Solar Financing

Rooftop solar has become one of the fastest growing new sources of energy across the planet, and plummeting costs have made solar energy increasingly affordable for thousands of homeowners in the United States. Rooftop solar is still a major investment, however, and finding a way to make smaller solar payments over time as opposed to writing a big check on Day One can help make solar a reality for millions of people. The right solar financing can substantially boost the economic return on a solar system, but they’re not all created equal.

When it comes to financing a solar system, owning versus renting is one of the major choices that a homeowner must answer. Just like with a car or a home, ownership means you control the system and all of the benefits and costs that come with it. With a rental or lease, somebody else owns the system and you simply pay a set recurring fee for the right to use it without worrying about ownership responsibilities. We’ll be using the car analogy to help explain the details of the different solar financing options, starting with ownership and then covering rental agreements.

Ownership is always the most effective financing path in the long run. Solar ownership allows homeowners to get the most out of their solar panels, and for those that don’t want to make a lump there are several loan products available that enable ownership through fixed monthly payments. Just like buying a car and driving it for a decade or more, solar ownership maximizes the value of the solar panels by spreading a fixed purchase or loan price across a long period of time. The simple reason is that after the upfront purchase or the last loan payment, the electricity produced by the panels is free!

An additional benefit of ownership is that you control all of the incentives that come with your solar system. These include the solar investment tax credit (ITC), state level incentives and rebates, and solar renewable energy credits (SRECs), which represent the environmental benefits of the power produced by your system and can be sold for profit in some states. People that want to claim these incentives themselves have added motivation to own their system with a cash purchase or loan agreement.

As any car owner will tell you, the downside to ownership is that you’re on the hook for maintenance and repairs. This part of the story is much brighter for solar owners because of the outstanding warranty protections offered by installers and equipment manufacturers. Solar panels don’t have any moving parts, and they’re specially built to sit on rooftops exposed to all kinds of weather. This means that companies that make and install solar equipment are confident their products are going to work for a long time, and they pass those benefits onto customers. Installers typically warranty their workmanship for up to 10 years, which means you have plenty of time to make sure that everything starts working and continues working. Solar panel manufacturers offer warranties that are typically 20-25 years in length. Inverters, which act as the brain of the solar system, are warrantied for between 12 and 25 years. Taken together, this multi-layer warranty protection means customers can be confident that repairs and maintenance will be minimal and their solar investment will be protected.

Solar rental agreements are great ways for homeowners to simply pay for the energy produced by the solar panels and not worry about anything else. The solar rental agreement usually takes the form of either a lease or a power purchase agreement (PPA). Think of a solar lease simply like a car lease, where you make fixed monthly payments for a fixed period of time in exchange for the right to use the car. Imagine the solar PPA as nearly identical to a lease, with the slight difference that rather than a fixed monthly payment for the car you pay per mile, so each month the payment changes slightly based on how far you’ve driven. In both instances, the dealership owns the car and at the end of the lease period you either need to give it back to the dealer or buy out the remaining value.

When it comes to solar leases and solar PPAs, in both cases you’re renting the solar panels and getting the benefit of the electricity they produce. In a solar lease the payment is fixed, and in the solar PPA the payment fluctuates based on how much electricity was produced. At the end of the term, you can renew the agreement, buy the system out, or have the solar company come and take the panels off the roof. No hassle, simple solar!

While solar rental agreements can often produce the lowest electric bill in the near term, they are almost always the most expensive in the long term. This is because, unlike with ownership, you always need to pay a monthly fee for the electricity generated by the panels and never get to benefit from the free energy produced by a purchased system or one with a paid off loan. The situation is identical to that of car leases- for the first few years a lease may be cheaper than buying a car, but overtime the lease ends up being more expensive.

A second key factor in solar rental agreements is that the solar company gets control of the ITC, state level incentives, and any SRECs since they are the owner of the system. These benefits are passed to the customer in the form of lower monthly payments, but the reduction is usually not as much as it would be if the homeowner used the incentives herself. In certain situations, like those in which the homeowner has a low tax bill and therefore can’t use the tax credit, it can actually be beneficial for the solar company to take control of the incentives in exchange for lower payments since they wouldn’t be able to use them anyways.

Solar rental agreements have the distinct benefit of eliminating any concerns on maintenance and repairs. Not only do leases and PPAs include a provision guaranteeing coverage of any malfunctions, but many will actually credit the homeowner for any electricity lost due to downtime. This worry free approach to solar is an important feature of solar rental agreements.

In picking the right financing plan, PowerScout recommends that the first question customers ask is whether or not they pay enough taxes to claim the ITC. If you’re able to claim the ITC, then PowerScout recommends a solar loan or outright purchase, with the deciding factor being whether you prefer a lump sum payment upfront or fixed monthly loan payments over time. Given that loans have interest and fees associated with them, an outright purchase will always produce the best economic results.

If you do not not pay enough taxes to claim the ITC, as is often the case with retirees or those switching careers, PowerScout recommends a rental agreement either through a lease or a PPA. The deciding factor between the two should be whether you prefer fixed payments each month or one where the payments fluctuate based on the energy produced. Since energy purchased through a rental agreement usually costs less than electricity from the utility, PowerScout recommends PPAs since they help match the timing of solar payments to savings earned from the utility.

The next step is to get in touch with a solar expert to discover how much you could save by going solar! Our network of installation partners will be able to show you exactly what a purchase, loan, PPA, and lease would look like, and which would be the best for your specific situation. Share your contact information now to start saving today!