, you might be raising an eyebrow after seeing how a few of those terms could come off as potential red flags, and I totally get that. Personally, I’m not the biggest fan of solar leases either…

But to be fair, they do have their place. 

In some situations, especially for those who really want to go solar but don’t have many options, a lease might actually make sense. Let’s look at the pros and cons next so you can see for yourself.

Advantages of Solar Lease

No Upfront Costs

If you’re unable (or simply not willing) to shoulder the hefty upfront cost of a solar installation, whether through an out-of-pocket purchase or a solar loan, then a solar lease can be a practical way to go solar. 

It follows a “pay-as-you-go” model, which means you won’t need to worry about financing the system yourself.

Predictable Energy Costs

With a fixed monthly payment, you’ll know exactly what to expect each month — and that makes budgeting a whole lot easier. 

Of course, solar won’t always cover your entire energy consumption, so you’ll still need to pay both the solar lease and any remaining utility costs. Even so, you’re locking in a huge portion of your energy expenses, leaving only a small chunk subject to utility rate changes.

Immediate Energy Savings

As I mentioned earlier, your monthly fee typically starts out lower than what you’d usually pay for utilities. So if your average utility bill is $150 and your solar lease is $100, that’s an immediate $50 in savings. 

We can call it a sales strategy all we want, but we can’t deny that savings on electricity costs start as early as day one.

Now, it’s entirely possible that you might end up paying more in the long run for the lease (I’ll get into that more in the cons section), but the time value is definitely there. 

And what I mean is, it gives you time to invest in efficient appliances or adopt energy-saving strategies that can help bring your utility costs down even more in the future.

Net Metering Benefits

Even if you don’t own the system, you can still benefit from net metering — a billing system that gives you energy credits for any excess electricity your solar panels send back to the grid. You can use these credits to help you offset your utility bills.

Maintenance-Free Ownership

Since the solar company retains ownership, they’re responsible for repairs, cleaning, maintenance, and even panel replacements if needed. 

Most of the time, you won’t need to make any changes to your homeowner’s insurance, as the solar company usually handles that on their end.

One thing to note, though: Maintaining the system is one thing, but being responsive and actually picking up the phone when a customer calls for service is another. 

Unfortunately, many companies intentionally stall on maintenance requests simply because there’s little incentive to follow through. 

That said, this issue isn’t unique to solar leases. It can happen even with systems that are purchased outright…

Which is why I stressed in a previous article (Questions to Ask a Solar Company) how important it is to check contact details and know exactly who your point person will be when dealing with a solar provider.

Protection Against Rising Utility Rates

If utility rates keep rising faster than your solar lease escalator, you’ll continue to save. Historically, some states have seen electricity rates spike sharply, sometimes by more than 10% in just one year.

If a homeowner there had been on a solar lease with a predictable rate — even with a 2–3% annual escalator — they would’ve ended up paying far less than if they stuck with their utility provider.

Disadvantages of Leasing Solar Panels

You Don’t Own the System

And that’s unfortunate because it means you won’t be eligible for federal or state incentives.

Take the 30% Solar Tax Credit, for instance. If your system costs $20,000, you’d only end up paying around $14,000 after the credit. Depending on where you live, there may also be local rebates or programs that could make your savings even bigger.

Moreover, in a previous article, I talked about how your solar ROI can be much better when you own the system outright. That’s because, once your system is fully paid off, it keeps generating free electricity for years to come.

Sadly, that’s not the case with a solar lease. When the term ends, you’d have to buy the panels at their market value if you want to keep them.

Rising Monthly Payments

Despite the predictability of payments, we can’t ignore the fact that those annual escalators gradually eat into your savings.

This is especially true if you live in an area where utility rates have remained flat or even decreased over time.

In that case, there’s a real possibility that your solar lease payments could eventually match — or even exceed — what you would’ve paid your utility company. And if that happens, you might actually end up at a loss.

Less Control Over System Upgrades

Solar lease rates might be predictable, but your energy needs are likely not. You might get an EV, install a hot tub, or upgrade your HVAC, any of which could raise your electricity use and require a bigger system.

The issue is, since you don’t own your system, you can’t upgrade or make modifications freely without the company’s approval.

Remember, your lease payments are based on the system’s original design. 

If that setup no longer meets your needs, you’re still locked into paying the same fixed monthly fee. If the system underproduces, you’ll end up paying both your lease and whatever extra electricity you need from the utility.

