5 Solar Financing Options: Which One Fits Your Budget?

olar energy as the hip, eco-friendly star of the energy scene. It's clean, sustainable, and long term, it's a real money-saver. Winning all around! But before venturing into the world of solar, one big query looms: how will you finance it?

There's no single answer. No matter if you’re ready to splurge or keeping a close eye on your budget, there's a payment option that will be right for you. In this guide, SunValue walks you through the five most popular ways to finance solar — from straight-up cash purchases to more creative schemes like linking payments to your property tax. So keep on reading if you want to find the ideal match for your budget and lifestyle.

Side-by-Side View

1. Cash Purchase: The Gold Standard

What Is It?

A cash purchase is exactly what it sounds like: you buy your solar system outright, no loans, no leases, just cold hard cash.

Advantages

• Full Ownership: The moment the panels are installed, they're yours, and you can reap all the benefits right away.
• Ultimate Savings: Skip the interest and monthly fees, and reap the best long-term savings on your energy bills.
• Plenty of Incentives: You qualify for the federal solar tax credit (currently 30%) and any local rebates or incentives.
• Property Value Boost: Studies show that homes with solar systems sell for more.
• No Monthly Payments: Pay for the system once, and you’ll only have to think about minimal maintenance—nothing more.

Disadvantages

• High Upfront Cost: Solar systems can cost anywhere from $15,000 to $30,000. Ouch.
• Liquidity Drain: That’s a significant amount of money to lock up, leaving less room for other investments.
• Potential Delays in Payback: If your electricity rates are lower, it could take more than ten years to make back your initial investment.

Real-Life Example

Imagine you have $20,000 saved up. You spend $18,000 on a solar system, starting to save $1,500 every year on electricity. In just over 12 years, you've paid off the initial cost and are reaping the rewards of profit.

But let’s dig a little deeper. You're not just saving on your bills, you’re also future-proofing yourself from inevitably increasing utility rates. While costs continue to rise, your solar home remains unaffectedm, and your savings continue to grow over the years.  And come tax season, you’ll be eligible for a hefty 30% federal rebate to reduce your initial expense.

It’s like planting a tree that grows cash in your yard. The upfront cost might seem high, but once it’s established, it’ll keep paying dividends. And when you decide to sell your home? Those solar panels could add tens of thousands to its value, giving you a great return on your investment.

Is it a fit for everyone? Not necessarily. If you're not prepared to spend a lot upfront or plan to move within a few years, other financing options might make more sense. But, if you're looking for a long-term solution and have the means, a cash purchase is the gold standard of solar financing.

2. Solar Loans: The Pay-As-You-Go Approach

What Is It?

By taking out a loan, you can finance your new solar system by borrowing money from a bank, installer, or a specialized lender. Instead of paying all at once, you pay for your system over time, which makes the switch to solar easier if you don’t have big savings.

Advantages

• Affordable Entry: With solar loans, you can avoid a heavy initial outlay, which means you can switch to solar power sooner.
• Ownership Perks: Once the loan is repaid, the system is yours, so you can benefit from different tax incentives, rebates, and long-term energy savings.
• Flexible Terms: You can choose loan terms from 5 to 20 years, and select a repayment schedule that fits your financial plan.
• Potentially Cheaper Than Your Bill: Your monthly loan payments are often offset by the reduction in utility bills, meaning you'll pay less for energy.
• Predictable Payments: Unlike ever-changing utility rates, fixed loan payments provide a sense of financial certainty.

Disadvantages

• Interest Charges: While loans break up the cost of solar, the interest charges make the total amount you end up paying bigger.
• Credit Score-Based: Your approval and the interest rate you’re getting depend on your credit score. A low score often means higher rates.
• Repayment Obligation: If you sell your home before the loan is paid off, you may have to pay off the balance, complicating the sale process.
• Ownership Responsibilities: As the owner, you’ll have to take care of any necessary maintenance and repairs, unlike with leases or PPAs.

Real-Life Example

Imagine you take out a 10-year loan for a $20,000 solar system at 4% interest. Your monthly payment is about $200, but your electricity bill drops by $150 each month. This means your net monthly cost is only $50 while you’re paying off the loan. After 10 years, the loan is fully paid off, and you’re left enjoying free electricity for the system’s remaining lifespan, typically 15 to 20 more years.

Digging Deeper

Solar loans come in various flavors:

• Secured Loans: These loans are tied to collateral, like your home, and usually have more favorable interest rates.
• Unsecured Loans: You don’t need a collateral, but expect higher interest rates.
• Installer Loans: Some solar companies offer in-house financing, often with special offers or zero-down deals.

For homeowners who prioritize ownership but can’t afford a lump-sum payment, solar loans strike a perfect balance.

3. Solar Leases: Renting Your Sunshine

What Is It?

A solar lease means you pay a fixed monthly fee to use a solar system installed on your property. The catch? You don’t own it—the leasing company does.

Advantages

• No Upfront Cost: Get solar power without a hefty initial investment.
• Simple and Stress-Free: Maintenance and repairs are handled by the leasing company, making it an ideal choice for those who prefer a hands-off approach.
• Predictable Costs: Lease payments are fixed, allowing you to budget effectively and avoid surprises on your energy bill.
• Immediate Savings: With reduced utility costs, many lease agreements can lower your monthly energy expenses from day one.

