DON’T Sign a 25-Year Solar Lease!

Under NEM 3.0, the payback period on a solar system is considerably longer than under the previous terms. And trying to make the numbers work on a financed system is complicated. So now we’re seeing a resurgence of solar lease plans from large installation companies. Our advice? DON’T sign a 25-year solar lease!

The Problem with NEM 3.0

PG&E customers wanting to go solar must add batteries to offset their energy bills. Typically, customers will finance a solar system, often with no money down. However, under the new NEM 3.0 terms, the monthly payments on a financed solar system may be higher than the current monthly energy bill.

Solar installation companies now face a dilemma: How do you sell a product that only pencils out if the customer pays cash? The answer we’re seeing from Big Solar has us concerned.

Solar Loans vs. Solar Leases

A popular solar loan is a zero-down, 12-year loan. Under NEM 2.0, solar customers could typically start with payments equal to or slightly lower than their PG&E bills. After applying the federal tax credit, the payments could be even lower. After 12 years, the loan is paid off, and the customer has another 13 years of free electricity before the product warranties expire.

To get solar loan payments below your PG&E bill under NEM 3.0, some solar companies offer 25-year financing at 4.99%. However, they may add 32% to the cash price of the system for dealer fees, which is essentially a fee to buy down the interest rate. This means you’ll pay more in the long run.

25-year solar leases with annual escalators are even worse than 25-year loans. These leases start with lower payments than 25-year loans, but the payments increase by 3.5% to 3.9% each year. So the payment on a 25-year lease with an escalator will typically surpass the payment on a 25-year loan in about year 9 or 10. Over time, you will pay even more for a 25-year lease than a 25-year loan.

The Numbers

So how do the numbers look over time? Let’s look at a 7.2kW solar system with 20kWhs of battery storage. This system will offset a current PG&E bill of about $320 / month. The cash price of the system is $54,640. If you pay cash, you will get a 30% Federal tax credit of $16,392 for a net cost of $38,248.

If you finance the system for 12 years at 5.49% with a 6% dealer fee, the amount would be $58,128, with payments of about $522 / month for the first year. You then have the option to send the amount of the Federal tax credit to the bank within 18 months. This would lower the payments to about $386 / month. The total paid on the loan over 12 years would be $57,576.

If you finance the system for 25 years at 4.99% with a 32% dealer fee, the amount would be $80,353, with payments of about $340 / month. You must send the Federal tax credit amount to the bank within 18 months. The total paid on the loan over 25 years would be $102,000.

Worst-Case Scenario is the 25-year Lease

While the payments are initially lower than your PG&E bill, they will escalate over time, and you will pay even more than with a 25-year loan. If the payments on our sample system start at $249 / month and escalate 3.5% each year, the total paid over 25 years comes to $116,382. And, after all that time, you still don’t own the system.

The Bottom Line

If you can afford to pay cash for a solar plus battery system, do it. If not, make the higher payments on a shorter-term loan with much lower dealer fees. And most importantly, DON’T sign a 25-year lease!

Solar Simplified

Central Coast Solar Brokers are trained and certified in the sales, sizing, and design of Enphase solar + battery systems. We’ll thoroughly assess your solar project and advise you on the right equipment and installer.

Contact us today to get started!

Enphase Storage Design Certification
solar home with panels seen from a top view
Offset current monthly PG&E bill of $320
7.2 kW solar system + 20kWhs battery storage = $54,640
30% Federal tax credit = $16,392

Net cost =
12-Year Loan
@ 5.49% with 6% dealer fee
System cost = $58,128
Monthly payments for the 1st year = $522
Monthly payments minus Federal tax credit (optional) = $386

Total paid on loan over 12 years =
25-Year Loan

@ 4.99% with 32% dealer fee

System cost = $80,353
Monthly payments  = $340
Apply Federal tax credit  (mandatory)

Total paid on loan over 25 years =
Image of hands holding a calculator up with a solar home and sky in the background
25-Year Lease
Monthly payments start at $249
Payments escalate 3.5% per year

Total paid on lease over 25 years =