solar financing

How Does Solar Panel Financing Work?

Rod Johnson Solar

So, you’re finally ready to get in on all the great savings and environmental responsibility that comes with owning solar panels, but you’re still not sure what payment option is best for you. Cash? Lease? PPAs? There’s a host of different options, so let’s go through the most popular options to figure out how solar panel financing actually works.

Homeowners often don’t realize that while all the solar panel financing options are good, there might be some that fit your lifestyle and financial background better than others. Arguably the biggest draw when it comes to solar panels is that they power things in your home without using electricity from the grid. When day turns into night however, and you’re using more energy than your panels can produce, your grid connection kicks on. It’s important to realize that generally, all of these options will result in a lower energy bill than you’re used to and will ultimately save you money in the long run. The ways in which they save you money is where they often differ.

Cash is King in Solar Panel Financing

As with just about any purchase, if you have the cash to cover the expense, you’ll generally realize a higher return faster. The same is true when purchasing solar panels. Solar panels work by lowering your power bill, but without having to make a payment on either a loan or through a lease, you’re pocketing 100% of that savings! There aren’t, however, a lot of folks who have the cash ready when they want to buy, so let’s check out some more financing options.

Solar Leases

Solar leases are fairly straightforward. Your system is installed and in return, you agree to pay a small down payment (sometimes none at all), plus a leasing fee. These fees are typically much lower than your electricity bill, so you still end up saving money. The solar panel company owns the panels and is responsible for their maintenance- and they also get to keep any profits generated from them and the federal tax credit.

These are excellent for people who are looking to get off the grid and save a bit of money as well, without worrying about maintenance and upkeep.

Power Purchase Agreement (PPA)

PPAs are very similar to leases with just one small difference. Generally, you pay a fixed rate each month for every kilowatt-per-hour of electricity your system produces. This means that if you have a month where your system does not produce as much electricity, you pay less. These agreements typically require a larger down payment. PPAs are great for the same group as mentioned above.

Home Equity Loans or Peer to Peer Loans

Both home equity and peer to peer loans operate like standard financial instruments. A bank or financial institution gives you a loan which will allow you to pay for the full cost of your system. You can expect to pay anywhere from 3 to 7% interest over the course of 10-20 years, if you choose this route. A variety of different terms are available to fit your needs. Home equity loans are slightly different, as you borrow against the equity in your home. These are sometimes called second mortgages.

Property Assessed Clean Energy Program (PACE) & Energy Efficient Mortgages (EEM)

In addition to the federal tax credit, many states allow consumers to borrow directly from cities, municipalities or even states and pay the balance back through higher property taxes, typically over 15-20 years. California has a wide variety of PACE programs available.

The federal government also offers EEMs, or energy efficient mortgages, which can help you offset the cost of a solar panel system as well.

Want to Learn More About Solar System Financing?

Speak with a trusted local solar company to learn more about your options.