Solar on a rental property: who keeps the savings, and what rent premium repays the panels?

Three billing set-ups, three different winners

Solar panels do not pay their owner directly. They lower the bill on the meter they sit behind, and the person who pays that bill collects the value. In an owner-occupied house the payer and the owner are the same person, which is why ordinary payback math works. On a rental they often are not, and the landlord's return depends on whether some of the tenant's saving can be moved back to the landlord through rent or through a utility charge.

The table sets out the three common arrangements. The first is typical of single-family rentals and small multifamily buildings where each unit has its own utility meter. The second is a master-metered building where the owner is the utility's customer and charges each unit for its use. The third is the all-inclusive lease, where the rent covers electricity.

Two mixed cases come up often. A house can have one meter for the unit and a separate house meter for common lighting, laundry or a well pump that the landlord pays; a small array wired to the house meter is structure C even if the tenant pays the unit bill. And a duplex owner who lives in one unit and rents the other usually has two meters, so the array has to be assigned to one of them, or split, before any of this arithmetic means anything. Ask the utility which meter an interconnection application would attach to before pricing anything.

The system, its upkeep and its output, as used here

Every figure below comes from one short calculation with printed inputs. The capital cost and upkeep are the Department of Energy's residential benchmark, which is a modeled national market price in 2024 dollars and not a quote. Production uses the same planning factor as the community solar versus rooftop comparison, so readers moving between the two pages see one consistent system. No federal credit appears anywhere: the residential credit ended for systems placed in service after 2025, and the site keeps every other credit out of payback math as well.

Over 20 years the planning-factor system produces about 171,700 kWh. At a flat 20 cents that output is worth $34,340 to whoever pays the bill; if the value rises 3 percent a year it is worth $45,911. Those two totals are the pie. Everything that follows is about how it is cut between the person who paid $23,600 and the person whose meter the panels sit behind.

For current tariffs, rate trends and what a kilowatt-hour costs where your rental is, use EnergyBS's electricity rate tracker rather than the 20 cent illustration. The rental math is sensitive to that one number, as the next section shows.

Tenant-paid bills: the premium that repays the array

Under structure A, the landlord's position is simple to state. Over 20 years the landlord pays $23,600 plus $5,440 of upkeep, a total of $29,040, and receives whatever rent premium the tenant agrees to. Dividing $29,040 by 240 months gives $121.00 a month. That is the break-even with no return on the capital, no vacancy and no repairs beyond the benchmark upkeep.

The tenant's position is the other half of the pie: the bill saving minus the premium. The table holds the premium flat and shows both sides at two price paths. A negative tenant figure means the tenant pays more in rent than the panels save on the bill over the period.

Production does not appear in the landlord's column at all. The break-even premium is set by the price and the upkeep, so a sunnier roof does not lower it. What production changes is the tenant's room to pay. On the Denver PVWatts run the same system makes 12,760 kWh in its first year, worth $2,552 at 20 cents, or about $213 a month; a $121 premium then leaves the tenant about $92 a month ahead, and even the $167 premium that pays the landlord a 4 percent return leaves the tenant about $45 a month better off in year one.

The $167 figure is the level annual payment that repays $23,600 over 20 years at 4 percent ($1,736.53 a year), plus $272 of upkeep, divided by 12. Four percent is an illustration, not a recommended return; use the rate your cash would otherwise earn, as the solar loan versus cash guide sets out. A landlord who would rather recover the system in 10 years than 20 needs ($23,600 + $2,720) / 120 = $219 a month, which is more than the planning-factor system saves the tenant. That premium only works on a high-output roof or a high tariff.

A $135 premium on a single-family rental, year by year

A landlord owns a single-family rental with its own meter, and the tenant pays the electric bill. An installer offers the 8 kW system at the $2.95 benchmark, $23,600, and the tenant's utility offsets 20 cents for each kilowatt-hour the panels produce. The landlord proposes adding $135 a month to the rent from the next renewal.

