Switching to solar energy is an excellent way to reduce electricity bills, lower your carbon footprint, and increase the value of your property. However, the upfront costs of installing a solar system can be a barrier for many homeowners and businesses. Fortunately, various solar financing options make it easier to go solar without paying the full cost upfront.
Understanding Solar Financing Options
Solar financing helps homeowners and businesses afford the cost of solar panel installation by breaking it into manageable payments. There are multiple ways to finance a solar system, including loans, leases, and power purchase agreements (PPAs). Choosing the right financing option depends on factors like your budget, credit score, and long-term savings goals.
Solar Loans
A solar loan allows you to borrow money to purchase a solar panel system while repaying the cost in monthly installments. There are two main types of solar loans:
- Solar Specific Loans – Most solar specific loans are generally specific to homeowners and not businesses. The upside is that they only require the solar system as collateral plus offer a few solar specific features. Solar specific features can include such things as a delay in making your first loan payment (to account for the delay between signing your loan agreement and turning your system on) or an option to re-amortize your loan after you receive your Federal Investment Tax Credit.
- General Home Improvement or Business Loans – Other loans, such as a home equity or home improvement loan (or a business loan) generally require your home or building to be used as equity. Such loans sometimes have lower interest rates but lack features specific to solar.
Benefits of Solar Loans:
- You own the system and qualify for tax credits and incentives (or for a business, also a capital expense deduction).
- Monthly payments are usually lower than electricity bills. Owning your solar system increases the value of your home or building well as making it easier to sell in the future.
Considerations:
- Requires a reasonably good credit score (or business credit worthiness) to get favorable loan terms.
- Interest rates vary based on lender and loan type.
Solar Leases
With a solar lease, a company installs the solar panels on your property, and you pay a fixed monthly amount to use the energy they generate. The leasing company owns and maintains the system.
Benefits of Solar Leases:
- No upfront costs.
- Maintenance and repairs are covered by the leasing company.
- Immediate savings on electricity bills.
- For a business, there is no loan to carry on their books.
Considerations:
- You do not own the system, so you can’t claim tax incentives (or for a business a capital expense).
- Long-term savings are often lower than with ownership.
- May require a long-term contract.
- For homeowners who may wish to sell their home before the end of their lease, getting out of the agreement can be impossible or quite expensive. When you want to sell your house, either the new owner must assume the lease OR you must buy out the lease. The buy-out is typically equal to the total remaining lease payments.
Power Purchase Agreements (PPAs)
A PPA is like a lease, but instead of paying a fixed amount each month, you pay for the electricity your solar panels generate at a set per-kilowatt-hour rate. Some PPAs set the monthly PPA payment amount every six or twelve months to simplify the payment amount.
Benefits of PPAs:
- No upfront cost, making solar accessible.
- No maintenance responsibilities.
- Energy costs are often lower than utility rates.
- For businesses, as with a lease, they avoid carrying a loan on their company’s books.
Considerations:
- No ownership of the system means you do not get any tax credits or other state and local incentives.
- Savings depend on the electricity rate agreement.
- Contracts may include escalator clauses that increase rates over time.
- Getting out of the agreement can be impossible or quite expensive. When you want to sell your house, either the new owner must assume the PPA OR you must buy out the lease. The buy-out is typically equal to the total remaining PPA payments.
Hybrid Loan and Lease Types for Businesses
- For businesses, a variety of leases and loan types can come into play as solar financing options. For example, leases that are designed to help business purchase the solar array over a relatively brief period of time.
- There are also leases that work like a loan, which can also be beneficial to companies looking to go solar.
Government Incentives & Rebates
Many governments and utility companies offer financial incentives to encourage solar adoption. Some of the most common include:
- Federal Investment Tax Credit (ITC) – Allows most homeowners and businesses to claim thirty percent of their solar installation cost as a federal tax credit.
- State & Local Incentives – Some states offer additional tax credits, rebates, or performance-based incentives.
- Net Metering – Allows solar panel owners to sell excess electricity back to the grid, reducing energy costs.
Which Solar Financing Option is Right for You?
Your choice depends on your financial situation and energy goals:
- If you want to maximize long-term savings and tax benefits, a solar loan is the best choice.
- Although we do not recommend it for homeowners, if you prefer a hassle-free, low-cost option with no maintenance and do not mind forfeiting your right to incentives, a solar lease or PPA may be better.
- For businesses, however, a lease or PPA can often be the best option. It truly depends on their financial situation.
Final Thoughts on Solar Financing Options
Solar financing makes it easier than ever to switch to renewable energy without emptying your bank account. In fact, many people think of it as “repurposing” the money they currently pay to their utility to pay for their solar loan. And once the loan is paid off, they are basically getting the energy their system produces for free. In short, whether you choose to buy, lease, or sign a PPA, solar energy can help you reduce energy costs and contribute to a sustainable future. That said, before you choose a type of financing be sure to consider all the pros and cons of the financing methods you are considering as well as research available incentives in your area. The type of loan or lease you ultimately pick can dramatically impact how well solar will work for you.
If you are considering solar for your home or business, we are here to help you make the best choice for you. Give us a call today at 877-886-8867 to talk about your financing options!
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