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 even further.
To pay the remaining balance for longterm renewable energy today, home and business owners can pay cash, look at third-party ownership (TPO) options, or explore a variety of other solar financing products.
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. The three main options that we’ll discuss here are:
- Third-party ownership
- Solar loans
- Cash
Third-party ownership (TPO)
As you may have guessed, with third-party ownership a solar system is owned, installed, and maintained by a third party. Homeowners enter into a power purchasing agreement (PPA) or can lease the
equipment from the third party.
Under a lease, the third party rents out the equipment each month to the homeowners. With a PPA, instead of renting the equipment, homeowners purchase the electricity produced by the panels at a discounted price.
The benefits of TPO are pretty clear — since home and property owners do not purchase a PV system, there is no upfront cost, and no dealing with high interest rates. But the benefits don’t end with immediate savings. There’s also no maintenance or management costs — the TPO provider (the owner) handles these. It’s also fully insured and protected as part of the homeowner’s agreement with a TPO provider.
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
TPO is often the easiest way to for home and business owners to go solar, since a third party handles all the installation and system maintenance. And while solar loans and cash payments are typically structured to create long-term savings, TPO options may be able to deliver immediate savings on electricity bills with lower rates locked in contractually — making them cash-flow positive from Day 1.
The key for installers is having as many TPO options as possible. With more options in your toolkit, you
can work with each homeowner to meet their specific needs.
Learn more about Aurora’s TPO partnerships and options.
Solar loans
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).
Cash payment
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 purchase their system outright and own all of the electricity it produces. 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. A vast majority of states (as well as Washington DC, the US Virgin Islands, Puerto Rio, and American Samoa) have 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. The Database of State Incentives for Renewables & Efficiency is a great resource for finding potential savings where you live.
Final thoughts
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.
Featured image by Andre Taissin.
