So you have decided to go solar! Let us help you decide the best way to pay for it. Typically, there are three main options to pay for your system: purchase, finance, or lease. Each of these options has its pros and cons and will impact how much you will save when going solar. There are other options such as Power Purchase Agreements (PPAs) and Community solar options, but we will not focus on those in this article. As always, everyone’s case is unique so please feel free to contact one of Solar Topps’ Energy Consultants to discuss the right option for you. 

Purchasing Your System 

When you purchase your solar system, you are the owner. As such, you are able to take advantage of Federal, State, and Utility incentives to help lower your net cost. For instance, at the Federal level, the Federal Investment Tax Credit (ITC) gives you a 26% tax credit for going solar. This amount will drop to 22% in 2023 and is currently set to expire in 2024 for homeowners. 

With purchasing, since you’re making payments upfront, the cost of energy produced, measured in kilowatt-hours (kWh), is typically much less than any of the other options and much less than what the utility company provides. If you divide the cost of your system by the size of your system, you will find how much you are paying per watt. Moreover, by purchasing your system, you are locking in that low kWh rate which will, in turn, increase the value of your home. In fact, according to Zillow, installing solar panels on your roof could increase your property value by 4 percent.  

Pros

  • You are the owner of the system 
  • You are able to take advantage of all Federal, State and Utility incentives that reduce upfront cost 
  • You lock in the lowest kWh rate allowing you to save more sooner  
  • You are able to dramatically increase the value of your home 

Cons 

  • There are upfront costs 

Financing Your System 

Financing a solar system is another very popular option. Similar to financing your car or home, you are still the owner of the system, but have a portion, or all, of the system financed through a third-party lender. This financing can come from traditional sources like banks or from solar-specific financing partners like GoodLeap, GreenSky, and Sunlight Financial.  

Depending on your credit score, these financial institutions offer a variety of options with differing term lengths and interest rates that will best meet your needs. These financing companies make payments on your behalf to have the system installed, and you make monthly payments to them once up and running. It is important to read the financing agreement details as they may have clauses that require a balloon payment to be made, large payment designed to reduce the principal balance, at some point during the first 18 months the system is financed.  

Pros 

  • You are the owner of the system 
  • You are able to take advantage of the Federal, State and Utility incentives that reduce the system cost 
  • You can finance part or all of the system depending on your needs 

Cons 

  • The financing company will conduct a credit check and require guarantees that the amount financed be paid in full 
  • You make monthly payments to the financing company in addition to the payments you will make to the Utility company 
  • You may need to make a balloon payment in the first 18 months of the system being financed in order to keep your interest rates low 

Leasing Your System

Lastly, and perhaps most common, is the ability to lease your solar system. In this instance, you are not the owner of the system, that would be the lessor, so you are not entitled to the ITC or other available incentives. There are two types of leases we will discuss: prepaid and monthly. 

A prepaid lease allows you to make upfront payments on your solar system at a significant discount. Once your payments are made, you do not owe any additional payments thereafter. This option is good for those who have disposable income but not the tax appetite to take advantage of the ITC or other available incentives. If you sell the home, you are typically able to transfer the lease without issue as there are no further payments to be made. 

Alternatively, a monthly lease requires no upfront payment. Rather, once your system is operating, you make monthly payments to the lessor. The terms on these types of leases can range from 20 – 25 years typically. It is important to read the details on lease agreements as you may be subjected to an annual escalation typically between 1.99% – 3.99%, which means you will be paying more each year. Also, typically there are fees associated with paying via check as compared to a direct deposit through an ACH (automated clearing house) set up through your bank account. If you sell the home, you will need to assign the lease to the new homeowner, which means they too would need to qualify for the lease. So be sure they have good enough credit to assume the lease.  

A lease is beneficial because you do not have to worry about the system. Most leases come with a power production guarantee meaning that the lessor is promising the system will perform to a minimum degree in order to produce the required amount of power. If something goes wrong, it is the lessor’s obligation to fix it. However, aspects like shade or dirt on the panels, are typically the responsibility of the homeowner to take care of. Once again, the details of all obligations are found within the lease agreement.  

Pros 

  • Depending on the type of lease, there are no upfront payments allowing you to go solar for $0 
  • If you cannot take advantage of the ITC, lease is a great option to go solar 
  • You are not responsible for the system’s performance or any maintenance 

Cons 

  • If you choose a monthly lease, you are still making monthly payments to the Lessor in addition to the payments you make to the Utility company.  
  • With a monthly lease, depending on your payment amount and term length, your kWh rate for energy will be higher than if you were to purchase the system, hence you may not save as much
  • Some monthly leases will have a built-in annual escalation that will require you to pay more each year 
  • If you are selling the home, the homeowner may need to qualify for the lease 

The Main Takeaway

There are three payment options for solar: purchasing, financing or lease. All options should help you save, some more than others. Depending on your ability to take advantage of the ITC or other available incentives, credit score, and desire to make a few payments or monthly payments, each option may offer slightly better or worse value to you. To learn more about which option is the best for you, please feel free to contact one of our Energy Consultants today. A quick conversation can save you thousands.

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