Solar energy, a renewable and clean source of power, has seen significant adoption in recent years. As the cost of solar installation decreases, leasing solar panels has emerged as a popular option for those looking to harness the sun’s power without the large upfront investment. However, despite its apparent benefits, there can be circumstances where a homeowner wishes to break a solar panel lease.
This article will provide an in-depth understanding of solar panel leases, the reasons why one might want to break such a lease, and the possible repercussions of doing so. It will also explore various strategies on how to break a lease effectively and legally, ensuring you are well-equipped to handle such a situation.
The decision to end a solar panel lease may not be an easy one. However, being armed with the right information can empower you to navigate this complex process smoothly and make informed decisions that are in your best interest.
Solar Panel Contracts
Solar panel contracts constitute a significant part of the solar panel leasing process. These legally binding agreements define the relationship between you (the lessee) and the leasing company (the lessor). They clearly delineate the responsibilities and rights of both parties, acting as a crucial guide throughout the leasing period.
Typical components of a solar panel contract include the lease duration (often 20 to 25 years), payment schedules, maintenance obligations, system performance guarantees, and terms for lease renewal or termination.
For instance, the contract may specify that the lessor is responsible for maintaining the solar panels and ensuring they deliver a minimum level of performance. Alternatively, some contracts may shift certain maintenance duties to the lessee.
Three Forms of Solar Panel Leasing
Solar panel leasing comes in three primary forms: leasing, Power Purchase Agreement (PPA), and renting.
In a leasing arrangement, you pay a fixed monthly fee to the leasing company for using their solar panels. This fee is determined at the start of the lease and often increases annually by a pre-agreed percentage.
One example is Susan Wise, a homeowner from California, who decided to lease her solar panels to avoid the upfront costs of purchasing a solar system. However, her annual lease payments increase by 2.9% per year, meaning she’ll pay considerably more towards the end of her 20-year lease.
Power Purchase Agreement (PPA)
Under a PPA, you agree to purchase the power generated by the solar panels rather than the panels themselves. The cost of electricity is usually lower than local utility rates, making PPAs an attractive option. But, like Susan, if your PPA includes an escalator clause, your rates could rise annually.
Renting involves paying a monthly rental fee for the panels, which often includes maintenance and repair services. It’s like a standard lease but usually includes more comprehensive service packages. Renting could be ideal for homeowners who want to go solar without worrying about maintenance, but it might not offer the same long-term cost savings as the other two options.
Pros and Cons of Solar Panel Leasing
Leasing solar panels can be a great way to benefit from renewable energy without the significant initial investment that comes with purchasing a system outright. For instance, a report from the National Renewable Energy Laboratory (NREL) found that solar leases typically require zero down payment and provide locked-in, predictable electricity rates.
In addition to financial ease, leasing also shifts the responsibility of maintaining and repairing the solar system to the leasing company. It relieves homeowners from the technical aspects of managing a solar system.
However, leasing solar panels isn’t without its downsides. Since you don’t own the system, you won’t be eligible for federal tax incentives, such as the Investment Tax Credit (ITC), which offers a tax credit for solar systems on residential properties.
Moreover, breaking a solar panel lease can often be a complex process, laden with penalties and early termination fees. Understanding this process before entering into the agreement can save you from unnecessary headaches down the line.
Who Should Lease Solar Panels?
Leasing solar panels can be a practical solution for various groups:
People with Low Tax Liability
If you have a low tax liability, you may not benefit fully from solar tax credits. Since leasing doesn’t require you to claim tax credits, it might be a preferable option.
People with Low Credit Scores
Leasing companies often have more relaxed credit requirements compared to lenders providing loans for solar panel purchases. Therefore, if your credit score isn’t stellar, leasing could still make solar energy accessible.
People with No Money for a Down Payment
Since solar leases often don’t require an upfront payment, they present an excellent opportunity for those who can’t afford a down payment on a solar system.
People Who Want to Go Solar Quickly
Given that leasing companies handle all the aspects of installation, the process of going solar can be faster than if you choose to buy.
Reasons for Breaking a Solar Panel Lease
Breaking a solar panel lease is not a decision to be taken lightly, and understanding the potential reasons can better equip you when considering such a move. These reasons can be personal or financial, but some of the most common include:
Buyer’s Remorse or Changing Your Mind: After living with a solar system, you might find it doesn’t meet your expectations in terms of energy production or savings.