Year one: the panels make about 9,000 kWh, worth $1,800 on the tenant's bill, or $150 a month. The tenant pays $135 more rent and saves $150 on the bill, a $15 a month gain. The landlord collects $1,620 in premiums and pays $272 of upkeep, netting $1,348 toward the $23,600.

At that pace the landlord recovers the cost in $23,600 / $1,348 = 17.5 years, and the tenant's monthly gain shrinks a little each year as the panels lose 0.5 percent of output. By year 20, at flat prices, the tenant's monthly bill saving is down to about $136, so a $135 premium leaves the tenant roughly even. Over 20 years the landlord nets $3,360 after recovering the cost; the tenant nets $1,940.

Change one input: the tenant uses little power in the day and the utility credits exports at 10 cents. If half the output is exported, the year-one bill saving falls to $1,350, or $112.50 a month, and the same $135 premium now costs the tenant $22.50 a month. The landlord's numbers do not change at all. That is the reason to price the premium from the tenant's actual tariff, not from the retail rate.

Rising power prices help the tenant, not the landlord, under a fixed premium

The last two columns of the table differ for one reason only. If the value of a kilowatt-hour climbs 3 percent a year, the 20-year output is worth $45,911 instead of $34,340, an extra $11,571. Under structure A with a flat premium, all $11,571 goes to the tenant; the landlord's column does not move. The landlord paid for the panels, but the price risk and the price upside both sit with the account holder.

That changes how the premium should be read. A premium that leaves the tenant slightly behind at flat prices, such as $150, turns into a gain for the tenant if prices rise, but the landlord gets none of the rise unless the lease lets the premium move with it. A landlord can reprice at each renewal, and the market rent will do some of that on its own, but there is no contract mechanism that ties a rent line to a tariff the way a submeter charge is tied to it. Conversely, if the tariff falls or the utility cuts the value of exported power, the tenant's saving shrinks while the agreed premium stays, and the tenant may push back at renewal or leave.

Export compensation matters more on a rental than on an owner's home. If the tenant is out during the day, a large share of the output may be exported, and under net billing an exported kilowatt-hour can be worth well under the retail rate. The net metering guide explains how each credit method values exports, and a landlord pricing a premium from the retail rate on a tariff that pays less for exports is overstating the tenant's saving.

When the tariff is too low for any premium to work

On a 15 cent tariff the planning-factor system saves the tenant $1,350 in year one, $112.50 a month, which is less than the $121 the landlord needs just to break even over 20 years with no return. There is no premium that repays the landlord and leaves the tenant ahead. In that case structure A cannot work for an owned system at benchmark cost on a roof producing 1,125 kWh per kW, however the lease is written. Only a cheaper system, a higher-output roof, or moving the array behind a meter the landlord pays changes the answer.

Utilities included in rent: a homeowner's payback with a landlord's tenant

Structure C puts the array behind the landlord's own meter, so the landlord keeps the whole bill reduction. The arithmetic is then the owner-occupied case: on the planning-factor inputs the system repays its $23,600 in about 16 years at flat prices and in year 13 if the value of power rises 3 percent a year. The community solar comparison runs the same system to 20 and 25 years with a discount rate, so the full owner-side table is not repeated here. On the Denver PVWatts output the flat-price payback is about 10.6 years.

Two things make the inclusive lease weaker than the arithmetic suggests. The tenant has no bill, so there is no price signal for using less, and a tenant who adds a space heater or an electric vehicle moves the landlord's cost up while the panels stay the same size; the 9,000 kWh offset is a fixed amount, not a share. And if the landlord later switches the unit to tenant-paid billing, the system turns into structure A overnight, with all of its value moving to the new account holder unless the new lease prices it in.

