No doubt about it, the choices on how to pay for your solar system can be confusing. It’s comparing apples to oranges, so the key is to find what works for you. Talk to your installer about all the options; they typically have 4 – 6 financing packages to offer. It’s all about finding a fit for your needs.
Cash purchase. This may be an attractive option if there are good local rebates, and you’re looking for a solid investment. You’ll get the federal investment tax credit (30% off the initial cost). If your energy bills are high, the return on your solar system may be higher than a return on the stock market – and less risky too.
Loans. Investigate a home equity loan or a solar loan from your bank or local credit union. The interest rates are often the lowest available, and you may be able to take a tax deduction on the interest payments. You’ll still get the local rebates and the federal investment tax credit. Loans can range from 7 to 20 years, and once paid off, you’ll own your system.
Solar lease. With this contract, the solar installer retains ownership of the system, and you pay a monthly fee for 12 – 20 years. If you move, the lease can be transferred to a new homeowner, or paid off at the time of sale. Look for escalators in the lease payments, and factor those into your calculations. At the end of the lease, you’ll have the option to buy the system for a low price.
Power purchase agreement. The solar installer retains ownership of the system and sells you the solar power at a pre-set rate schedule. The price will be less than your utility electricity rate and will typically increase 3–5% per year. Utility rates will increase faster than that over the next 10 to 20 years. The contract can be transferred to the new homeowner if you move.
How to decide? The choices don’t quite line up on an apples to apples basis, so if you’re comfortable with spreadsheets, dig in! Otherwise, review the proposals with a financial planner or tax accountant. It will take a few extra hours, but it’s worth the time and money.