Should You Buy Out Your Solar Lease Before NEM-2 Grandfathering Expires?

Adrian Marin|Independent Solar Advisor, Temecula CA

Helping Riverside County homeowners navigate SCE rates and solar options since 2020

2026 context: NEM-3 export rates for SCE customers are 5 to 8 cents per kWh, compared to roughly 30 cents under NEM-2. A NEM-2 grandfathered system is worth significantly more per year than a new NEM-3 system of the same size. That gap is what makes this question worth asking.

Thousands of California homeowners are in the same situation: they signed a solar lease 6 to 12 years ago when NEM-2 was the standard. The system is grandfathered. The lease payment is lower than their old SCE bill. But the lease still has years left, and they are not sure whether buying out the lease makes sense financially or whether it would even preserve the NEM-2 status they have been protecting.

The short answer is that a straight buyout typically does preserve NEM-2 status, but not always, and the financial case depends entirely on your specific lease balance, remaining term, and local utility rate. Here is how to think through it.

1. What NEM-2 Grandfathering Actually Means

The CPUC moved California to NEM-3 in April 2023. Systems that were already interconnected under NEM-2 were grandfathered for 20 years from their original interconnection date. That means a system installed in 2016 stays on NEM-2 until approximately 2036.

What grandfathering protects is the export credit rate. Under NEM-2, SCE credits excess solar production at close to the retail rate, which is 30 to 43 cents per kWh depending on tier. Under NEM-3, that same export credit drops to 5 to 8 cents. For a system that produces 10,000 kWh per year with 30 percent export, the difference is roughly $700 to $1,100 per year in bill credit value.

Grandfathering is tied to the interconnection agreement, not to who owns the panels. The key question for any lease buyout is whether the transaction changes the interconnection agreement or triggers a new application.

Rule of thumb: If the buyout transfers ownership without modifying the system and without filing a new interconnection application, grandfathered status should remain intact. If the buyout is paired with a system expansion or inverter replacement that requires a new interconnection filing, you risk losing NEM-2 status. Verify this with SCE or your installer before signing anything.

2. How Buyouts Affect NEM Status

Lease buyouts from Sunrun, Freedom Forever, and SunPower all follow a similar structure: the homeowner pays the present value of remaining lease payments, ownership of the panels transfers to the homeowner, and the monitoring and maintenance obligations that were part of the lease end.

From the utility's perspective, the system stays the same. The same panels are on the same roof, connected to the same meter, under the same interconnection agreement. The change is that the name on the system ownership switches from the leasing company to you. That switch alone does not trigger a new interconnection review with SCE.

What can trigger a problem is any of the following:

Adding panels to the existing system

Any capacity increase requires a new interconnection application, which places the expanded system on NEM-3.

Replacing a failed inverter with a different model or brand

Some inverter replacements require updated interconnection paperwork. In those cases, there is a risk of an NEM-2 to NEM-3 rollover.

Moving or selling the home

NEM-2 grandfathering transfers with the property for the remaining grandfathering period when the home is sold. The buyer gets the remaining NEM-2 years.

System upgrade or battery addition

Adding battery storage generally requires a new interconnection application and typically triggers NEM-3 for the modified system.

A clean buyout with no system changes carries minimal NEM-2 risk. If you are also considering adding panels or a battery at the same time, do that math separately. The NEM-2 value you would give up by adding capacity may exceed the value the expansion provides.

3. When the Buyout Math Works

The case for buying out your lease is strongest when three conditions are true at the same time:

Your current lease payment is below your utility rate

If you are paying 14 to 18 cents per kWh on the lease and SCE is charging 34 to 43 cents, you have ongoing savings worth protecting. Ownership locks that spread for the remaining system life.

The buyout price is reasonable relative to system remaining value

A well-maintained 8 to 12 year old residential solar system still has 10 to 15 years of productive life. If the buyout price is below what those years of bill offset are worth at today's rates, you come out ahead.

NEM-2 grandfathering has significant years remaining

If your interconnection date was 2015 to 2020, you have 9 to 14 years of NEM-2 protection remaining. Owning the system through that period, rather than paying a lease, captures more of that value directly.

Simplified example

System: 6 kW installed in 2017, producing 9,000 kWh per year. Current lease payment: $130/month ($1,560/year). SCE avoided cost at 34.5 cents average: $3,105/year. Annual net benefit of ownership over lease: roughly $1,545. Buyout price from leasing company: $14,000. Payback on buyout investment: approximately 9 years. Remaining NEM-2 grandfathering: 11 years (through 2028 interconnection date runs to 2037 if original install was 2017).

