Solar United Neighbors’ position on rooftop solar leasing financing
Solar United Neighbors’ mission is to help people go solar, join together, and fight for their energy rights. We are committed to helping people consider all their options when going solar. As a non-profit educational organization, we are installer, technology, and financing neutral.
SUN strongly supports giving prospective solar users a broad range of competitive choices. They must be transparently communicated choices. These should include:
- direct ownership,
- equitable access to community solar, and
- third-party financing models such as leasing.
We provide unbiased information about the costs and benefits of each option. This allows consumers to make informed decisions about their options.
For people who can afford the upfront and short-term costs, direct solar system ownership generally provides the highest return on their investment. This is true of many large purchases. For many people, however, third-party ownership or leasing may be the best and most economic way to go solar.
Both direct ownership and third-party leasing have upsides and downsides. Which model is right for the consumer will depend on individual circumstances.
Third-party ownership means that a solar company and/or its financing partners will own and maintain the panels installed on the homeowners’ roof. The homeowner either:
- buys the power the panels produce through a power purchase agreement (PPA) or,
- pays a monthly rate (lease) for the panels.
PPAs and leases can offer a no-upfront payment alternative when going solar, while still saving money. Typically, the price of solar is lower than or the same price as the standard electricity price. This means the consumer will see savings right away. A PPA or lease contract typically runs 15 to 20 years. It will often include an option for the homeowner to buy the system outright later in the contract term.
In this model, the company that owns the system will benefit from the federal tax credit and any other available local incentives. They pass those savings along to the customer. This can be especially valuable if the customer is not able to use the federal or state tax credits. Maintenance support can be an attractive benefit of the third-party ownership model for consumers. This is particularly true if their system includes battery storage.
The disadvantages of the leasing model are that PPAs and leases can be complicated. The consumer must take care to ensure that they understand the offered terms. They need to negotiate a fair contract with the solar developer.
For example, some contract terms may increase the price customers pay for the electricity their system produces if the system uses a PPA. If there is a lease, the monthly payment can rise over the life of the lease. This is known as an escalation rate, or escalator, for short. Sometimes those escalation rates are steep.
It is important for the consumer to look closely at the fine print of the contract. Other provisions for handling the sale of a home, warranty terms, maintenance service repair times, and system buyout options are also important aspects of these agreements. If they are not clearly communicated and executed, they can result in misaligned expectations and a poor customer experience. For more information on what to think about when considering third party ownership, see our FAQ.