Advantages: You avoid any interest or loan fees, so paying cash usually results in the lowest total cost for the system (Homeowner’s Guide to Going Solar | Department of Energy). You get the full benefit of incentives like the federal tax credit and any state rebates because you are the owner (Homeowner’s Guide to Going Solar | Department of Energy). Since there are no monthly payments, all the electricity bill savings go straight into your pocket. Over the long term (25+ year panel lifespan), a cash-bought system typically yields the greatest financial savings because you’re not sharing benefits with a lender or third party. It can also increase your home’s value since the solar system is an owned asset.
Disadvantages: The obvious drawback is the high upfront cost. A residential solar system often costs between $15,000 and $35,000 (about the price of a new car) () before incentives. Not everyone has this amount of cash readily available. Paying upfront also means it will take a few years to earn back your investment through energy savings – known as the payback period. Depending on your electricity rates and incentives, this payback might take roughly 5–15 years. After that, your power is essentially free, but you must be able to invest the money upfront and wait to recoup it.
Financial Implications (Example): If your solar installation costs $20,000, you would pay that at installation. You could then apply for the 30% federal tax credit, getting $6,000 back at tax time (if you have enough tax liability) (Issue Spotlight: Solar Financing | Consumer Financial Protection Bureau). This effectively brings the cost down to $14,000. If your solar panels save about $1,000 per year on your electric bills (just an example – actual savings vary), it would take around 14 years to recover the $14,000 net cost. After that, you’d continue to save ~$1,000 annually for the rest of the system’s life. In this scenario, over 25 years you might save roughly $25,000 in electricity (all savings after year 14 are net gain). Bottom line: a cash purchase maximizes what you keep in the long run, but you need enough money upfront.
Home Equity Loans/HELOCs (Secured Loans): These loans use your home as collateral (similar to a second mortgage or line of credit). They often have lower interest rates because they are secured by your property. Interest may be tax-deductible in some cases (if used for home improvement), but you need sufficient equity in your home and good credit to qualify. Defaulting could put a lien on your home.
Unsecured Personal Loans / Solar-Specific Loans: These do not use your home as collateral. Many solar installers partner with lenders to offer special solar loans that are unsecured but designed for solar projects (Issue Spotlight: Solar Financing | Consumer Financial Protection Bureau). They typically have fixed interest rates and terms (often 5, 10, or 20 years). Because they’re not secured by property, interest rates can be a bit higher than home equity loans. Some solar loans have unique features, such as expecting you to pay down a chunk of the loan when you receive your tax credit (to keep payments lower). You generally need decent credit (often in the 600s or higher FICO score) to get an unsecured solar loan at a good rate.
Advantages: Loans dramatically lower the upfront cost of going solar – in many cases you can go solar with $0 down and start saving right away. In fact, monthly loan payments are often designed to be smaller than your old electric bill (Homeowner’s Guide to Going Solar | Department of Energy), so you can be cash-flow positive immediately (paying less each month for the loan + remaining utility bill than you used to pay for electricity). You own the system, so you qualify for the federal tax credit and other incentives just as if you paid cash (Homeowner’s Guide to Going Solar | Department of Energy). Over time, once the loan is paid off, you enjoy free solar power for the rest of the system’s life. Even during the loan, you are building equity in the solar system (similar to owning a home vs. renting).
Disadvantages: You will pay interest, which means the system’s total cost is higher than paying cash (Homeowner’s Guide to Going Solar | Department of Energy). For example, a $20,000 system might end up costing several thousand dollars more in interest by the time you finish a 15-year loan. This reduces your net savings. Also, a loan is a financial liability – you must repay even if your solar system produces less power than expected or if you move (though you can usually pay it off or even take the system with you to a new home). Taking a loan adds to your debt, which could affect credit score or ability to get other loans. Home equity loans put a lien on your house, so if you cannot make payments, your home is at risk. Unsecured loans have higher interest rates. In short, financing with a loan means some of your solar savings will go to the lender as interest.
