Solar financing options have increased along with solar's popularity.
The variety of ways homeowners can pay for solar panel electric systems have increased along with the popularity of solar. It can get confusing, so here’s an overview of the different ways you can purchase your own solar electric system. The right model is the one that works with your financial means and goals.
1. Use your own money
If you are lucky enough to have $15,000 or more in your savings, you can buy solar outright. Your upfront investment is paid back over time through solar savings and earnings. Purchasing outright provides the best value of all thanks to financial benefits like federal and state tax credits, state rebates, solar credit income and electricity savings. (Solar incentives vary by state.)
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2. Use the bank’s money
Many people who go solar take out a home equity or other bank loan to pay for the system. Other than an initial deposit, you don’t have to come up with any money upfront, as you use the money provided by the bank. Even though you make a monthly loan payment to the bank, that amount is offset by what you save and earn with solar, so this approach also has great financial value.
3. Take advantage of new loans
Creative new options are being developed as solar takes off, so ask your solar installer how they can help you pay for your system. For example, some loans front you the amount of the 30 percent federal tax credit, interest free, so you don’t have to come up with that money yourself.
4. Enter a lease or PPA
Some companies also offer leases or Power Purchase Agreements (PPA) as a way to get solar onto your roof. These typically reduce your electric bill a little, but not as much as the purchase and loan options listed above. Still, if you don’t mind someone else owning the equipment on your roof and want to save a little while helping the environment, this could work for you.
What’s the difference in financial benefit for these options?
Let’s look at a specific example. If you bought a 6,540-watt system with high-powered panels, using your own money, the total you save and earn with solar over 20 years minus what you invested upfront comes out to a net positive benefit of more than $20,000 (based on today’s prices and a conservative inflation rate.) That’s not counting the increase in your property value, which one survey showed grows by $20 for every $1 of solar savings.
If you take out a traditional loan, the benefit drops to roughly $11,000 because of the interest you pay, and the new loans might fall in between. Any of these options can provide a great return on your investment. Leasing is a different animal; your financial benefit is simply the money you save on your electric bill.
What about the break-even point?
Solar electric systems pay for themselves in a matter of years in most locations. For a purchased system, this happens around Year 7, when the money you’ve invested is matched by the money you’ve saved and earned. From that point on, every dollar you make or kilowatt-hour you generate is pure profit. Break-even takes a little longer with a traditional bank loan, because you are paying interest.In all cases, you end up spending less on electricity if you install solar than if you did nothing at all. And all options provide significant savings - it’s just a question of how much.
About this Angi Expert: Mark Durrenberger founded New England Clean Energy in 2006 to help people secure their energy futures while helping the planet. The company provides solar panel installation in and around Boston, has the highest customer satisfaction among Massachusetts installers and has installed more than 300 systems in the region. Follow this #ALExperts contributor on Twitter @NE_Clean_Energy.
As of July 27, 2015, this service provider was highly rated on Angi. Ratings are subject to change based on consumer feedback, so check Angi for the most up-to-date reviews. The views expressed by this author do not necessarily reflect those of Angi.
Editor's note: This is an updated version of an article originally posted on September 20, 2013.