Options for Financing Solar Panels

October 18, 2023

The energy environment is quickly changing due to solar energy, a beacon of sustainability and innovation. In 2022, solar energy generated 3.4% of U.S. utility-scale power and 15.9% of renewable electricity. But for many companies and households, the upfront cost of installing solar panels may be a major deterrent. Examining the several solar panel financing choices accessible in this situation is prudent and crucial. An in-depth discussion of the many funding options is provided in this article, each with special benefits and things to keep in mind that make solar energy more affordable than before.

Envision using solar energy to power your house, operate your appliances, and even add to the grid—all while cutting dow n on your carbon impact. Diverse funding choices that accommodate varying budgets and financial conditions make this idea more and more attainable. The financing options for solar energy are as various as they are exciting, ranging from simple purchases to creative solar lease arrangements, as well as from public subsidies to private solar loans.A hand holding a stack of coins next to a house with solar panels.

Source: https://www.energysage.com/solar/how-to-pay-for-solar/

How Much Do Solar Panels Cost?

When purchased outright, solar panels for home use will cost around $16,000. The total cost of solar panels may reach up to $35,000; however, rebates and a significant tax credit from the federal government reduce the cost to roughly half of what it would have been otherwise. Converting to solar energy means making a significant financial commitment, but it is an investment that may pay off in reduced utility expenses.

Systems that use solar panels have a lifespan of at least 25 years and may reduce or eliminate most of your monthly power expenditure. If you pay $150 a month for power now, you will likely spend more than $65,000 on electricity over the following 25 years. These savings pile up quickly. Solar energy may help you avoid paying most of your future money on power. Based on your monthly electric bill, determine how much you will spend on electricity over the next 25 years looking at the data in the table.

Electricity Spending 10 Year Cost 15 Year Cost 20 Year Cost 25 Year Cost
$50 monthly bill $6,900 $11,200 $16,100 $21,900
$100 monthly bill $13,800 $22,300 $32,200 $43,800
$150 monthly bill $20,600 $33,500 $48,400 $65,600
$200 monthly bill $27,500 $44,600 $64,500 $87,500
$250 monthly bill $34,400 $55,800 $80,600 $109,400

The Main Types of Financing Solar Panels

Typically, three options for people purchasing solar panels for home are cash, solar loan, or solar lease. While buying your solar panels with cash upfront can optimize your savings and enable you to reduce your energy costs right now, most homeowners can’t afford it. Rather, a lot of households finance their solar panels via loans. Homeowners may pay for their solar panels over time and still see energy savings with a decent solar loan. Make sure the origination costs and interest rate on your loan are appropriate.

Projected lifetime savings by option

Source: https://www.ecowatch.com/solar/solar-financing

Paying for Solar Panels in Cash

Cash payment is the greatest choice if you want to make the most of your money. Regarding your home’s power use, you make payments 25–30 years in advance. It is an excellent alternative if you want to remain in your current residence for a considerable time. Because the money you had been contributing to your monthly power payment is now in your possession, considering that the prices of power for your house have been set for decades, you do not need to be concerned about growing utility expenses or inflation anymore.

Paying with cash presents several challenges, the most significant being the high cost of all the solar power equipment. You must invest at least $16,000, even considering rebates and other incentives. Furthermore, only a select few can pay such sums.

Pros

  • No interest paid. You will save thousands of dollars in interest when you pay cash rather than borrowing money for your solar system financing. You may start saving now without waiting for your monthly energy savings to cover your loan payment.
  • Immediate savings on monthly energy bills. The installation of a solar system will allow you to stop paying expensive energy costs, begin saving money, and be able to invest in other aspects of your life.
  • Maximize your return on investment (ROI). When you get your money back depends on how much you invested in the solar panels, how much sunlight they get, and how much it costs to power your home. Based on the state, it takes about 9–12 years for a home solar system to pay for itself in the U.S.
  • Solar energy tax credits. Tax credits assist you in covering a portion of the expenses associated with installing a solar system.
  • Increased value of your home. You can expect to anticipate that the cost of putting a solar system on your house will be completely repaid if you decide to sell it. Because of the installed equipment, you should also anticipate a quicker house sale.

Cons

  • High initial cost. The main disadvantage of buying a solar system for cash is its cost. It would help to have enough capital to pay for the system outright.

Solar Panel Loans

The purpose of these loans is to fund solar installations in particular. With this option, you may power your house with solar panels immediately after installation and without making any financial investments. A monthly payment plan with accumulating interest is provided for a certain time. In 2022, approximately 70% of solar panels for home projects were based on solar loans.

The loan conditions, the annual percentage rate (APR), and the origination costs should all be carefully considered before utilizing a loan to finance solar panels. The cost of your renewable energy system will often grow with the length of the loan and the interest rate. Explore all the low-interest financing alternatives available if this kind of solar system financing appeals to you.

Pros

  • Minimal initial cash outlay. Installing the system and beginning to use it to power your house may be accomplished with a solar loan, which allows you to do so with almost little initial cost. You will get a plan outlining successive monthly payments that will be made over a certain period, with interest applied to each payment.
  • Opportunity to invest in other areas. If you are used to minimizing the risks of your investments, a solar system loan helps you divide your capital between different investment options since you do not need a large capital for the down payment.
  • Receive tax benefits. Repaying the loan is simpler with a solar system loan since you may benefit from tax refunds and incentives from the state’s solar investment tax credit (ITC). The availability of additional special financing schemes varies based on your utility provider and area. Numerous states provide their tax breaks or refunds.
  • Increased value of your home. Whether you purchase a solar system outright or get financing, the value of your property will grow due to installing a solar system. Many prospective purchasers are seeking a house that already has a solar system installed so that they do not have to spend time installing it.