Disadvantages

• No Ownership: You’re not eligible for tax credits or rebates, and you won’t gain equity in the system.
• Lower Long-Term Savings: Compared to owning a system, your savings will be smaller over the long haul.
• Contractual Commitment: Leases often span 20 years and can include penalties for early termination or transfer.
• Potential Resale Challenges: If you decide to sell your home, buyers must agree to take over the lease, which can complicate the sale process.

Real-Life Example

Imagine you sign a 20-year lease for $100 a month. Your electricity bill drops by $120, so you save $20 a month while enjoying clean energy. Additionally, the leasing company covers all repairs and maintenance, saving you the hassle of unexpected costs.

When Does It Make Sense?

Solar leases are a great fit for those who want immediate access to solar energy without upfront costs or maintenance responsibilities. It’s like renting an apartment instead of buying a house—convenient and low-commitment, but with fewer long-term financial rewards.

For renters or homeowners planning to move in the near future, a lease can also make solar feasible without the long-term investment.

4. PPAs: Pay for Power, Not Panels

What Is It?

A Power Purchase Agreement (PPA) is a lot like a solar lease, but instead of paying for the use of a solar system, you pay for the electricity it generates. A solar provider installs and maintains the system on your property at no cost to you. You agree to purchase the electricity produced at a fixed rate, often lower than your utility’s current rates.

Advantages

• No Upfront Cost: Like leases, PPAs require no initial investment, making solar accessible to more people.
• Lower Energy Rates: You benefit from predictable, often lower-than-utility electricity rates over the term of the agreement.
• Maintenance-Free: The provider handles all maintenance, monitoring, and repairs, giving you peace of mind.
• Scalable Savings: The more energy your system produces, the more you save compared to utility rates.

Disadvantages

• No Ownership: You don’t own the system, so you can’t take advantage of tax credits or rebates.
• Rate Escalators: Many PPAs include an annual rate increase (e.g., 2-3%), which could erode some savings over time.
• Relocation Challenges: If you move, the new homeowner must agree to take over the PPA, which could complicate the sale.
• Usage Dependency: Savings depend on your energy consumption. If your usage drops significantly, your savings might too.

Real-Life Example

Let’s say you sign a PPA with a fixed rate of $0.12 per kWh while your utility charges $0.15. Your solar system generates 10,000 kWh annually, saving you $300 in energy costs each year. Over a 20-year agreement, that’s $6,000 in savings without any upfront investment.

Who Benefits Most?

PPAs are ideal for homeowners who want to lower their electricity bills without the responsibility of owning or maintaining a solar system. If you prefer a hands-off approach to solar and prioritize short-term savings over long-term ownership benefits, a PPA could be your best bet.

5. PACE Financing: Solar Meets Your Tax Bill

What Is It?

Property-Assessed Clean Energy (PACE) financing is a special program that adds your solar costs to your property tax bill. You don’t need a large down payment, and you only pay back the loan through taxes in certain states and towns. The debt is tied to the house, not you personally.

Advantages

• No Upfront Cost: PACE lets you install solar panels without paying anything right away.
• Transferable to New Owners: If you sell your house, the remaining payments can often be passed on to the new owner, so you don’t need to stay forever.
• Flexible Repayment Terms: Terms typically range from 10 to 20 years, which makes monthly payments more affordable.
• Tied to Property, Not Credit: You don’t need a great credit score to qualify, meaning PACE is a good choice for those with lower credit scores.
• Energy Savings Offset Costs: In many cases, energy savings offset or exceed the extra property tax, basically making the solar installation cost-free.

Disadvantages

• Limited Availability: PACE programs aren’t offered everywhere. You’ll need to check if your state or municipality have it.
• Higher Interest Rates: Compared to the usual loans, PACE financing often comes with higher interest rates, which means you’ll pay more overall.
• Risk to Property: If you fail to pay your PACE assessment, a lien may be placed on your property, making refinancing or selling more difficult.
• Complex Sale Process: Even though the PACE assessment can be transferred, some buyers might be turned off because they aren’t familiar with the program.

Real-Life Example

If you finance a $20,000 solar system through PACE, you’ll pay an extra $1,200 in property taxes each year for 20 years. However, your electricity bill will drop by $100 a month, helping to offset the added tax. Plus, you’ll get to enjoy the perks of clean energy without paying anything upfront.

When Does It Make Sense?

If you want to go solar but don’t have the upfront cost or are unsure about your credit, PACE financing could be a good choice. It’s also a great choice for those who plan to sell their home in the future, as the repayment obligation often transfers with the property. However, it’s essential to weigh the higher interest rates and potential risks before committing.

Wrap-up

In the end, no matter which solar financing option you choose, you’re making a move toward a more sustainable future.

If you have the funds, buying will save you the most over time. Loans let you spread out the cost, making them a great option for many. If you're looking for zero upfront cost, leases, PPAs, or PACE financing could be the way to go.

Excited to get started? Compare your options, crunch the numbers, and let the sunshine light up your home!

Sources:

https://www.solarreviews.com/blog/solar-home-value-report