A converted unit also raises a practical issue: the output that used to offset the landlord's bill now sits behind a meter the landlord no longer pays. If the utility allows it, keeping a small array on a house meter for common loads, while the units move to their own accounts, preserves some landlord value without any rent negotiation. That depends entirely on the utility's interconnection and metering rules.

Billing tenants back: Texas, New York and California rules, checked October 31, 2026

Structure B is where state law does most of the work. When a landlord buys power on a master meter and charges each unit for what it uses, the landlord is reselling electricity, and states regulate that resale. The three rules below are the ones most often asked about. Each applies to multi-unit buildings on a master meter, so a single-family rental with its own meter falls under structure A instead, and none of the three texts says how power generated on site should enter the tenant's charge.

Texas is the most prescriptive. Rule 25.142 requires the lease to state that the unit is submetered, says submetered charges may not be included in the rent or in charges for any other service, and lays out the bill calculation in one sentence: divide the owner's net consumption charges plus tax by the total kilowatt-hours, then multiply by each tenant's use. The owner must keep the utility bills, the average-cost calculations and the submeter readings for the current month and the 12 before it, open to tenants. A landlord cannot fold the panels into an electricity line there; the only route left is the rent, which makes a Texas submetered building behave much like structure A.

New York's Department of Public Service describes a submeterer bluntly: the owner becomes the distribution utility, with the same duties to residents that the local utility has to its customers, including the protections of the Home Energy Fair Practices Act. A rental building converting from master metering files a Notice of Intent to Submeter, and a Petition to Submeter is required when the conversion moves the cost of electric heat onto residents. Under Part 96 the charge to a resident is capped at the utility's own rates for comparable direct-metered customers, so a building whose panels lower its master bill is not required by the cap to lower each resident's charge; whether a specific building's order says anything more is in its Commission file.

California's rule works from the tenant's side. Section 739.5 requires the master-meter customer to charge each user at the rate that would apply if the user bought directly, and to pass through any utility rebate in proportion to each user's consumption, with an exception for California Solar Initiative incentives on mobilehome park solar. The text read here is an Internet Archive capture of the Legislature's page saved May 5, 2022, showing the 2021 amendment as the latest; check the current text on the Legislature's site before relying on it.

The table covers three states only. Elsewhere, the state utility commission decides whether a landlord may resell electricity to tenants at all and on what terms, so its consumer or submetering page is the place to start, and the answer can be that structure B is not available.

Leasing panels for a rental instead of owning them

A landlord can also put a third-party lease or power purchase agreement on a rental roof. The capital problem disappears, but the billing problem does not. Under structure A, the landlord pays a monthly lease payment while the tenant gets the bill reduction, so the rent premium now has to cover the lease payment instead of $121 of amortized cost. Under a PPA, the contract is usually with whoever buys the power, and on a tenant-paid meter that can mean asking each new tenant to sign or assume a 20- or 25-year contract, which few tenants will do for a one-year lease.

The comparison with ownership is one line. If the lease payment is L a month, the landlord's monthly position under structure A is the premium minus L, and under structure C it is the bill saving minus L. Ownership beats the lease when the landlord's alternative return on $23,600 is lower than the rate implied by the lease, which is the same test the lease, buy or PPA guide applies to a homeowner, including its warning about escalators that grow the payment every year. On a rental, an escalator compounds the structure A problem: the payment rises on a fixed schedule while the premium only moves when the lease renews.

Third-party contracts also travel with the building. A lease usually has to be assumed by a buyer or bought out, and the provider may file a UCC fixture filing that a lender or title company will see; selling a house with leased solar and the solar lien and refinance guide both apply to a rental sale or a cash-out refinance, often more sharply because investment property lending is stricter.

How the IRS describes the cost on a rental, kept out of the numbers

Nothing in this section changes any figure above; all rent premiums and paybacks are pre-tax by design. It records only what the IRS's own publications say, because rental owners ask how the expense is treated and the answer is not the same as for a home they live in. It is not tax advice, and a tax professional should apply it to a specific property.

