Solar Lease vs. Buy: The Complete Financial Comparison

The lease-vs-buy decision is the most consequential financial choice in your solar journey. Over 25 years, the difference between owning and leasing can be $15,000-$25,000 in total savings. Here's the math.

How Solar Loans Work

A solar loan lets you purchase the system with $0 down and own it outright. You make monthly payments (typically 10-25 year terms) and claim the 30% federal tax credit yourself. Once the loan is paid off, electricity from your solar panels is essentially free. Current solar loan rates range from 4-8% APR depending on term length and credit score. Many installers offer promotional rates through manufacturer financing programs.

How Solar Leases and PPAs Work

With a lease, you pay a fixed monthly amount to use the solar system installed on your roof. The leasing company (Sunrun, Sunnova, etc.) owns the system, claims the tax credit, and handles maintenance. A PPA (Power Purchase Agreement) is similar, but instead of a fixed monthly lease payment, you pay per kWh of energy the system produces. Lease/PPA terms are typically 20-25 years with an annual escalator clause (payments increase 1-3% per year).

25-Year Financial Comparison

For a typical 8 kW system on a home with a $150/month electric bill:

Cash purchase: Upfront cost $24,000 minus $7,200 tax credit = $16,800 net cost. 25-year electricity savings: ~$55,000 (assuming 3% annual rate increase). 25-year net savings: ~$38,200. Payback period: ~7 years.

Solar loan (12-year, 5.5% APR): Monthly payment ~$190 (less than the $150 electric bill once you factor in reduced electricity costs). Tax credit of $7,200 applied in year 1. Total loan interest: ~$5,200. 25-year net savings: ~$30,000. Cash-flow positive from day one in many cases.

Solar lease ($100/month with 2.5% annual escalator): Total 25-year lease payments: ~$41,000. 25-year electricity savings: ~$55,000. 25-year net savings: ~$14,000. No tax credit (leasing company keeps it). No ownership at end of lease.

The ownership advantage is clear: purchasing saves $16,000-$24,000 more than leasing over 25 years. That gap comes from keeping the tax credit, paying no interest or lease escalators, and owning a system that produces free electricity for years 13-25+ (after loan payoff).

When Leasing Still Makes Sense

Despite the lower savings, leasing is the right choice for some homeowners. If your federal tax liability is too low to use the 30% credit (and you can't carry it forward effectively), leasing may net similar total savings since the company uses the credit to offer lower lease rates. If you plan to move within 5-7 years, a lease avoids the complexity of selling a home with a solar loan. If you don't want any maintenance responsibility, the lease includes full coverage. If you can't qualify for a solar loan at a reasonable rate, a lease provides solar access without credit requirements.

Watch Out for Escalator Clauses

Many leases and PPAs include annual escalator clauses that increase your payment 1-3% per year. A lease starting at $100/month with a 2.5% escalator becomes $164/month by year 20. If electricity rates don't increase as fast as the escalator (which has happened in some markets), your lease payment could eventually exceed what you'd pay for grid electricity - eliminating the savings entirely. Always calculate the total 25-year cost with the escalator before signing. Better yet, negotiate for a 0% escalator or a fixed lease rate.