Top Solar Panel Financing Options: Loans, Leases, PPAs, Incentives and More

Frequently Asked Questions

What are the different ways to finance solar panels?

Options to finance solar panel installations include:

• Cash purchase – Paying the full system cost upfront if funds allow. Maximizes ownership.
• Solar loans – Borrowing via home equity or unsecured loans repaid over 5-20 years. Acquire ownership.
• Solar leases – Contracting with a solar company which installs and owns the system. Pay them monthly.
• Solar PPAs – Agreeing to purchase all power from a system installed and owned by a developer.
• Incentives – Federal, state, utility incentives and rebates reduce net system costs.
• Crowdfunding – Raising funds from multiple small investors through solar crowd investing platforms.

Each solar financing approach balances upfront costs, ownership, maintenance obligations, financial benefits, and payback periods differently.

Should I take out a solar loan or solar lease?

Key differences between solar loans and leases:

Solar Loans

• You own the system and equity
• Responsible for repairs and maintenance
• Tax credits reward ownership
• Interest costs may be tax deductible
• Keep all long-term electricity savings

Solar Leases

• Lower/no upfront costs
• Fixed rate for electricity
• Company handles operation and maintenance
• Give up tax credits and long-term savings
• Committed for 15-25 years with penalties

Loans build equity over time but require 10+ year payback. Leases minimize initial costs through fixed energy rates over a long contract.

What is a solar power purchase agreement (PPA)?

A solar PPA is a financial agreement where a developer installs and owns your rooftop solar system while selling you the generated electricity. You avoid upfront costs and benefit from stable pricing over the long-term contract.

Specifically:

• Developer owns the PV system located on your property
• You purchase 100% of the solar power produced from the developer
• At a pre-set rate for 15-25 years
• Which escalates by 1-3% each year
• No installation costs or maintenance responsibilities
• Option to buy the system at fair market rate later

PPAs provide affordable access to solar energy bill savings, often for fewer concessions than a lease. But you do not build equity.

Can I pay cash upfront for a solar panel system?

Paying the full cost of a purchased solar panel system in cash upfront is an option if you have available funds. Benefits include:

• Immediate ownership of the system
• Avoiding all financing costs and interest
• Keeping 100% of tax credits and solar bill savings
• Earlier payback and break even relative to financed options
• Take maximum advantage of net metering credits

Drawbacks are the large lump sum payment required and tying up capital that may be needed for other priorities. But incentives can reduce net amount by 30% or more. For those who can afford it, cash purchases offer unmatched ROI.

How much do solar panels cost with financing?

Typical costs for a financed solar panel system range from:

• $2.50-$3.50 per Watt – The median cost including installation.
• $15,000-$21,000 – For a common 6 kW residential system before incentives.
• 30-40% less – After claiming the 26% federal tax credit and additional local rebates.

Loan – $115/month over 12 years at 5% interest based on $12,600 net cost for 6 kW system after incentives.

Lease – $150/month over 20 years with no upfront payment. Includes maintenance and operation costs.

PPA – 12 cents per kWh over 20 years starting rate, escalating 1.5% yearly based on projected output.

Leveraging incentives makes solar affordable when combined with a loan, lease, or PPA for those who cannot buy systems outright.

Are there solar incentives and tax credits?

Significant savings come from:

• Federal Tax Credit – 26% of installed system costs through 2022. No limit. Requires purchase, not leasing.
• State/Utility Rebates – Up to thousands back based on location and installed solar capacity.
• Net Metering – Credits for excess solar energy supplied to the grid offsets non-solar hours.
• Depreciation – Solar qualifies as a tax depreciable asset; helpful for businesses.
• Low Interest Loans – Some municipalities/utilities offer low interest financing for solar.

Various incentives can reduce out-of-pocket solar panel system costs by 30-40% in many regions.

What are the pros and cons of solar loans?

Pros

• Own the system and equity
• Keep all tax credits and electricity savings
• Predictable loan payments
• Interest may be tax deductible

Cons

• Large upfront payment often required
• Lengthy payback period of 10-20 years
• Loan denial if credit score is low
• Responsible for maintenance costs

Loans allow buying systems through predictable installments over time rather than a big lump sum. But the payback period is long.

What are the pros and cons of solar leases?

Pros

• Lower/no upfront costs
• Fixed monthly electricity rate
• Company handles maintenance
• Production guarantee

Cons

• Do not own the system
• Give up incentives and long-term savings
• Rate escalates 2-3% yearly
• Penalties for early termination

Leasing shifts hardware costs to a provider in exchange for fixed-rate power. But you lose ownership, residuals, and give up some control.