What is a “Zero Down Lease”?
The simplest answer is that a solar company will install a solar system for the homeowner at no upfront cost to them. The homeowner then either pays a fixed monthly amount to the leasing company or they can buy their electricity directly from the leasing company as they use it.
What should I consider before signing a Lease?
You must realize that not all “Zero-Down leases” or alleged “free solar systems” offer the same savings or provide the same benefits/hedges against future energy increases. You must decide what works for you: Do you want to pay a fixed amount each month (lease)? Do you want to pay for only what you use (PPA)? Do you want to pay cash for the system? Below are some factors to consider which will help you make that decision:
First, when financing or leasing a solar system, the customer will never realize the full financial benefit of switching to solar versus someone who pays cash. The financing company is taking the risk by providing the money for the system and, therefore, it expects a return on their investment. However, should you choose to lease, you will know exactly how much you will be paying every month and you will be able to budget accordingly. Typically, residential homeowners can expect to see a 5-15% savings on their electric bills from the first month should they choose to lease versus greater savings when paying cash.
Second, when leasing or using a PPA, typically the homeowner will be locked into annual increases in their monthly payments ranging from 2.9% to 6%. (There are some leases offering zero annual escalation but those tend to start with a higher monthly payment). One of the main benefits for installing a solar system on your house is the ability to “lock” in today’s prices so be careful if you decide to lease or to use a PPA that you do not commit to high annual interest increases!
Third, just like car leases, solar leases can be negotiated. While it is true that the leasing company sets the terms and payments for the lease/PPA, it’s the installer who sets the price of the system which sets the dollar amount that you will ultimately finance. Simply put, if the installer lowers the price of the system, you will be financing less money. The lease payment on a BMW is very different to that of a Mini.
Having pointed out the negatives, it is important to note the positives. Solar leasing is one of the main reasons behind the substantial growth of the solar industry. 60% of residential homes in California are being financed through 3rd parties. If you don’t want to or can’t part with the cash for the cost for a solar system, leasing is a great way to go green at no cost to the homeowner while experiencing savings from day one.
It pays to get 3-4 different quotes.