Solar financing can be a very important part of your solar panel installation. The way you pay for your solar panels can have a big effect on your return on investment.
Before you consider how to pay for your solar installation, however, you should reduce the cost of your installation by as much as possible. Getting quotes from multiple solar installers is one way to ensure you’re not paying too much for solar. The other way to reduce your costs is to find out which solar incentives you are eligible for.
Before Financing: Reduce Your Costs With Solar Incentives
It’s a good idea to reduce the cost of your solar system as much as possible before deciding how you will finance it. This will ensure that you don’t borrow more money than you need to!
The easiest way to reduce your solar costs is to take advantage of any solar incentives available to you. The details of solar power incentives will vary depending on where you live, but the following are the main incentive categories:
- Solar Tax Credit
- Solar Power Rebate
- Tax Exemption
- Performance Based Incentive (PBI)
Solar Tax Credit
A tax credit is an amount of money that taxpayers can subtract from the taxes they owe. People in the US can take advantage of the Federal Solar Tax Credit. This is currently a 30% tax credit.
Solar Power Rebate
A solar power rebate usually refers to a one-time payout you receive from a utility or government. To find out which solar rebates are available to you check out the Database of State Incentives For Renewables & Efficiency (DSIRE).
Property tax exemptions and sales tax exemptions may be available when you install solar panels.
Performance Based Incentive (PBI)
A performance based incentive (PBI) is based on how much electricity your system actually produces. Two popular forms of PBIs are Solar Renewable Energy Certificates (SRECs) and Feed-In Tariffs (FITs).
These solar incentives should give you a chance to reduce the cost of your solar panels. Now let’s take a look at the options you have for paying for your (now cheaper!) solar power system.
Solar Financing Options
Once you’ve reduced the cost of your solar panels by taking advantage of solar incentives, it’s time to pay the amount still due. If you’ve got the cash available to pay for your new solar panels up front, that’s excellent! It’s still worth checking out your financing options, however, as it might make more sense to finance your panels and invest the money elsewhere.
If you don’t have the money in your bank account to pay for your solar panels up front, we’ve got you covered. There are more ways than ever to finance your solar power installation.
Your main options for solar financing are:
- Solar Loan
- Solar Lease
- Power Purchase Agreement
As you probably know, a solar loan involves borrowing money to pay for your solar power system. The biggest advantage of paying for your system with a solar loan is that you will own the system. This differs from a solar lease or power purchase agreement where your system is owned by a third party.
What’s the big deal with owning the solar power system?
If you don’t own the solar system you are not eligible for the Federal Solar Tax Credit or any other solar incentives. Also, you likely won’t benefit from the increase in home value that solar panels typically provide. For these reasons, a solar loan is preferable to the other forms of financing.
The following are some of the solar power loans available:
- Personal Loan
- This can be a good option if you have good credit. These loans are unsecured which means they don’t require any kind of collateral. A personal loan will also have a fixed interest rate with a fixed monthly payment. You may be able to arrange for your loan payment to be less than your current electricity bill. This means your investment will have a positive return from day one!
- Home Equity Loan
- If you have equity in your home you can borrow against it to pay for your solar installation. Your house is the collateral for this kind of loan and you may be able to obtain a lower rate than you would with a personal loan. You will also have a fixed rate and monthly payment as you would with a personal loan.
- Home Equity Line of Credit (HELOC)
- With a HELOC your house is used as collateral just like with a home equity loan. A HELOC is a line of credit that you can borrow against, however, and not a traditional loan. A HELOC is quite flexible, but it has a variable interest rate that could increase. Keep this in mind as it might take a while to pay off those solar panels!
- Fannie Mae HomeStyle Energy Program
- This option is worth checking out if you’re a US resident. It enables you to finance a solar energy system when buying a new home or refinancing your current home. The cost of your solar panels is rolled into your mortgage and you don’t need an additional loan or line of credit. If you have an existing loan for your panels, the HomeStyle Energy Program even allows you to roll that loan into your mortgage. Just be aware that this option does require an energy report to be completed by a qualified assessor.
- Solar Installer Loan
- Many solar installers offer financing for your solar power system. These loans are usually unsecured and the actual lender is often a financial company that the solar installer has partnered with. These loans can be convenient and they do save you from going to a third party yourself. You should watch for hidden fees, however, and we recommend checking other options for a better rate. Examples of companies that offer loans are SunRun, Tesla, and SunPower.
- Property-Assessed Clean Energy (PACE) Loan
- PACE loans are usually administered by municipal governments. These loans allow you to pay for a solar installation or other improvement. The loan is then paid back through an increase in property taxes. The unique thing about PACE loans is that the loan is attached to the property rather than the individual. If you decide to move, the solar panels stay with the house and the new owner takes over the property tax payments (agreements may vary, so do your homework). If your local government offers this type of loan, I recommend checking it out.
This is an option made available by some solar companies. A solar lease makes it possible for you to get solar panels with no money down and may allow you to start saving money on your electric bill from day one.
Also, since the solar leasing company is the owner of the solar panels, they are usually responsible for monitoring power output and performing any necessary repairs. When the lease is over you usually have the option of extending the lease or having the solar panels removed.
As we mentioned earlier, however, there is a significant drawback to a solar lease. Since you are not the owner of your solar power installation you are not ineligible for the Federal Solar Tax Credit and other incentives. This can seriously affect your return on investment.
Power Purchase Agreement
A power purchase agreement (PPA) is similar to a solar lease in that a third party owns and maintains the solar panels on your roof. The difference is that instead of making a set monthly lease payment, you purchase the power produced by the panels at a preset rate. This means that the amount you pay each month will vary.
With a PPA you will ideally be paying a lower rate for electricity than what your local utility is charging. This means you can potentially be saving money as soon as the solar power system is installed.
The downside to a PPA might sound familiar: You will not be the owner of your solar panels. No ownership means no tax credit or rebates. Think about it and crunch some numbers to see if a solar loan might make more financial sense!
If you want to install a solar power system but don’t have enough money in the bank, you’ve got options. Check out a solar loan, a solar lease, or a power purchase agreement (PPA) and see which one works best for you. There have never been so many options available for solar financing.
FAQ: Is It Possible To Get Free Solar Panels?
Yes, it is possible to get solar panels at no cost. How does it work?
Solar energy companies are able to take advantage of various incentives to install a solar panel system on your roof at no cost to you. The solar company owns and maintains the system and you take advantage of the sun-powered electricity through a monthly lease payment or a power purchase agreement (PPA).
Both of these options can allow you to start saving money from the day your solar panels are installed. Also, the leasing company is responsible for any necessary repairs and maintenance.
So, what’s the downside?
The downside of a solar lease or PPA is that your solar power system is actually owned by a third party. Since you don’t own the solar panels, you are not eligible for the federal solar tax credit or other incentives. This means you lose out on many of the benefits you would get if you purchased your solar panels through a solar loan. For this reason we only recommend going the ‘free solar panel’ route if a solar loan doesn’t work for you.