Solar loan vs solar land lease, which is the better choice for your property

As more people look for ways to adopt solar energy, one of the most common questions property owners ask is whether it’s better to lease or buy a solar setup. These solutions allow you to access solar energy without a huge upfront cost, but they come with different financial commitments and benefits.

Whether you’re a homeowner looking to install solar panels or a landowner interested in leasing land for a solar farm, the decision between these two options depends on your goals, budget, and long-term plans. Not sure which one is the right choice for you? Let’s start by exploring what it exactly means to get a solar loan vs solar land lease.

Solar loans vs solar land leases: An overview

A solar loan is a financing option that allows you to purchase a solar power system or cover installation costs upfront, with repayment spread over time. Offered by financial institutions, these loans are typically repaid through monthly installments with interest. Solar loans are designed to make solar energy more accessible, especially for residential properties, businesses, and more.

Although solar setups come with a significant upfront cost, over half of solar owners finance their systems with solar system loans, many with zero down payment. 

A solar land lease is an agreement where a landowner rents their property to a solar company, allowing the company to install and operate a solar power system. In exchange, the landowner receives regular rental payments, typically over a long term (e.g., 25 years). This is a low-cost option for landowners who want to generate income from unused land without needing a large upfront investment or ownership of the solar system.

Leasing your land can be ideal if you are looking to receive steady passive income from leasing land for solar farm development. Lease payments are usually made per acre per year and can increase annually.

When considering how to go solar, your choice between a solar loan and a solar land lease can significantly affect your costs, benefits, and overall experience. Both options offer a path to cleaner energy, but they differ in structure, ownership, and financial impact.

Choosing between a solar loan and a solar land lease comes down to what you prioritize: ownership and long-term savings or low commitment and immediate affordability.

With a solar loan, you finance the purchase of a solar system, gaining full ownership and access to tax incentives, along with control over energy usage. Over time, this option tends to offer the greatest return on investment and can increase your property’s value. However, it comes with financial responsibilities, including monthly loan payments, system maintenance, and potential insurance adjustments.

A solar land lease, by contrast, involves leasing your property (often large land areas) to a solar developer who installs and operates a solar energy system. In residential contexts, the term "solar lease" can also refer to leasing rooftop systems, where homeowners pay a fixed monthly fee to use the power produced. In both cases, the system remains the property of the solar company. This means lower upfront costs and no maintenance responsibilities, but also no tax benefits or ownership advantages. Leases may be ideal for those who can’t qualify for financing or prefer a lower-commitment path to solar, but they often yield lower financial returns over time.

The difference between solar loan and solar land lease (TABLE)

Applying for a solar loan typically involves the following steps:

- Application submission: The borrower applies for a solar loan either online or at the nearest branch of the lender.

- Document collection: Lenders collect necessary documents, including KYC documents, income proof, electricity bills, and a cost estimate for the solar system.

- Credit assessment: The lender assesses the borrower's creditworthiness, including evaluating credit scores and existing liabilities.

- Loan approval and disbursement: Upon approval, the loan amount is disbursed, often directly to the vendor or EPC contractor for the installation of the solar system.

- Repayment: The borrower repays the loan in equated monthly installments (EMIs) over the agreed tenure.

Each lender has its own set of eligibility criteria, interest rates, and loan terms, making it essential for borrowers to compare options and choose the one that best fits their needs.

1. Land leasing agreement:

            - The solar project developer and the landowner sign an agreement that outlines the terms and conditions for the land's use.

           - The lease agreement includes details like the duration of the lease (typically 25 to 30 years), rental payments, land maintenance obligations, and permissions for developing infrastructure like solar panels, inverters, and wiring.

2. Payment structure:

            - Rental payments: Landowners receive a fixed rental amount, which can be a monthly or annual payment, for leasing the land. The amount typically depends on the area of land and its suitability for solar power generation.

            - Revenue sharing: I some cases, landowners may also receive a percentage of the revenue generated from the sale of electricity produced by the solar plant, though this is less common than fixed rental payments.

3. Land use:

            - The developer is granted permission to use the land for the construction, operation, and maintenance of solar infrastructure. This may include installing solar panels, batteries, and other related systems that are essential for energy generation.

