Although the cost of a residential solar power system has declined in recent years, it is still a significant investment for homeowners. Even after subtracting available incentives, an average-sized PV system of 4 kWh can cost $10,000 or more. As a result, most homeowners will need to finance this upfront investment. Fortunately, as the residential solar market has evolved, a number of financing options are now available in many areas across the country. In addition to cash, there are several financing options: refinancing your mortgage, taking out a home equity loan or a home improvement loan, or arranging for a solar lease or solar power purchase agreement (PPA).

Cash Purchase Option.

As with any other purchase, buying a PV system outright with cash avoids the cost of financing, such as interest and fees. With a cash purchase of a PV system and no monthly payments of any kind to make, your ongoing savings will be the highest. Buyers should consider alternative investment opportunities and ensure that the long-term investment in a PV system is right for them.

Home Equity Loan.

Borrowing against the value of your home is a common form of financing. Because such loans are secured (guaranteed by the value of the home), the interest rate can be favorable and the interest paid is often tax deductible.

Other Loan Products.

Local banks and credit unions may be a source of unsecured loans (loans not backed by any collateral) or loans secured by the PV system itself, often in partnership with a solar company. The terms of such loans will likely be less favorable than the home equity loan. The interest paid on these loans is usually not considered tax deductible.

Solar Lease.

As with a car, it is possible to lease a PV system rather than purchase one directly. In this case, the solar company and its financial partners own the PV system that they install on your property. As the owner, the solar leasing company takes all the tax credits, rebates, and incentives. Under certain solar lease programs, the leasing company is responsible for system maintenance and repair; under others, maintenance and repairs remain an obligation of the homeowner. At the end of the lease term, the homeowner can renew the lease, purchase the system, or have the system removed. The homeowner will make monthly lease payments to the solar leasing company, which will be offset by utility bill savings. Terms of the lease will vary by program.

Solar Power Purchase Agreement (PPA).

A solar PPA is similar to a solar lease in that the solar company owns the PV system on the homeowner’s roof. The difference is that instead of leasing the solar equipment, the homeowner agrees to purchase all of the electricity that the PV system generates over some fixed period of time (up to 20 years).

As with a lease, the PPA provider takes all the tax credits, rebates, and incentives. Most PPA providers will guarantee a minimum amount of energy that the system will produce and compensate the homeowner if the system fails to produce this agreed- upon amount. Unless the homeowner opts to pay for all the electricity in a one-time payment (a prepaid PPA) they will receive two electricity bills—one from the utility and another from the PPA provider. The sum of these two bills may be less than the homeowner’s original utility bill. As the owner, the solar PPA provider is responsible for system maintenance, repair, and insurance for the term of the contract. At the end of the agreement, the homeowner can renew the PPA, purchase the system, or have it removed.