IRS Publication 527 (2025), Residential Rental Property, says an owner must capitalize any expense paid to improve a rental property, and that an expense is an improvement if it results in a betterment, restores the property, or adapts it to a new or different use. It calls depreciation a capital expense, the way an owner recovers the cost of income-producing property over its expected life. The publication's recovery-period table lists residential rental property at 27.5 years under the general system and says additions and improvements take the recovery period of the property they are added to. Its example list of improvements includes a new roof and wiring upgrades; it does not name solar panels.

IRS Publication 946 (2025), How To Depreciate Property, adds two notes in its what's-new section that bear on energy equipment and point in different directions. One says that qualified property under section 48E that is a qualified investment, and energy storage technology, placed in service after December 31, 2024, is 5-year property. The other says that section 70509 of Public Law 119-21 removed solar or wind energy property from the 5-year definition in section 168(e)(3)(B)(vi), for property beginning construction after December 31, 2024. Which class a rooftop array on a rental falls into is the question to put to a tax professional with both passages in hand.

Publication 527 makes one more point that matters for structure C and the bill-back cases: when a tenant pays an expense that is the landlord's under the lease, the payment is rental income to the landlord, who can then deduct the expense if it is deductible. How the electric bill is assigned in the lease therefore affects how it is reported, separately from who keeps the solar value.

Vacancy, turnover and the months the arithmetic misses

Every structure A figure assumes the premium is paid every month. If a unit sits empty one month a year, the landlord collects 220 premiums in 20 years instead of 240, and the break-even rises from $121 to $29,040 / 220 = $132 a month. During the vacant month the account usually reverts to the landlord, so the panels offset the landlord's own small bill for that month, which recovers a little of the gap but not much at vacant-unit usage.

Turnover raises a billing question that only the utility can answer. Under net metering, credits often accumulate on the account through the sunny months and are drawn down in winter, and the account belongs to the tenant. When a tenant moves out in August, ask the utility what happens to the credits banked on that account, whether they are paid out, forfeited, or stay with the meter, and whether the new tenant starts from zero. The true-up bill guide explains how annual settlement works where it applies, and a tenant who leaves just before true-up can carry the credit or the charge in a way the lease never contemplated.

The roof itself is part of the rental's maintenance plan. Panels that must come off for a roof replacement cost money that the benchmark upkeep does not cover; the removal and reinstall guide prices that job, and the roof-first guide explains why a roof with a few years left should be replaced before the array goes on. Landlord policies also differ from homeowner policies, so the solar insurance guide is worth reading against the dwelling policy on the rental before installation, not after a claim.

Tenant access and inverter monitoring are the last practical gaps. A string inverter mounted inside a tenant's garage, or a monitoring app tied to the landlord's account, means faults can go unnoticed for months when nobody who pays the bill is watching production. A lease clause giving access for inspection and requiring the tenant to report an inverter fault light is cheap insurance against a year of lost output that the tenant, not the landlord, would have noticed first on the bill.

Before the lease addendum is drafted

• Confirm which meter the array would sit behind, the unit's or a landlord-paid house meter, before any pricing.
• Price the tenant's saving from the tenant's own tariff and export credit, not the retail rate alone.
• Divide your installed price plus 20 years of upkeep by 240 to get the no-return break-even premium; compare it with the tenant's monthly saving.
• Decide how the premium changes at renewal, and write that into the lease rather than assuming market rent will carry it.
• If the building is master-metered, read your state's submetering rule and confirm with the utility commission that billing tenants back is allowed.
• In New York, budget time for a Notice of Intent or Petition to Submeter before charging any resident for electricity.
• Ask the utility what happens to banked net metering credits when a tenant's account closes.
• Add lease clauses for roof and inverter access, fault reporting, and who pays if panels must come off for a roof repair.
• Keep tax questions separate: take Publications 527 and 946 to a tax professional rather than folding a tax figure into the premium.