Poor Service: If your leasing company fails to provide the agreed services, such as maintenance or customer support, it could prompt you to want out of the lease.
Financial Changes: Circumstances such as job loss, retirement, or other changes to your financial situation might make the lease payments unmanageable.
Impending Move: If you’re planning to sell your home, it can be complicated to transfer the lease to the new homeowner. In some cases, breaking the lease might seem like a simpler option.
Desire to Own: Over time, you might decide that owning a solar system, and reaping the full benefits, is a better fit for your needs.
How to Get Out of Specific Contracts
Solar companies have varying policies and procedures for contract termination. Let’s look at two of the major players in the industry, Sunrun and Sunnova.
If you want to terminate a Sunrun contract before installation, you’ll need to review the terms specified in your agreement. Sunrun usually provides a cooling-off period, often around seven days, during which you can cancel without penalty. However, if you want to cancel after this period, you may be subject to a cancellation fee.
Similarly, Sunnova also provides a cooling-off period, typically three days, during which you can cancel without consequence. If you choose to cancel your contract after installation, you might be responsible for paying an early termination fee.
In both cases, it’s advisable to directly contact the company and discuss your options before making any decisions.
What Happens At the End of a Solar Panel Lease
Once your solar panel lease agreement reaches its expiration date, you generally have a few options to consider. This largely depends on the terms outlined in your lease agreement, so it’s crucial to review this document thoroughly.
Some leasing companies offer the option to extend the lease for another term. This could be an ideal choice if you’re still satisfied with the performance of your solar system and wish to continue with the current arrangement.
You might have the opportunity to buy the solar panels from the leasing company. The cost of this purchase can be influenced by several factors, including the age and condition of the system, the cost of removing the system, and the current market price for used solar equipment.
If you decide not to extend the lease or purchase the system, the leasing company will likely remove the panels from your property. Some contracts may require you to pay a removal fee, while others might include this cost as part of the original agreement.
If you’re selling your home, some companies allow for a lease transfer to the new homeowner. This requires the new homeowner to agree to take over the existing lease.
Breaking a Solar Panel Lease
If you find yourself needing to break your solar panel lease, it’s essential to approach the situation professionally and understand your options.
Buy Out Your Contract
Some lease agreements allow you to buy out the remaining years of your contract. This usually involves paying a lump sum equivalent to the remaining payments due over the term. If you can afford it, this option avoids any penalties for breaking the lease.
Buy the Solar Panels
In certain cases, buying the solar panels from the leasing company can be more beneficial than buying out the contract. This effectively ends the lease and gives you ownership of the system.
Transfer the Agreement
If you’re moving, some companies will allow you to transfer your solar lease to the new homeowner. This process can be complex and often depends on the new homeowner’s creditworthiness and agreement to take on the lease.
What to Do Instead of Leasing
If you’re considering solar energy but wish to avoid the long-term commitment of a lease, there are several alternatives to consider:
Purchase: Buying your solar panels outright can provide long-term savings and allows you to take advantage of government incentives.
Financing: There are a variety of solar loans available that can help spread out the cost of a solar system over several years, making it more affordable upfront.
Community Solar: This allows you to purchase a share in a larger solar installation, offsetting a portion of your electricity bill.
Energy Efficiency Improvements: You could also consider making improvements to your home’s energy efficiency, which could reduce your electricity needs and make a smaller solar system more feasible.
How to Finance Solar Panels without Leasing
If you’re looking to own your solar panels but need financial assistance, there are several options:
Take Out a Loan to Finance Your Purchase
Various lenders offer loans specifically for solar energy systems. Terms and interest rates can vary, so it’s important to shop around for the best deal.
Fannie Mae HomeStyle Energy Mortgage
This program allows homeowners to finance energy-efficient improvements, including solar systems, through their mortgage.
PowerSaver Second Mortgage
Sponsored by the U.S. Department of Housing and Urban Development, this program provides low-cost loans for energy-efficient home improvements.
In conclusion, while a solar panel lease may seem like an attractive option for many, it’s crucial to understand all the implications before entering into a contract.
Whether you’re considering breaking your lease or looking for alternatives to leasing, you now have the knowledge and tools to make an informed decision that aligns with your individual needs and circumstances.
Remember, each situation is unique and what worked for one homeowner may not work for another. Always consult with a legal advisor and your solar company before making any decisions about your solar panel lease.