In this example, the buyout pays back within the remaining NEM-2 window. After payback, ownership generates pure savings. This is the scenario where a buyout makes clear sense.

4. When the Buyout Does Not Make Sense

The case against a buyout is strongest when any of these apply:

Short remaining lease term

If 3 to 5 years remain on the lease, waiting is usually simpler and cheaper than a buyout. You already paid for that period through lease payments and will own the system outright when the lease ends.

High buyout price relative to system age

Leasing companies calculate buyout at present value of remaining payments. On a lease with a 2 to 3 percent annual escalator and 12 years remaining, that figure can be $18,000 to $30,000 on a mid-size system. At that price, the payback period may extend beyond the NEM-2 window, eliminating the advantage.

System performance has degraded significantly

Solar panels lose 0.5 to 0.7 percent output per year on average. A 12-year-old system is producing roughly 8 percent less than at install. If production issues exist beyond normal degradation, buying out puts maintenance costs on you.

You plan to sell the home within 3 to 4 years

NEM-2 grandfathering transfers with the property. You do not need to own the panels for the buyer to benefit from the grandfathered rate. The lease may actually transfer cleanly and add value to the home sale.

5. Frequently Asked Questions

Does buying out my solar lease preserve NEM-2 grandfathering in California?

Generally yes, if the buyout keeps the same system, same address, and the interconnection agreement stays in place under your name. The CPUC's NEM-2 grandfathering rules are tied to the interconnection agreement, not the ownership structure of the panels. A straight buyout that transfers ownership from the leasing company to you without changing the system or interconnection should preserve grandfathered status. However, any modification to the system (adding panels, changing inverters) or a new interconnection application can trigger NEM-3 rates. Confirm with your utility before completing any buyout.

What is NEM-2 grandfathering and when does it expire?

NEM-2 grandfathering means your system was interconnected under the old net metering rules, which credited solar export at near-retail rates (roughly 30 cents per kWh for SCE customers). The CPUC allows grandfathered systems to stay on NEM-2 rates for 20 years from their original interconnection date. For most California solar customers, this means grandfathering runs through the 2030s or 2040s depending on when the system was originally installed. When grandfathering expires, the system rolls onto whatever rate structure is in place at that time, which today would be NEM-3 at 5 to 8 cents per kWh export credit.

What does a solar lease buyout typically cost?

Most lease agreements include a buyout option at the present value of remaining lease payments, discounted at a rate specified in your contract (typically 6 to 10 percent). For a 10-year-old system with 10 years remaining on a lease, the buyout figure commonly falls between $8,000 and $25,000 depending on system size, original lease rate, and escalator terms. Sunrun and Freedom Forever both specify buyout calculation methods in the original lease. Request the current buyout figure in writing from your leasing company before making any decision.

Does buying out my lease void the manufacturer panel warranty?

No. Panel manufacturer warranties transfer with the equipment, not with the leasing company. A 25-year panel warranty from LG, Qcells, or REC stays intact regardless of who owns the panels. What may change is the workmanship warranty provided by the installer. Leasing company workmanship warranties often cover the installer's work for the lease term. After a buyout, you own the panels but the leasing company's workmanship coverage may end. Confirm workmanship warranty status in writing before completing any buyout.

Should I buy out my lease or wait for it to end?

If the remaining lease term is short (3 to 5 years) and the buyout price is close to the present value of remaining payments, waiting is usually simpler. If the lease has 10 or more years remaining, your current lease rate is below your utility rate, and the buyout gives you ownership before grandfathering expires, a buyout can save meaningful money over the full period. Run the specific numbers with your actual lease balance and utility rate before deciding.

6. Next Step

The buyout decision requires three numbers you can only get from your specific lease agreement and your actual SCE bills: current buyout price, remaining lease payments, and your 12-month average bill under the grandfathered NEM-2 rate. Without those numbers, any answer is generic.

To get a clear picture of what your system is producing versus what you are paying and what ownership would actually save you, use the savings calculator below. It models your specific bill scenario under NEM-2 so you can compare it against any buyout figure your leasing company provides.

If you want to walk through the numbers directly, call me. I work with SCE customers in Temecula, Murrieta, and Menifee who are making exactly this decision and can give you a straight read on whether the math works for your situation.

Use our Temecula solar savings calculator to see exactly how much you could save given your current SCE bill.

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