            - The land should be well-suited for solar power generation, which typically requires flat, open spaces with minimal shading. The land should ideally be free from any obstructions that could interfere with solar energy capture.

4. Infrastructure development:

            - Solar developers will design and build the solar power system on the leased land. This includes installing solar panels, inverters, battery storage, and related equipment needed for efficient energy generation and storage.

            - The developer is also responsible for obtaining any necessary government permits and approvals related to the land use and environmental regulations.

5. Ownership of solar power plant:

While the landowner leases the land to the developer, the solar power plant and all its infrastructure remain the property of the developer. After the lease period expires, the ownership of the infrastructure may revert to the landowner, or the developer may negotiate an extension of the lease.

When deciding between a solar loan and a solar land lease, it's crucial to evaluate various factors to determine the best fit for your property and financial goals. Below are key considerations to guide your decision:

1. Whether you want to pay upfront costs and have financial flexibility

- A solar loan typically involves higher upfront costs, including installation and potential down payments. However, it also leads to long-term savings and potential tax benefits like accelerated depreciation on panels.

- A solar land lease generally requires minimal or no upfront investment. The leasing company covers installation and maintenance costs.

2. Whether you want ownership and long-term value

- Ownership of the solar system with a solar loan means you can benefit from increased property value and potential tax credits.

- In a solar land lease the leasing company retains ownership. This means you won't see an increase in property value or benefit from tax incentives.

3. Whether you want to take up maintenance and responsibility

- With a solar loan, you're responsible for maintenance and repairs. While this ensures control over the system, it also means additional responsibilities and potential costs.

- In a solar land lease, the leasing company handles all maintenance, repairs, and monitoring, reducing your responsibilities and ensuring the system operates efficiently.

4. What sort of payment structure suits you

- A solar loan typically has fixed monthly payments, and once the loan is paid off, you enjoy free electricity via net metering.

- With a solar land lease, monthly lease payments may increase over time, potentially offsetting energy savings. However, they are usually lower than traditional electricity bills, providing immediate financial relief.

5. Whether tax benefits and incentives are important to you

- With a solar loan, you're eligible for tax credits and rebates, which can significantly reduce installation costs. If you’re wondering what subsidies and incentives are available to you as a solar panel owner, read more here.

- In a solar land lease, the leasing company claims any available tax incentives, not the property owner.

6. If you’re looking to have an impact on property sale

- With a solar loan, owning the system can enhance property value. However, if you sell your home before the loan is paid off, the remaining balance may need to be settled at closing. This can be a deterrent to the sale.

- In a solar land lease, the lease agreement may need to be transferred to the new homeowner, which could also complicate the sale process.

7. Whether there are land use and community considerations

- A solar loan is suitable for residential properties with adequate roof space for solar installation.

- A solar land lease is ideal for landowners with unused or underutilized land. However, in some regions, land use regulations may require conversion of agricultural land to non-agricultural use before leasing, which can involve bureaucratic hurdles and delays.

8. If you’re looking for long-term commitment

- A solar loan typically involves a commitment of 10–20 years. Once the loan is paid off, you own the system and can continue to benefit from free electricity.

- A solar land lease often spans 20–25 years. While this provides long-term income, it also means a long-term commitment to the leasing company.

9. What are the market and regulatory factors

- A solar loan is subject to interest rates and lending criteria, which can vary based on creditworthiness and market conditions.

- In some areas, land lease agreements may be subject to regulatory changes or community opposition, which can affect the viability of solar projects.

Choosing between a solar loan and a solar land lease depends on your financial situation, your property, and your long-term energy goals. If you're looking to lease my land for solar development, it offers a low-commitment and low-cost alternative. However, if you want ownership, tax benefits, and significant long-term savings, a solar loan is a better option for you.

Sources

1. What is a solar loan and how can you avail it

2. Solar loans

3. Rooftop solar loan

4. How do solar leases work

5. Solar land lease

6. Solar power lease vs purchase: Which is better

7. Solar leasing vs buying

8. Solar land lease vs solar ownership

9. Solar lease vs solar financing

10. Homeowners guide: Solar financing in India

11. PM Surya Ghar loan for solar rooftop

12. Land requirements for solar power plants in India

13. How does leasing solar panels work