There is a reason why 2.5 million homeowners have switched to solar energy, not just because of the environmental benefits. Solar power systems typically last 25 years or more. They effectively offset most or even all of your energy costs every month. These monthly savings compound swiftly over time.
But what about the upfront costs? How do you finance a solar system so that you can start reaping these benefits as soon as possible? The answer lies in solar financing.
What is Solar Financing?
Solar financing is an option that gives access to instruments and capital to finance the purchase and installation of solar panels on your home. In other words, it’s a way to make going solar more affordable so that you can start saving money immediately.
There are several types of solar financing, each with its benefits and drawbacks. We’ll go over some of the most popular options so that you can make the best decision for your needs.
Solar Leases and Power Purchase Agreements (PPAs)
During infancy, the solar industry relied heavily on solar leases and power purchase agreements, or PPAs. These two financing arrangements were popular because they allowed homeowners to go solar with little to no money.
Under a solar lease or PPA, you rent your roof space to a solar company. The solar company pays for, installs, owns, and maintains the solar panels on your roof. In exchange, you agree to pay the solar company a set rate for the power your panels produce, typically at a lower rate than what you’d pay your utility company.
The downside is that you don’t own the solar panels, so you can’t take advantage of the federal solar tax credit.
As the solar industry matured, a new financing option called a solar loan began to gain popularity. Solar loans are similar to traditional home improvement loans. You borrow money from a lender to pay for your solar panel system and then make monthly payments back to the lender with interest.
Solar loans have a few advantages over solar leases and PPAs.
First, you own the system outright from day one. Therefore, you can take advantage of the financial incentives available to solar owners, such as the federal solar tax credit.
Second, as with a solar lease or PPA, there’s no need to worry about your rate increasing over time.
Lastly, if you sell your home, you can transfer the loan to the new owner, which can increase the resale value of your home.
The simplest financing option is to pay cash outright for your solar system.
This option eliminates the need for any interest payments. It also means you’ll be eligible for the federal solar tax credit, which is currently 30% of the cost of your system. Paying in cash fully also ensures you’re immune to any rate hikes that may occur over the life of your system.
However, the fact that solar doesn’t come at a cheap price tag is what stops many homeowners from going this route. Not everyone has tens of thousands of dollars just lying around.
Working with us allows you to earn a 26 percent federal tax credit and various local tax incentives.