What Is a Solar Lease?

Unless you've been living under a rock, you've probably heard a thing or two about the increasingly popularity of installing solar panels on residential roofs as an alternative method to generating power for homes.

There are several reasons people consider this option, whether it be for financial reasons or whether they are committed to go-green, save-the-world initiatives. Certainly there are advantages to going solar in both of these cases.

But whether you are serious about converting to the solar side or whether you simply want to know what the buzz is about, knowing what financing options are at your disposal is helpful and instructive.

Essentially, when it comes to paying for solar power to come into your home, you have two choices: a Power Purchase Agreement (PPA) or a solar lease.

Let's discuss what a solar lease is and what the pros and cons are of this method.

Nuts and bolts of a solar lease

Installing a solar power system for your home involves a lot of moving parts, people and organizations. For you, the customer, you're likely concerned with two things: cost and performance. In short, you want to know how it will benefit you (and be more beneficial than traditional electric power) and what it'll do to your pocketbook.

As you start the process of installing a system for your home, most companies will offer you either a lease or a PPA. Some give you the option, but most do not. With a solar lease, you are actually paying a fixed monthly fee for use of the system. Whereas with a PPA, you are paying according to how many kilowatts of power is generated. The good news about this difference is that no matter how hard your solar system is working, you'll pay the same every month.

Here are some other important components of a solar lease:

• Usually, the homeowner, or customer, is not required to pay anything up front for installation of the system.
• The lease is usually 15 years. The customer is locked into that timeframe, but the system is transferrable to a new home or in the event a new owner moves into the current home.
• In addition to paying a monthly fee, you must pay your traditional utility company for any additional regular electricity you may use.
• Your monthly fees typically rise 3 percent to 4 percent per year; however, this is lower than the average 5 percent increases electric companies hand out.
• Normally, the solar power provider will handle any needed repairs or maintenance of the system and equipment.
• Your ability to secure a lease is dependent upon your credit.
• With a solar lease, you may elect to buy the system later or at the end of your lease term at a residual price.

Why you should consider a solar lease

There are obvious advantages to selecting a solar lease when having a solar power system installed at your home. Here are a few:

• Affordability: You don't have to worry about down payments or up-front costs. Usually, putting any large-scale system in a home is going to cost a significant amount, but your solar power system won't require any out-of-pocket costs at the time of installation.
• Flexibility: On the other hand, if you prefer, you may opt to make a down payment, thus lowering your fixed monthly costs.
• No hassles: Because it is a lease, you don't own the equipment (think renting an apartment or home versus buying a place of your own), so any needed repairs or replacements won't cost you a dime, and you don't have to do the work.
• Fixed monthly costs: Though the rates will go up on an annual basis, throughout the year, your monthly payments will stay the same. There will be no surprise rises in your payment.

Why a solar lease may not be for you

• If you have poor credit, you might not qualify.
• You are not eligible for tax credits.
• You are locked into a term, so if you are dissatisfied with the product, you still have responsibility to pay for it each month.