July 14, 2022

Home solar financing options

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In the face of rising energy costs and a growing climate crisis, many homeowners are looking for ways to cut their electricity bills and reduce their environmental impact. As solar technologies improve and governments continue to incentivize home solar, rooftop solar systems are becoming more and more common. If you are looking into going solar, there are many solar financing structures available. In this article, we share and compare the available solar financing options for homeowners in the U.S.

Overview of solar financing options

There are quite a few solar financing variables to consider, such as ownership, upfront cost, credit worthiness, and more.

For starters, who do you want to be the owner of your solar system? You can often get the best value out of your system when you own it yourself, particularly if you qualify for financial assistance from federal and local solar incentives that can reduce the cost of the system. As a bonus, the added solar panels increase the value of your property.

The average cost of home solar is about $20,000, which is a hefty amount of cash to pay all at once, but it’s the best way to maximize savings if you can afford to do it. Alternatively, you can take out a solar loan to avoid paying the upfront cost and still maintain ownership of your system. Of course, if you plan to finance your system through a loan, your creditworthiness may be a qualifying factor.

If you don’t care to own the system yourself, you can choose a third-party ownership model with a solar lease or a power purchase agreement: A solar financing company or other third party will cover the entire upfront cost, as well as maintain ownership of it throughout the entire lifetime of the system. This way, any maintenance or repairs are the responsibility of the third party - you just get to benefit from the renewable energy produced by the system.

The primary factors of each solar financing option are broken down in the table below:

Financing option

Ownership

Upfront cost

Monthly payment

Typical agreement

Credit check

Cash purchase

Homeowner

High

N/A

N/A

N/A

Solar loan

Homeowner

Varies

(Low to none)

Low to medium

(fixed rate; fixed cost)

10-15 years

Necessary

Solar lease

Third Party

None

Low to medium

(fixed rate; fixed cost)

20-25 years

Necessary

Power purchase agreement

Third party

None

Low to medium

(fixed rate; variable cost)

20-25 years

Necessary

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 protects you from electricity rate fluctuations and provides 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, and net metering programs - which pay you for solar energy that you export to the grid - help 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 not having regular payments or long-term contracts.

Solar loan

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, therefore you can be eligible for solar incentives and utility net metering programs. Typically, the payment installations come out to less than your monthly electricity bill, but you’ll still want to make sure that your loan’s interest rate keeps your system costs within your long-term budget. And as with most long-term loans, you’ll need a solid credit history to qualify for certain solar loans.

There are two types of loans: secured and unsecured. While you need an asset (typically your home) to serve as collateral for a secured loan, the interest rates for a secured loan tend to run 3-8%. To contrast, loan rates of unsecured solar loans - which don’t require a property lien - can be as high as 20%.

In California, Florida, and Missouri, homeowners currently can 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 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 here .

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, which are based on the estimated annual production of your system. 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 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, where you can capitalize on the financial benefits that come with ownership.

Power purchase agreement

A power purchase agreement (PPA) is another third-party financing option, which means that you also cannot receive solar incentives or enroll in a net metering program. As with a solar lease, a PPA’s monthly payments are based on a fixed rate that is calculated from the system’s estimated energy production.

However, a PPA differs from a solar lease in that your payments will vary from month to month. A solar lease’s payments are the same every month, no matter how much energy you consume. Contrastingly, 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 be using your air conditioner or heater more frequently.

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

A solar financing option for every homeowner

It’s becoming more and more affordable to go solar every year. Plus, homeowners can choose from a range of financing structures that combine the different benefits and drawbacks of factors like ownership and upfront cost.

Want an estimate of how much solar will cost you? Check out the Enphase System Planner, which allows you to customize the optimal system for your home’s needs.

FAQs

What are the rebates and incentives available if I go solar?

Rebates and incentives vary based on your location and utility provider, but some common incentives include the federal solar investment tax credit (ITC) , property and sales tax exemptions, and net metering.

What are my solar financing options?

Many people finance their solar systems through loans, leases, and power purchase agreements. Those who can afford it may purchase their system outright.

How can I get an estimate for my solar savings?

The Enphase System Planner , which allows you to customize the optimal system for your home’s needs and estimate the cost of such a system.

Should I buy or lease while purchasing a solar panel system?

If you can afford the upfront cost, buying a solar panel system gives you direct ownership over the system, and provides the most immediate savings on electricity. A lease, on the other hand, lets you avoid paying the upfront cost through monthly installments for the use of the system - however, you won’t have the option to own it until the lease ends.

Should I opt for solar loans or solar lease?

A solar loan is a great financing option for those looking to own their solar system right away but pay off the cost over time. You are also eligible for other solar incentives if you take out a solar loan. A solar lease might be better if you want someone else to handle the maintenance and upfront cost and are looking to make regular payments over time.

How do I find the best solar loan?

The best solar loan for one person might not be the best for another. You should first determine what your objectives are for going solar. Are you looking for immediate savings or maximum savings? Low rates or a short payback period? You will typically find that a secured loan will offer you lower interest rates, and paying as much as you can down will lower your overall loan amount.

How can I reach out to a solar installer?

The Enphase Installer Network is carefully designed to deliver the highest standards of customer service and system quality using Enphase products. Use the Enphase Installer Locator to find the best installers near you.

Questions? Contact us. We'll help you build your system, today.
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