Solar Lease FAQ
Do I qualify for a solar lease?
There are 3 requirements to invest in a solar lease.
-You must own your own home.
-You should have an existing electric bill of at least $150 /mo if not more. If your average bill is too low you’ll run the risk of committing to a solar lease that may be more than what you already pay to your utility.
-A minimum FICO score of 680 is required by some Solar Providers, but most require 700 or above. There is no credit criteria to meet when investing in a prepaid solar lease.
What services are included?
A Solar Provider will insure, monitor and maintain your system at no cost to you. Any future repairs required to keep your system operating properly will be covered by the Solar Provider.
What happens if I want to sell my home?
There are 3 options when selling your home before your lease term is up.
-You may transfer the monthly lease payments to the new homeowner, as long as they meet the Solar Provider’s credit criteria just as you did when you opted to go solar.
-You may purchase the system outright and the new owners will inherit the system. The purchase price will usually be set by the fair market value of the solar at the time of the sale. Solar Providers may require a home appraiser to determine the value of the solar and then set a buyout price. I like solar leases that show a yearly schedule of purchase prices. This way you have an idea what your purchase price might be if you sell your home say during the 12th year of your lease.
-You may choose to prepay all of your remaining lease payments to the Solar Provider. This option enables you to transfer the benefits of a leased solar system to the new homeowner, but he or she will not have to make any monthly lease payments for the rest of the term. In this case the Solar Provider will likely make you or the new owner a discounted offer to ‘prepay' the lease.
What happens at the end of the lease?
You generally have 3 options at the end of your lease term.
-You may renew the lease year by year, usually for a maximum of 5 more years.
-You may purchase the system at fair market value.
-Terminate the lease.
I recommend terminating your lease at the end of the term. The Solar Provider will be obligated to remove the solar panels from your home and restore your roof to a watertight condition. That’s a hassle, so it will likely ask to convey the solar system to you at no cost. The reason being the residual value of your solar panels after 20 years is less than the total cost to remove the panels. The Solar Provider will need to provide labor, materials, and insurance to perform that work. They may have to furnish roof permits. I've helped many clients over the years repair roofs with solar electric panels and/or pool heating panels. The cost to remove those panels and make necessary roof repairs is usually at least $3,000 and sometimes a lot more.
What is a payment escalator?
Most solar leases have an implied interest rate, referred to as a 'payment escalator'. It usually runs anywhere from 0% to 3.9%. For example, say you invest in a solar lease with a 2.9% escalator and your payment is set for $150/mo for the first year. In the second year of the lease, your payment will be $154.35/mo. Every year thereafter, your payment increases by another 2.9%. With utility rates expected to rise by as much as 5-6% a year, the savings on your electric bill will rise steadily.
Your Solar Provider may have an option for you to lock in a solar lease with a 0% escalator, or fixed payment. In this scenario, instead of the initial $150/mo payment at the beginning of the term, you’ll have a fixed payment set a little higher, say around $170/mo. Moving forward through years, 2, 3 and so on, your monthly solar lease remains locked in at $170/mo. You've now completely leveraged yourself against all future utility rate hikes. A 2.9% solar escalator will result in more total savings over the first 10-12 years of the lease when compared to a fixed solar payment. However, a 0% escalator results in more savings over an entire 20 year lease term. Personally, I prefer a 0% fixed escalator option.
What about utility, state rebates and federal tax credits?
Since you don’t own the equipment with a solar lease, the Solar Provider receives all applicable local, state and federal incentives.
Should I purchase my solar system or lease it?
I recommend purchasing a solar system for your home if you have the resources available. An average sized system may run about $25,000 before applying rebates and/or tax credits. If you don’t have the cash required to invest in a solar purchase, a monthly solar lease make sense because it requires little to no money down to invest in. Perhaps you don’t’ have the tax appetite to take advantage of the 30% tax credit. If that’s the case, a prepaid lease is a great option.
There are 3 requirements to invest in a solar lease.
-You must own your own home.
-You should have an existing electric bill of at least $150 /mo if not more. If your average bill is too low you’ll run the risk of committing to a solar lease that may be more than what you already pay to your utility.
-A minimum FICO score of 680 is required by some Solar Providers, but most require 700 or above. There is no credit criteria to meet when investing in a prepaid solar lease.
What services are included?
A Solar Provider will insure, monitor and maintain your system at no cost to you. Any future repairs required to keep your system operating properly will be covered by the Solar Provider.
What happens if I want to sell my home?
There are 3 options when selling your home before your lease term is up.
-You may transfer the monthly lease payments to the new homeowner, as long as they meet the Solar Provider’s credit criteria just as you did when you opted to go solar.
-You may purchase the system outright and the new owners will inherit the system. The purchase price will usually be set by the fair market value of the solar at the time of the sale. Solar Providers may require a home appraiser to determine the value of the solar and then set a buyout price. I like solar leases that show a yearly schedule of purchase prices. This way you have an idea what your purchase price might be if you sell your home say during the 12th year of your lease.
-You may choose to prepay all of your remaining lease payments to the Solar Provider. This option enables you to transfer the benefits of a leased solar system to the new homeowner, but he or she will not have to make any monthly lease payments for the rest of the term. In this case the Solar Provider will likely make you or the new owner a discounted offer to ‘prepay' the lease.
What happens at the end of the lease?
You generally have 3 options at the end of your lease term.
-You may renew the lease year by year, usually for a maximum of 5 more years.
-You may purchase the system at fair market value.
-Terminate the lease.
I recommend terminating your lease at the end of the term. The Solar Provider will be obligated to remove the solar panels from your home and restore your roof to a watertight condition. That’s a hassle, so it will likely ask to convey the solar system to you at no cost. The reason being the residual value of your solar panels after 20 years is less than the total cost to remove the panels. The Solar Provider will need to provide labor, materials, and insurance to perform that work. They may have to furnish roof permits. I've helped many clients over the years repair roofs with solar electric panels and/or pool heating panels. The cost to remove those panels and make necessary roof repairs is usually at least $3,000 and sometimes a lot more.
What is a payment escalator?
Most solar leases have an implied interest rate, referred to as a 'payment escalator'. It usually runs anywhere from 0% to 3.9%. For example, say you invest in a solar lease with a 2.9% escalator and your payment is set for $150/mo for the first year. In the second year of the lease, your payment will be $154.35/mo. Every year thereafter, your payment increases by another 2.9%. With utility rates expected to rise by as much as 5-6% a year, the savings on your electric bill will rise steadily.
Your Solar Provider may have an option for you to lock in a solar lease with a 0% escalator, or fixed payment. In this scenario, instead of the initial $150/mo payment at the beginning of the term, you’ll have a fixed payment set a little higher, say around $170/mo. Moving forward through years, 2, 3 and so on, your monthly solar lease remains locked in at $170/mo. You've now completely leveraged yourself against all future utility rate hikes. A 2.9% solar escalator will result in more total savings over the first 10-12 years of the lease when compared to a fixed solar payment. However, a 0% escalator results in more savings over an entire 20 year lease term. Personally, I prefer a 0% fixed escalator option.
What about utility, state rebates and federal tax credits?
Since you don’t own the equipment with a solar lease, the Solar Provider receives all applicable local, state and federal incentives.
Should I purchase my solar system or lease it?
I recommend purchasing a solar system for your home if you have the resources available. An average sized system may run about $25,000 before applying rebates and/or tax credits. If you don’t have the cash required to invest in a solar purchase, a monthly solar lease make sense because it requires little to no money down to invest in. Perhaps you don’t’ have the tax appetite to take advantage of the 30% tax credit. If that’s the case, a prepaid lease is a great option.