Financial Implications (Example): Suppose the same $20,000 solar system is financed with a 15-year loan at a 4.5% interest rate. If you put $0 down, your monthly payment might be around $153 (just an example). That could be less than a $180/month electric bill, so you’d still save money each month. You would still get the 30% ITC tax credit (~$6,000) which you could use to pay down the loan principal early or keep for other expenses. Over 15 years, you would pay roughly $27,500 in total ($20k principal + $7.5k interest). That’s about $7,500 more than the cash cost, but after the loan is paid, you own the system free and clear and continue to save on bills. In this scenario the payback is effectively spread over the loan term. Bottom line: a solar loan lets you go solar with no big upfront cost, and your electric bill savings generally cover most of the loan payment. You’ll pay more overall than cash due to interest, but you still come out ahead in the long run by owning the system and getting the incentives.
How it Works: The solar provider designs, installs, and maintains the system on your home, and you sign a contract (often 20 to 25 years) to pay them a fixed monthly fee. The fee is usually calculated based on the expected output of the solar panels. For example, you might agree to pay $100 per month for the solar energy, regardless of how much electricity is produced or used. If the solar panels don’t produce all the electricity you need, you still buy extra power from the utility as normal, and if the panels produce excess that goes to the grid, you might get a credit from the utility (net metering) – but you still pay the lease fee set in the contract () (). A typical lease contract lasts around 20 years (some are 15 or 25) () and may include options to renew or purchase the system at the end.
Advantages: The biggest benefit is no or very low upfront cost – you can go solar without a big investment. Maintenance and repairs are usually covered by the solar company since they own the system (). This means if something breaks or the panels need servicing, it’s generally the company’s responsibility (though always check the contract to be sure what is included). Monthly costs are predictable – you know your lease payment in advance, which can make budgeting easier. If structured well, the lease payment + any remaining utility bill can be lower than your old electricity bill, so you save money each month. Some homeowners like leases for their simplicity: you get solar power with little hassle, and the third-party owner handles the equipment and operations.
Disadvantages: Since you don’t own the system, you cannot claim the federal tax credit or most incentives – the third-party owner gets those benefits (Homeowner’s Guide to Going Solar | Department of Energy). The lease provider may factor those incentives into giving you a lower monthly rate, but essentially part of your savings is going to them. Over the long term, a lease often yields smaller overall savings compared to owning (cash or loan) because you are paying the leasing company for their service and financing. Also, leases may have an escalator clause – meaning the monthly payment can increase by a few percent each year. If your payment starts at $100/month and rises 3% annually, in 10 years it will be about $134/month. If utility electricity rates don’t rise as much, your savings could shrink later in the term. Transferring the lease can be an issue: if you sell your home before the lease is up, you need the buyer to agree to take over the solar lease, or you must buy out the remainder of the contract. Some home buyers are hesitant to assume a solar lease, which could make selling trickier. Finally, at the end of the lease, you don’t automatically own the system – you might have to renew the lease, give the system back (the company removes it), or purchase the system at a depreciated value.
Financial Implications (Example): Imagine a solar lease for the $20,000 system has $0 down and a flat $90 monthly payment for 20 years (with, say, a 2% annual escalation). In the first year, you’d pay $1,080 in lease payments. If your usual electric bill was $150/month ($1,800/year) and the solar now reduces your utility bill to near $0, you’d save about $720 in the first year. Over time, as the lease payment rises, your savings per year might lessen if utility rates don’t rise equally. Over the full 20 years, you might pay roughly $24,000 in lease payments (assuming escalator) while avoiding perhaps a similar amount in electricity bills – your net savings could be relatively modest, say a few thousand dollars in total. You would have gotten solar power with no big expense, but after 20 years the company still owns the panels. (They may offer them to you for a price or remove them.) Bottom line: a solar lease is like renting your solar panels – easier upfront and with maintenance relief, but you give up ownership benefits and some long-term savings.
