Solar finance: how to pay for solar panels (2021)
Residential solar energy systems offer homeowners a way to minimize their environmental impact and reduce their dependence on electricity suppliers. One of the biggest barriers to solar energy is the cost of installation, but luckily there are a number of solar financing options that homeowners can choose from.
In this article, we’ll show you solar finance options, including cash, borrowing, and solar panel leasing. Read on to learn which option might be the best choice for you.
Disclaimer: This article is for informational purposes only. It should not be used as a basis for accounting, legal or tax advice and is not intended to be used.
The most common solar finance options to choose from
When buying solar modules, homeowners basically have three options to pay for their systems: cash, credit or leasing. Here is a brief overview of these financing options:
- Pay cash: The easiest way to buy solar panels is with cash. That way, you own the system completely and don’t have to pay interest on it.
- Solar credit: A solar loan is similar to a home finance loan – it is money that you can borrow to cover the cost of solar panels and then repay (usually with interest) over an extended period of time.
- Solar rent: With a solar lease or electricity purchase agreement, the solar modules on your roof do not really belong to you. Instead, you lease them from a solar installer and pay a fixed monthly amount to receive electricity generated by your home’s solar panels.
Pay for solar modules in cash
For homeowners looking to maximize their savings, paying cash is the best option. After all, when you buy a private solar system, you are essentially paying upfront for 25 to 30 years of electricity to use in your home. This means that your energy prices are locked in for decades and you don’t have to worry about inflation or rising electricity costs.
The big problem with paying cash is that the acquisition costs for solar systems are usually quite high. Even when you factor in tax incentives and discounts, you have an investment of at least $ 10,000 to $ 15,000. This is not feasible for every homeowner.
Solar finance through loans
Another option is to borrow money from a solar lender to use to fund your solar system and then pay it back over time. The most common types of solar loans include unsecured personal loans, home equity loans or lines of credit, and self-financing through your solar panel installer.
If you decide to take a loan as a solar financing option, pay particular attention to interest rates and loan terms. How much interest you pay and your repayment period often add to the total cost of your renewable energy system. Rest assured, however, that homeowners who finance their facilities with a loan will still be eligible for the federal solar investment tax credit, which may make repaying that loan a little easier.
Some states and local governments have low-interest loan programs for clean energy systems that homeowners can take advantage of. If you are interested in paying for a solar panel through a loan, find out about any state or municipal programs that are available to you.
Rent solar modules
Homeowners can also choose to lease their solar modules or enter into a power purchase agreement (PPA) where you buy the electricity that the modules produce on your roof.
Solar leasing and PPAs are pretty similar, but with one major difference: a solar leasing means you make fixed monthly payments for the use of solar panels and other solar systems, while a PPA means you make monthly payments only for the electricity produced by solar panels. Of course, the amount of electricity can fluctuate greatly from month to month.
Solar leases may seem attractive at first, but they don’t make financial sense to most homeowners. One reason for this is that homeowners are not eligible for the state solar tax credit in PPAs or leases. Another thing to keep in mind is that solar leases do not add to your property value, which can be one of the great financial incentives for a residential solar system. Other financing options can save you significantly more money in the long run.
Save money with solar power
While the initial solar investment can be high, there are options for homeowners looking to save money on their solar system.
- Federal solar tax credit: The installation of a solar system currently entitles you to a tax credit of 26% of the total equipment and installation costs. (That number is set to decrease in the years to come, so act soon to take full advantage of it.)
- Local supply discounts: Many municipal utilities offer discounts to homeowners who rely on solar energy. Check with your local utility company to learn more.
- Net measurement: Also, see if a net metering program is available in your area. With net metering, you have the option of feeding excess energy that you generate back into the power grid in exchange for a credit from your energy supply company.
- Shopping in the area: In conclusion, remember that not all solar installers are created equal. Take a look around and compare offers to make sure you are getting the best value for money.
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Which Solar Financing Option Is Right For You?
Ultimately, the way you pay for your solar panel system will depend on a number of factors including your consumption income, your creditworthiness and ability to get a good loan rate, and more.
Here’s a breakdown of what type of solar panel financing can be right for which homeowners:
Solar financing option
For whom it could be the right thing
Solar leasing or PPA
Frequently Asked Questions: Solar Financing
What is the best way to finance solar?
If you have the cash, cash is the cheapest way to finance solar. For those who do not have the funds, a solar loan is usually the best option. For most homeowners, leasing doesn’t make that much financial sense.
Is there any financing for solar?
Yes, there are many ways to finance solar modules. Banks, credit unions, and even some solar installers offer their own lines of credit that are specifically used for installing solar panels.
Is It Smart to Fund Solar Panels?
For those who do not have the funds to buy solar panels directly, solar panel financing can be a flexible and affordable way to cut monthly utility bills and reduce environmental impact.
Are solar loans worthwhile?
Taking out a solar loan will delay your break-even point, but you can still lower your utility bills and increase your property value. For many homeowners, a solar loan is worth it.
Can you rent solar panels?
Yes, leasing solar panels is an option. However, for most homeowners, this doesn’t make financial sense.