Selling Your House Gets Complicated

Solar panels can increase your property value and help your home sell faster — but that usually only applies if you own the system.

If you’re trying to sell your house during an active lease, you’re faced with two options, and both can put you at a disadvantage:

• Lease Buyout: This often costs more than if you had purchased the system upfront. Worse, some contracts don’t even allow customers to buy out the lease early in the term (though newer lease agreements have improved in this area)
• Lease Transfer: Here, you’ll need to convince the buyer to take on an added financial obligation — a major drawback to begin with. To make things harder, they’ll also need to go through credit checks and meet approval requirements set by the solar company, which adds another layer of hassle.

This issue has become common enough that many realtors now prepare for the question: “Should I buy a house with leased solar panels?” That kind of hesitation alone can shrink your pool of interested buyers.

What Happens at the End of a Solar Lease?

When your lease term ends, you’ll typically have a few options:

• Renew the Lease: Some providers allow you to extend your lease for additional years.
• Start a new lease: And that involves installing a new home solar system
• Purchase the System: In many cases, you’ll have the option to buy the solar panels at fair market value, which may be a lot lower than their original price.
• Have the System Removed: If neither of the above options appeals to you, the solar company will usually remove the system at no additional cost to you.

Details can vary depending on the solar company, so it’s important to read the fine print carefully or ask your provider directly to clarify your options.

Is It Better to Buy Solar Panels or Lease Them?

Choosing between buying your solar panels outright or leasing them mostly depends on your financial situation and long-term goals. Below, I’ve laid out a side-by-side comparison to help you weigh your options clearly.

Here’s my honest take: If you can afford it, buy your panels outright — or get them through a solar loan. In both cases, you own your system and that usually means more long-term savings, which is often the main reason people go solar in the first place.

How Much Does a Solar Lease Cost?

Expect a solar lease to range from $50 to $250, or possibly even more. Truth is, it’s hard to pin an exact number since the cost depends mostly on your system’s size (which has a lot to do with your energy consumption) and the utility rates in your area.

Tips to Make the Most of a Solar Lease

Understandably, not everyone has the opportunity to purchase their panels, and sometimes, a solar lease is the only realistic way to go solar. But like I said, there are still some merits to leasing, especially if you land a deal that actually works in your favor.

If you have to move forward with a solar lease, here are some tips to keep it from turning into a headache later on:

• Look for a lease with a 0% escalator. If that’s not possible, aim for one with no more than 1–2%.
• Ask your provider how much of your energy use the system will offset. Like I mentioned, most leased systems aren’t designed to cover 100%. If they can’t give a straight answer (or leave you guessing), I suggest you look for another provider.
• Know your end-of-term options. That includes what happens if you want to buy out the lease or if a future homebuyer needs to take over the contract.
• Always ask for access to a monitoring app or online dashboard. That way, you can track your system’s production and spot any performance issues early on.
• Research the solar company’s reputation. And ask the right questions — because often, how they answer will tell you a lot about how they operate.
• Read your lease contract like it’s your mortgage. Because in many ways, it kind of is. You’re committing to 20–25 years of payments, so read every page, ask every question, and make sure you know exactly what you’re signing up for.

What Happens If I Stop Paying My Solar Lease?

Bear in mind that a solar lease is a legal contract. If you stop making payments, the solar provider may take the following steps:

• Notice of Default: Like any financial contract, you’ll likely receive warning notices if payments are overdue.
• System Deactivation: The solar company may deactivate your system, cutting off access to solar energy.
• Legal Action or Collection Efforts: In severe cases, the solar provider could pursue legal action or report the missed payments to credit agencies.
• Removal of Equipment: The provider may also remove the system altogether if payments remain unresolved.

Final Words on Solar Leasing

At the end of the day, solar isn’t one-size-fits-all. While the general opinion (mine included) is that buying panels outright is the better route, I also think solar leases can still work in certain circumstances (and they have for many homeowners).

What matters is that you fully understand the agreement you’re getting into. The pros, the cons, and how it all plays out over time. If you do that, you’ll have a solid grasp on what to expect and be less likely to run into surprises.

But if you’re still unsure, feel free to contact us at Avail Solar. We’ll help you sort through the details, look at your situation clearly, and guide you toward a decision that gives you the best shot at making solar work in your favor — financially and practically.