Cons

  • Interest on the loan. The interest on a solar system loan raises the overall cost over time. Acquaint yourself with the various offerings and choose the most advantageous solar loan.
  • More cash outlays over time. You will need to pay a loan origination fee; an interest rate is included in your monthly loan payment. The repayment period also plays a big role because the longer it is, the more you will spend on interest.

Solar Leases or Power Purchase Agreements (PPA)

A solar panel lease or a power purchase agreement (PPA) is another alternative for financing solar energy installations. If you have a solar lease, you will make set monthly payments for using the solar panels and solar equipment. On the other hand, if you have a PPA, you will only pay monthly payments for the energy generated by the solar panels. These two situations are extremely similar to one another. A savings of 10–30% on your monthly payment is possible for you to achieve.

A house with a solar system.

Source: https://www.solarreviews.com/blog/how-to-calculate-your-solar-payback-period

Pros

  • No down payment. Depending on the terms of the solar lease, you can get solar panels up and running on your home for little to no money down. Although you will continue to make payments throughout the lease term, you will also save money through your utility bill.
  • No maintenance required. One benefit of a lease or PPA is that the third-party owner controls system maintenance and monitoring. It is not something you need to consider later.

Cons

  • Does not increase the value of your home. Your home’s worth won’t be impacted if you sell it with a leased solar panel installation. Selling a house with rented solar panels is more difficult than selling one with an owned system, even if purchasers may see the panels as a benefit. Either pay the remaining rent in full before the home sells or give the lease to the new owner. Selecting the latter will require you to locate a vendor who satisfies the requirements of the lease. The selling of your house will take longer if there are any hiccups or problems with any option.
  • Not getting tax credits for solar energy. You can’t get tax credits or benefits when you lease solar systems. It is because you are paying for something that does not belong to you.
  • High termination fees. You risk a significant termination charge if you want to move to a new residence and sell your current one. The new buyer may not be interested in solar panels.
Paying in cash vs. solar financing vs. solar lease

Source: https://www.ecowatch.com/solar/solar-financing

Tax Benefits and Rebates for Solar Panels

Because the initial investment in solar energy may be fairly large, those interested in saving money on installing solar panels have choices accessible to them. Rebates and incentives are available to assist in offsetting your expenses:

  • The federal tax credit: There is another name for it, which is the investment tax credit (ITC). The ITC will continue to be 30% of the overall cost of the equipment and installation until 2033, at which point it will decrease to twenty-six percent.
  • Local utility rebates: Most municipal utility companies provide a variety of refunds (this may include an exemption from purchasing property taxes) for those who switch to solar energy. To get more information, you should contact the local utility suppliers.
  • Net metering: By participating in this program, you can earn a credit from your utility provider for sending the extra energy you create back to the grid. Determining whether or not this program is available in your region is important.

You must ascertain the amount of money you may save on your energy use and the incentives and tax credits you could be eligible for, depending on where you reside. New York, Rhode Island, Iowa, Connecticut, and Maryland are among the states that provide the most attractive tax credits for solar energy system installations.

Which Solar Panel Financing Option Is Right for You?

Your salary, credit history (which influences whether or not you can acquire a favorable interest rate on a loan), and several other considerations might impact how you finance a solar system. Each financing arrangement has benefits and drawbacks, depending on your circumstances. It’s critical to thoroughly weigh your options and choose the best fit for your financial circumstances. A sample of individuals who might be acceptable for each available financing option for solar panels is shown below:

SOLAR FINANCING OPTION WHO IT MAY BE RIGHT FOR
Cash payment Homeowners looking to maximize savings and have enough tax liability for federal credits.

Homeowners with available cash for outright installation costs.

Solar loan Homeowners lacking upfront funds but aiming to reduce monthly bills. Those seeking eligibility for rebates and tax incentives.
Solar lease or PPA Homeowners uninterested in system maintenance. Those hesitant to commit to ownership or ineligible for tax credits.

Conclusion

Financing solutions for solar panels give people and companies alternatives for shifting to sustainable energy. These financing choices appeal to various financial capacities and preferences, including paying in cash, leases, loans, and PPA.

Cash payment results in cost benefits over the long run but involves a substantial upfront commitment. Leasing and PPA provide a cost-effective alternative to ownership; however, they do not come with any upfront charges. Loans give a sense of equilibrium by enabling you to gain ownership and tax advantages while sharing the expenses. However, since interest would still be added to the overall cost of the equipment, taking out a loan for a solar system will be more expensive in the long term. Solar panels for home will save money on your energy bills, enabling you to repay the loan.

Your financial status, the tax incentives available to you, and your long-term objectives all play a role in determining which option is best for you. Each alternative comes with its own set of benefits and factors to consider. Ultimately, the availability of different financing solutions encourages the use of solar energy, which contributes to a cleaner and more sustainable energy environment while also addressing the choices and limits of individual consumers about their finances.

Jed Hilton

Jed Hilton

Jed Hilton, our Founder and CEO, has over a decade of experience in the solar industry. His innovative leadership and expertise in solar technologies guide our company's vision and strategy.

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