Many solar companies are now offering a prepaid lease option. These can often reduce the cost of solar, but come with some risks. Here’s some tips on deciding whether to go with a pre-paid lease or a different financing option.
Contact our Help Desk with any questions at info@solarrights.org. We are happy to help you!
What is a prepaid lease?
A prepaid lease is a cross between two different ways to pay for solar:
- Purchase the solar outright with cash or a loan.
- Pay for the system over time (ie 20 years) through a Lease or Power Purchase Agreement (PPA).
With a prepaid lease, you pay for the cost of the system upfront, but the solar company (or a third-party finance company) still owns the system for a few years.
Typically, after five or six years, you then have the option of either:
- Becoming the owner of the system (most common).
- Having the company remove the system from your home.
If I have to pay for the solar upfront anyway, why would I do a prepaid lease?
A prepaid lease lets you take advantage of a loophole in federal tax law which can reduce the cost of your solar by 20% or more.
The backstory:
- In 2025, Congress ended a 30% federal tax credit for solar and batteries that are outright purchased by the resident.
- But Congress allowed the tax credit to stay around for another five years if the solar or batteries are financed by a lease or Power Purchasing Agreement.
- As a result, many solar companies who previously only sold solar to customers who bought their system outright are now offering prepaid leases. The solar company collects the tax credit and passes some of those savings to the customer in the form of a lower price.
- This fits the technical definition of a lease, even though the customer is paying up front.
What are the pros and cons of a prepaid lease vs. other financing options?
The Pros: a lower price
- Because of the federal tax credit, you will likely pay less for your system than if you buy it outright.
- Because you are still paying for the system upfront, the overall cost is less than if you do a 20-year lease, which usually includes interest or escalators.
- The solar company is on the hook to operate and maintain the system for a few years, which could be helpful if there are any early problems with your solar.
The Cons: uncertainty in the lease contract
- Federal law requires the lease agreement to have a buyout clause that allows you to become the owner of the system when the lease expires.
- The law specifies that to become the system owner, you must buy the remaining value of the system at “fair market value.” However, most prepaid lease agreements can’t specify exactly what the “fair market value” will be.
- “Fair market value” is typically understood to be the depreciated cost of the system minus the cost to remove the system from your home.
- In most cases, there is a good chance this will be a small amount of money, but it will not be zero, and it cannot be guaranteed in the lease agreements.
- As a result, consumers who do a prepaid lease are trusting that their solar company will calculate “fair market value” fairly when the lease is up.
How do I decide whether the risk of a prepaid lease is worth the savings?
Great question. We have spoken with consumers who have wrestled with this question, and here’s the advice they give:
- Make sure the contract outlines the method that the company will use to calculate the Fair Market Value of your solar system.
- Ask your solar company to put in writing what the Fair Market Value of your solar system would be if the lease expired today. This won’t be in the contract, and will not be an ironclad guarantee. However, it can be something you can use if the company tries some funny business down the road.
- Dig into the solar company’s history and track record. Make sure they have been in business for a long time and have a strong reputation with good customer reviews.
- Ask the installer for the name of the company that will actually be financing the lease. It will usually be a different company than the solar installer. Do the same due diligence on the financing company. If they seem sketchy, beware.
- Get at least two other bids from other solar companies, and in general follow our six tips for finding a solar company (below).
- If it doesn’t feel right, don’t do it.
Contact our Help Desk with your questions
Contact our Help Desk with any questions at info@solarrights.org. We are happy to help you!
