What's the Best Way to Pay for Solar?

how to pay for your home solar

So you want to stop overpaying for electricity and start creating your own power but want to understand the different financing options available? We’ve got you covered. See below for a breakdown of the ways that you can pay for solar.

Cash

This one is the easiest to understand. Buying the solar system with cash can be done via check, straight cash, or credit card (check with the company to see if they have a fee for using a card). 

  • Advantages

    • Best value: Money (typically thousands of dollars!) can be saved as there are no associated financing charges.
    • Ownership: The homeowner owns the system outright. All the incentives for going solar are given to the homeowner. These include:
      • Electricity savings
      • 30% Federal Tax Credit
      • MEA State Rebate
      • Increased Home Value
      • Solar Energy Credits
    • No Hoops: Financing involves getting qualified through a lender. We can guide you through that process, but cash keeps it simple!
  • Disadvantages

    • Capital: The cost of the system is usually spread over draws, based on solar installation milestones.  A typical solar installation in Maryland takes about 6 months to complete, so the total cost of the system must be paid out over that timeframe. A typical draw structure looks like this:
      • Project Cost: $50,000
        • Draw 1 - Contract Signature: $5,000 (10%)
        • Draw 2 - Final Engineered Plans + Material Sourcing: $20,000 (40%)
        • Draw 3 - Material Shipped to Site + Permits Complete: $20,000 (40%)
        • Draw 4 - Installation: $5,000 (10%)

Loan

This option is extremely similar to cash, except you take out a loan, either self-supplied or with a solar lender. This is oftentimes compared to taking out a mortgage instead of paying for the system outright. Many solar owners elect to explore Home Equity Lines of Credit (HELOC) or explore options with a solar lender.

  • Advantages

    • Ownership: Similar to cash, you own the system. All incentives stay with you, the homeowner.
    • Fixed Cost: There are no escalators associated with this option (see below for more information). 
    • Low Capital Needed: You can spread paying out the system over the term of the loan (12,15, or 20 years are fairly typical), allowing you to keep money in your pocket. Companies try to get this payment lower than your electric bill, so you save money on day 1!
  • Disadvantages

    • Interest rates: Similar to a mortgage or car payment, a percentage of the loan payment is comprised of interest. To reduce this amount, ensure you get the lowest interest rate available, make a down payment, or plan to pay off the loan early. Many solar loans allow for reamortization, which can help save a lot of money!

Solar Lease

In this payment structure, a solar company will pay for the system's installation but will retain ownership of it. The homeowner will make a flat, monthly payment over the agreed-upon term. 

  • Advantages

    • Upkeep: The solar company is usually responsible (make sure to read the fine print!) for the maintenance of the system. Maintenance costs for residential solar tend to be minimal or nonexistent but this may offer some peace of mind. 
      • Warning: This may be a double-edged sword, as sometimes the output of the system is not covered. You could be paying a flat rate for an underperforming system!
    • Low Capital Needed: Similar to a loan, no large upfront sum is required. The difference is that when the term is over, the company comes to take the system.
  • Disadvantages

    • No Ownership: The solar company retains all the benefits of going solar, not you.
    • Escalators: Many leases have annual escalators, typically between 2-3%. This increases the monthly payments every year. 
    • Selling: If you plan on selling your house, the new homeowner will have to take over the lease. This may complicate the sale.

Power Purchase Agreement (PPA)

This final option is similar to a lease, except you will only pay for the units of electricity (kWh) generated by the solar system.

  • Advantages

    • Upkeep: As with a lease, this is usually covered by the solar company. 
    • Only Pay for Electricity Generated: This advantage shines when comparing a PPA to a Lease, as with a PPA you don’t have to worry about poor production from the system.
    • Low Capital Needed: Similar to a loan, no large upfront sum is required. The difference is that when the term is over, the company comes to take the system
  • Disadvantages

    • No Ownership: The solar company retains all the benefits with going solar, not you.
    • Escalators: As with a lease, most PPAs have annual escalators, typically between 2-3%. 
    • Selling: If you plan on selling your house, the new homeowner will have to take over the lease. This may complicate the sale.

Which one is the best?

Great question; unfortunately, the answer is boring- it depends. In general, owning the system yourself provides the best value (think buying a home versus paying rent), but that is contingent on either having the capital available or an interest rate that makes the monthly payment lower than your current bill to the utility. You could be offered a great lease payment and a terrible PPA payment, or vice versa. 

If this is starting to make your head spin a bit, don't worry! Reach out to us with any questions or better yet, schedule some time with us! As a local company, we believe in educating and letting you pick what's best for you and your situation. As stated, everyone is different so let's figure out what works for you!