Home solar financing options

A comparison of solar financing options

Cash purchase

For the highest possible savings, look to purchase your entire solar system upfront. With an upfront cash purchase, you essentially secure roughly 25 years' worth of electricity, which can protect you from electricity rate fluctuations and provide you with energy independence-the power to produce your own solar energy.

Plus, you can capitalize on a variety of incentives and rebates offered to those who purchase their solar system outright. Solar incentives like the federal investment tax credit (ITC) can help offset the upfront cost. Check with your local tax expert to find out your eligibility and whether you can make use of the federal ITC or local tax rebates. There are also net metering programs that pay you for solar energy that you export to the grid, which helps you earn extra money from your system over time.

As the owner, you are responsible for any system maintenance and repairs. However, with your system paid in full, you benefit from no regular payments nor long-term contracts, which in turn allows you to reap the rewards of lowering your electricity bill immediately.

Solar loans

For financing that gives you ownership with low-to-no upfront cost, you can take out a solar loan and pay off the cost of your system over time. Just like with a cash purchase, you gain immediate ownership of the solar system so that you can be eligible for solar incentives and utility net metering programs. You'll also need a solid credit history to qualify for certain solar loans, as with most long-term loans.

Next, there are two types of loans: secured and unsecured. While you need an asset-typically your home or even your solar installation-to serve as collateral for a secured loan, the interest rates for a secured loan tend to run 5% - 12%. In contrast, loan rates of unsecured solar loans, which don't require a property lien, can be as high as 20 - 22%.

In the states of California, Florida, and Missouri, homeowners can currently access a unique solar financing loan structure called Property Assessed Clean Energy (PACE). Through PACE, you pay back your loan annually through increased property taxes, which are assessed based on the added value of your solar system.

Like other loans, it relieves the burden of the upfront cost and allows you to finance your system over time. It also attaches the debt of the system to the property instead of to you as an individual. PACE programs are typically developed by state legislatures and then authorized by local governments. Check out more information about residential PACE programs.

Solar lease

Solar leases are a great third-party ownership option for those looking to avoid paying the upfront cost of a system. Through a solar lease, you pay for the electricity produced in fixed monthly installments based on the estimated annual production of your system.

Leases can come in two forms: 0% escalators or an annual escalator that increases your monthly payments every 12 months. However, these increases are often lower than annual utility electricity rate increases, so you can still reap long-term electricity bill savings. Solar lease agreements typically range 20 - 25 years, after which you'll have the option to buy your system at market value.

Because you don't own your system, you will forgo the benefits of solar incentives like the ITC and revenue from net metering programs. This means that your lifetime savings may be lower than that of a solar loan, which allows you to capitalize on the financial benefits that come with ownership.

Power purchase agreement (PPA)

A power purchase agreement (PPA) is another third-party financing option, where the third-party owner sells you the power generated by the solar system, depending on how much you use. If homeowner consumption surpasses the solar system production, a homeowner will simply purchase power from the grid. A PPA will mean you cannot receive solar incentives nor enroll in a net metering program. As with a solar lease, a PPA's monthly payments are based on a fixed rate that's calculated from the system's estimated energy production.

However, a PPA can differ from a solar lease in that your payments may vary from month-to-month. A solar lease's payments are the same every month, no matter how much energy you consume. In contrast, a PPA payment is based on the kilowatt-hours of energy that you consumed during that specific payment period. Because of this, you can expect slightly higher PPA payments during the summer or winter months when you might use your air conditioner or heater more frequently.

PPA agreements typically include annual rate escalators, so your payments may increase over time. But as these increases are often lower than annual utility electricity rate increases, you could still experience long-term savings on your electricity bill.

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