Sunlight is free, but solar systems still cost money.
Thankfully, though, the price of going solar has plummeted over the past decade — even with higher interest rates recently — and there are many programs, incentives, and rebates available to drive down total costs.
To pay the remaining balance for longterm renewable energy today, home and business owners can pay cash, sign a lease, or explore a variety of other solar financing options.
How does solar financing work?
Each solar financing option has unique pros and cons, so you need to evaluate each option you have available to meet your energy goals and maximize your return on investment before entering into any contract.
It can be difficult for property owners to pay for 25 years of electricity in one transaction, so solar financing makes a new system installation more accessible without a significant amount of cash upfront. Loans are typically set over 10 to 20 years with monthly payments sent to banks, lenders, or solar financing companies — and are one of the easiest ways to pay for solar.
No matter where a solar loan originates, PV system owners slowly pay off the total cost of their system, plus interest. Solar loans often use fixed interest rates, and while many financing options span for decades, short-term loans can also be arranged.
Homeowners can explore their financing options independently or together with their PV installer. Alongside personal loans and dedicated solar panel financing options in the marketplace, PV systems may also qualify for home equity loans and home equity lines of credit.
The bottom line
By financing a PV system with a solar loan, homeowners with good credit can instantly add value to their property and reap the benefits of solar energy ownership. Even with higher interest rates these days, there are still some loans available with little or no money down. Many loan options also still do feature relatively low-fixed interest payments, and the federal Investment Tax Credit (ITC) and local incentives can generally still be applied (see below for more information on incentives).
Solar leases and power purchase agreements
Just like a car or an apartment, solar installations can be “rented” in one of two ways: a solar lease or power purchase agreement (PPA). In both of these solar financing options, home and property owners do not purchase a PV system, but rather buy the green electricity from a third-party provider.
With a traditional PV lease, homeowners pay a fixed monthly fee to a solar company that installs panels on their roof. Here, the solar developer maintains ownership of the panels and the electricity produced, renting out the equipment each month to the homeowners.
Like a solar lease, a PPA lets home and property owners go solar without owning a PV system. Instead of renting the equipment to the end-user, PPAs are structured so that buyers purchase the electricity produced by the panels at a discounted price.
Today, virtual power purchase agreements are another way to pay for solar where the green energy is purchased from off-site panels. Unlike solar leases or traditional PPAs, virtual PPAs do not require home and business owners to host panels on their property.
The bottom line
A solar lease, PPA, or virtual PPA is often the easiest way to go solar for home and business owners, as a third party handles all of the installation and system maintenance. And while solar loans and cash payments are typically structured to create long-term savings, a lease agreement may be able to deliver immediate savings on electricity bills — making them cash-flow positive — with lower rates locked in contractually.
Without having to invest a significant amount of money, solar leases and purchase agreements work well for those who do not qualify for tax credits or have low credit scores preventing favorable loan terms. Virtual PPAs are ideal for those who cannot host solar panels on their property for any reason.
And finally, solar panels can also be paid for with cold, hard cash. Without ongoing monthly payments, a cash deal for solar panels is almost always the quickest way to reach a break-even point where the price of the system equals the costs of utility electricity avoided.
Like in a solar loan, those paying with cash can purchase their system outright and own all of the electricity that is produced. With this, cash payers can qualify for a variety of incentives and rebates to reduce the total initial cost of a system.
The bottom line
While not always realistic for home and business owners, cash payments for PV systems are often the best way to maximize long-term energy savings. Especially for those with enough tax liability to take full advantage of incentives and rebates, with cash payments systems can pay for themselves more quickly without any ongoing loan or lease expenses.
Other solar financing considerations
When comparing financing options, potential solar customers must understand solar compensation. Knowing how a solar energy system will “pay for itself” can help buyers eliminate any guessing games or uncertainty within a sales conversation.
So before signing with any company, familiarize yourself with local net energy metering (NEM), feed-in tariffs (FITs), and time of use (TOU) policies and ask questions based on your specific circumstances. Speaking of, let’s look at another important piece of the puzzle: incentives.
State-by-state solar financing options & incentives
There are many incentives available for home and business owners looking to go solar.
Nationally, most new installations qualify for the federal solar Investment Tax Credit . It was recently extended through 2032 as part of the Inflation Reduction Act (IRA) and provides homeowners a 30% tax credit for the cost of their system.
In areas outside of major cities, the Rural Energy for America Program can also help many people go solar across the US.
Another important factor to consider is individual state net metering (NEM) policies. In 2022, 41 states (as well as Washington DC, the US Virgin Islands, Puerto Rio, and American Samoa) had mandatory net metering policies in place, which can affect the ROI on solar and battery storage significantly.
Of course, the net metering policy everyone is talking about is California’s NEM 3.0. It’s too complex to explain in a couple sentences, so if you’re a California resident make sure to ask your installer about the details.
Down to the state, city, county, and utility levels, there are thousands of programs designed to make solar energy installations and other energy efficiency improvements more affordable. To help you find more information in your area, here are a few helpful links for states across America. (Please note: This is not a comprehensive list, and incentives change regularly. Please see the Database of State Incentives for Renewables & Efficiency for the most up-to-date information.)
- 50 States of Solar Incentives
- Fannie Mae’s HomeStyle Energy Program
- The Federal Housing Administration’s Energy Efficient Mortgage program (EEM)
District of Columbia:
- Tax exemption
- Dunedin Solar Energy Grant Program
- Florida Keys Electric Cooperative
- Energy Edge Rebate Program
- Xcel Solar Reward Incentives Program
- Minneapolis Solar Green Cost Share
- MN Power Solar Sense
- Dakota Electric Rebates
- Solar Sundown Cost Share Program
- Foresight Bank Loan Programs
- Center for Energy and Environment Loans
- Green Penny Loans
- Texas solar incentives
- Clean Energy Credit Union
- ezSolar Loan
- Fannie Mae Homestyle Energy
- Sunlight Financial
- Service Finance Company
If your state isn’t listed above, the US Department of Energy recommends the Database of State Incentives for Renewables & Efficiency for the most up-to-date information. Both state and federal solar policies are subject to change, but most solar installations are grandfathered into any programs or incentives they qualify for at the time of installation.
Whether paying cash or exploring solar financing options, take the time to consider the various choices and explore every available program, incentive, and rebate available to drive down upfront and ongoing energy costs. That means when you’re choosing an installer, make sure they understand your expectations, explain everything completely, and offer you the purchasing options that work best for your situation.