Your options for financing solar installations

In 1998, the typical 4 kW rooftop solar system might have cost you $48,000 at nearly $12 per watt of capacity. Compare that to today, where the same system would cost closer to $19,000 and you’ll realize how far solar has come.

Solar panel prices have fallen dramatically over the years, driven by advancements in production and performance. However, even if solar is more affordable than ever before, many still aren’t prepared to pay the upfront costs of a new system.

If upfront solar costs are still too steep for you, you can take advantage of alternative financing options that eliminate costs. Some options include:

  • Solar Power Purchase Agreements
    • Install solar panels at no upfront cost and pay for the electricity they generate
  • Solar Leasing
    • Make monthly payments for the use of the rooftop solar system
  • Solar Loan
    • Make monthly payments to own your rooftop solar system
  • PACE Financing
    • Use property tax increases to pay for your solar system

Solar Power Purchase Agreements

A Power Purchase Agreement (PPA) lets you enter into a contract with an installer who will mount solar panels on your home at no initial cost.

Under the PPA, the installation company owns the solar panels on your roof, and is responsible for any maintenance and system performance. The company sells you the electricity generated from the panels over the years, typically at a fixed rate.

This rate is lower than what you would usually pay for electricity from the utilities, giving you access to both smaller power bills and clean energy.

The typical PPA lasts for 10 to 25 years, at which point you may extend the agreement or even purchase the panels outright.

Solar Leasing

Solar leasing is becoming more popular in California. In 2007, 10% of solar panels were leased to consumers, but that shot up to nearly 75% by 2012.

Somewhat similar to a PPA, a solar lease lets you install solar panels at no up-front cost.

Unlike a PPA, you don’t pay the installation company for the electricity generated, but for the ability to use the panels. Your monthly payments are based on the total cost of the system, but are structured so that you’ll save money overall thanks to smaller power bills.

The drawback is that since you don’t own the panels, you won’t be able to take advantage of incentives like the 30% federal Investment Tax Credit, or the California Solar Initiative rebates. Part of the leasing agreement stipulates that the installation company receives those benefits.

At the end of your leasing period, you’ll have the choice to either extend the lease or purchase the system outright.

Solar loans

You can also reduce upfront installation costs by entering into a solar loan agreement. Rather than pay an initial installation fee, you spread your payments out over the course of 10 to 20 years, depending on the loan agreement.

Loans are offered to those who would rather fully own their rooftop solar systems, rather than lease them. Owning your system offers a number of benefits, including access to federal and local incentives that help reduce your total installation costs.

Home equity loans are typically the most common way people finance their solar installations. These secured loans tend to offer lower rates and longer repayment terms, letting you pay off your system while reaping the rewards of smaller electric bills.

Unsecured loans are also available, though these might feature higher rates. These types of loans require high credit ratings, meaning a lease or secured loan might be a better option for those with low credit.

PACE Financing

Property Assessed Clean Energy financing, or PACE, is a type of solar loan offered by local municipal governments in California.

Rather than pay installation companies for their solar loans, homeowners enter into an agreement with to pay for their installation via increases in property taxes over a 20-year period.

The biggest difference between a PACE loan and a solar lease or PPA is that PACE is attached to the property, not the homeowner. If the homeowner sells the property, the loan agreement transfers between owners.

Whether or not you have access to PACE financing relies on local government initiatives. PACE is available throughout much of California, so contact your local installer to learn more about financing options.

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