There are many different approaches to financing solar panels. It seems each day brings a new creative twist as this market matures.
However, the four main approaches to financing solar panels are owning, prepaid leasing, leasing and what I call rooftop-leasing. The main difference between the different methods is who gets the incentives.
Obviously, the best one for you is to purchase your solar panel system. When you own it, you get all the rebates, the tax credits, the SREC income plus the increased home value. I would highly recommend this approach if you can swing it financially. If you’re not sure how I was able to afford them, please see the section How Anyone Can Afford Solar Panels to see how I am actually making money every month while I’m paying off my investment.
Solar panels have no maintenance requirements and the installers will take care of all rebates, licenses, permits, etc. Even selling your SRECs can be automated via SRECTrade's Managed EasyREC program.
If you can come up with financing on your own, either through a home equity loan or second mortgage, you should take that route as you’ll be able to take advantage of historically low interest rates. Several of our partnering installers also offer short-term 0% interest loans so you can take advantage of the tax credits to pay off your loan. And lastly, many installers offer long-term financing options at not outrageous rates. This is the route I chose through referral partner Absolute Green Energy.
This approach is sort of a hybrid between leasing and owning. Basically, you're still leasing the panels but you pay for it in one lump sum at the beginning of the lease. The initial outlay appears cheaper than buying the panels outright, but you still need to buy your electricity from the lessor and will not receive the full value for it. Plus there is still a lump-sum payment due at the end of the 20 years, although the leasing companies are saying that they are unlikely to come to your house in 20 years and remove your panels if you don't pay. While this makes common sense, I wouldn't count on it when money is involved.
You do get to keep your SRECs with this approach, but the reduced price at the outset is pretty much the same price as buying minus the federal tax credit and rebates. Whereas if you opted to buy, many installers will offer a 0% loan until the following April which serves the same purpose. So while this alternative is better than a PPA, I see no advantages over buying. Your first year outlay is the same but you will received reduced electricity income for the life of your panels, plus you still have the hassles of not owning your panels, detailed below
The next best approach is to lease your solar panels for 20 years. Under this method, you would still get to keep your SREC income and save on your electric bill, but since the leasing company actually owns the solar panels, they would get the Commonwealth Rebate and the tax credits. Plus the value of your home would not increase. Granted, you can choose to buy the panels at certain points during the lease, but the price is hardly economical and you would be much better off buying them at the outset.
The last approach, and my least favorite, is what I call a “rooftop lease”. I call it that because what it basically amounts to is you leasing your rooftop to the solar company. They get all the rebates, tax credits and SREC income. But in addition, you also have to pay them to use the electricity - that’s the “leasing” part. But even that is tilted in their favor as your electricity savings are only about half what someone who owns their system will save. This is also known as a Power Purchase Agreement (PPA) and is a very popular approach used by the national companies such as Sungevity, SunRun, etc. It is an unwise choice, but many people don’t do the research and jump at the first opportunity. And since these companies have all the money (and you can see why), they advertise heavily with “$0 down” slogans and are much more likely to be the first solar panel source someone hears about.
In case you want to sell your home before the 20-year lease expires, the leasing approaches require you to transfer the lease to the new owners. This could be easy but it could also cause complications if you’re planning on moving within the next 20 years.
I was personally introduced to solar panels by Sungevity and I thought their program sounded great. Until I investigated my other options. Only now do I realize what a big mistake it would have been to go with the “rooftop lease”.
In summary, here’s a chart showing the incentives that apply to each approach. As you can see, purchasing solar panels far outweighs the other options.
For more information, check out my blog post The 7 Hidden Costs of Leasing Solar Panels in Massachusetts. Make sure you read the comments for a monetary comparison between prepaid leasing and buying.
So now that you know which financing option you'd like to use, use the helpful form on the solar company ratings page to receive estimates from multiple installers and receive up to $500 in savings.