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Financing solar power – options for homeowners

While it is true that the cost of a residential solar PV system has decreased considerably over the last few years, the upfront cost of solar power is still enough to give some homeowners pause. 

Fortunately, there are many ways in which homeowners can reap the benefits of going solar without breaking the bank. Solar power for the home is accessible for almost everyone, with a variety of financing options available. It's important to note that there is no one best option. Different homeowners have different energy needs and financial situations. Additionally, each state and locality has its own set of rebates, incentives, and fees associated with solar installations, making some financing options more or less attractive depending on the location of the home.

Here, we will look at a few of the most common options, as well as their pros and cons, to see which types of financing will benefit certain homeowners.

Paying Cash Upfront
Some homeowners opt to simply pay the system and installation costs upfront.

Pros: Total ownership of the system, no interest or administrative fees to pay, all federal and state incentives and tax rebates go to the homeowner, all Solar Renewable Energy Certificates (SRECs) accrue to the homeowner, ownership increases the value of the home.

Cons: High upfront costs make this option prohibitive for many homeowners, system owner is responsible for paying for all upkeep and repair costs.

Home Equity Loans
Homeowners can choose to take out loans against the equity they have built up in their home. This is another path to direct ownership as the loan gives the buyer a lump sum with which they can purchase the system outright without paying the system cost all at once.

Pros: Total ownership of the system, federal and state incentives and tax rebates go to the homeowner, SRECs accrue to the homeowner, ownership increases the value of the home.

Cons: Interest and administrative fees, most home equity loans require a good credit history, system owner is responsible for paying for all upkeep and repair costs.

Solar Leasing
With a lease, the homeowner does not have to pay any upfront costs – just a flat monthly fee to the provider. The provider owns the system and gets all of the benefits of system ownership, but this option is still worth some consideration by homeowners who want to avoid the upfront costs while saving on their monthly electric bill.

Pros: Little to no upfront costs, provider owns the system and is responsible for upkeep and repairs, system generates power for the homeowner who pays a low monthly fee that protects him or her from fluctuating electricity costs, low commitment – at the end of the lease, the homeowner can choose to renew the lease, pay off the remaining costs and buy the system, or have the system removed altogether.

Cons: All incentives, rebates, and SRECs accrue to the system owner, solar leasing is not available in every state (though it is in both New Jersey and Massachusetts).

Power Purchasing Agreement (PPA)
The Environmental Protection Agency (EPA) explains that PPAs and leases are very similar, but with a key distinction – instead of "renting" the system from a provider for a flat fee like a homeowner would do with a lease, a PPA means that the homeowner buys the monthly production of the system at a set price per kWh. The EPA noted, however, that monthly payments under both arrangements tend to be the same. 

Pros: See pros for leasing. 

Cons: See cons for leasing, but PPAs have an added downside in that monthly system production – and the homeowner's bill – can fluctuate.

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