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How Do Solar Leases Work?

Imagine you own a building with a great big sunny roof. You crunch the numbers and discover that installing a solar array will save you tens of thousands of dollars on your electricity bills over the next two decades. Then you take a look at the cost of buying and installing solar panels. Then, maybe, you faint. The upfront cost is high—too high to afford in this economy and with all of the other bills you have to pay. So, like the head of the country’s largest environmental organization, you have to forgo solar, and your beautiful roof goes to waste.

Enter the solar lease.

Instead of purchasing your own solar power system, you can essentially rent equipment from a third party solar financing company. The company pays the upfront and maintenance costs for the solar panels on your roof. You, in turn, pay the financing company a series of monthly payments. At the end of your leasing period (usually 15 years), you have the option of extending your lease, purchasing the solar equipment from the leasing company, or having the panels removed. While purchasing solar panels entails a huge upfront investment that can take decades to recoup, leasing solar panels often allows property owners to begin immediately saving on their utility bills.

Solar leases have only been around since the early 2000s, but have already dramatically expanded the reach of rooftop solar. In California, solar leases played a crucial role in increasing the number of home solar electricity systems from 50 in 1999 to more than 50,000 in 2011. And as The New York Times recently reported, solar leases were one of a trio of factors (the other two are declining prices for solar panels and state and federal incentive programs) that have led to a more than doubling of residential and commercial rooftop solar installations in the United States over the last two years.

One of the main disadvantages of leasing a solar array is that you’re unlikely to save as much money over the long term as you would if you purchased a system outright. After all, the solar leasing company that rents you the system does have to make money. The other disadvantage, of course, is that not everyone can get a solar lease. As we’ve pointed out before, most Americans who want to “go solar” can’t — they don’t own their home, don’t have good enough credit to get a loan, have roofing issues or trees shading their roof.

Here at Mosaic, we’ve built a platform to help more people benefit from new ways of financing solar.  We connect investors with high quality solar projects that earn returns between 4.5-7%.  Even though you may not be eligible for putting solar panels on your roof, you can still participate in the clean energy revolution by financing it on someone elses.

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