How it Works: The solar provider installs and maintains the panels on your roof, and you agree to buy all the electricity those panels produce at an agreed rate (for example, $0.12 per kWh) for a contract term (often 20–25 years). If the panels generate 800 kWh in a month, you pay 800 * $0.12 = $96 to the solar company for that month’s power. If they only generate 500 kWh (cloudy month), you pay 500 * rate. If they generate more than you use, the excess typically goes to the grid and you might get a net metering credit from your utility, but you still pay the PPA provider for the full production. PPA rates are usually set below the local utility’s retail rate so that you save money. For example, if your utility charges $0.15/kWh, a PPA might charge $0.12/kWh, so you save 3 cents for every kWh the panels produce. Some PPAs have an escalating rate (e.g., the price per kWh rises 2% each year), while others are fixed.
Advantages: Like leases, PPAs require little to no upfront money, making solar accessible with no big investment. System maintenance, repairs, and insurance are handled by the third-party owner, not you (). You only pay for actual power produced – if the system produces less due to weather or issues, you automatically pay less (though your savings vs. the utility might also be less). Your electricity cost is locked in under the PPA contract formula, which can provide certainty. If the solar panels perform well, you benefit from all the energy they produce at a lower price than grid electricity, leading to immediate monthly savings. PPAs can also sometimes include a performance guarantee (ensuring the system produces a certain amount or the provider compensates you).
Disadvantages: As with leases, you do not own the system, so you cannot claim tax credits or incentives – the PPA provider gets those benefits (Homeowner’s Guide to Going Solar | Department of Energy). Over the long term, your total payments to the PPA provider will include their profit, so your lifetime savings are less than if you owned the system outright. If utility electric rates stay flat or decline (uncommon but possible), the savings from the PPA could be smaller than expected, especially if your PPA rate has an annual increase. You also have a long-term contract tied to your home – if you sell the house, the buyer will need to accept taking over the PPA (or you must negotiate a buyout). Buyers might be cautious if they see a contract to buy power for years to come. Additionally, some PPA contracts might have minimum production charges or other fees; it’s important to read the fine print. At the end of the PPA (20-25 years), typically you may renew the agreement, have the company remove the system, or sometimes buy the system at a fair market value. By that point the panels are older, and you’d likely only buy them at a steeply discounted price if at all.
Financial Implications (Example): Using the $20,000 system example, suppose it’s offered under a PPA at $0.12/kWh with no escalator for 20 years. If the system produces about 10,000 kWh per year (roughly an average 7 kW system in a decent sun location), you would pay about $1,200 per year to the PPA company for the solar power. If your current electric rate is $0.15/kWh, those 10,000 kWh would have cost $1,500 from the utility, so you save ~$300/year initially. Over 20 years, if that rate stayed constant, you’d pay the PPA owner $24,000 instead of $30,000 to your utility – saving about $6,000 in total over two decades. The PPA provider would have received the tax credit and possibly other incentives, which helped them offer you a lower rate. If the PPA rate increases 2% per year, your savings would be smaller in later years. Bottom line: a PPA lets you pay only for power at a potentially cheaper rate than your utility, with no maintenance worries, but you give up incentives and some long-term upside. It’s a good option if you want immediate savings and simplicity, and don’t mind that you won’t own the system.
How it Works: If PACE is available in your area (PACE programs are enabled by local or state laws in certain states), you can borrow the cost of the solar installation from a PACE lender (often through a local government or financing authority). You then repay it via an increased property tax assessment for your home. For example, if you borrow $20,000 for solar via PACE over 20 years, your property tax bill might increase by about $1,500 per year (just an illustrative number) to pay back the loan and interest. A lien is placed on your property for the amount of the assessment. The solar system is owned by you, the homeowner, not by the PACE provider – so you qualify for the federal tax credit and other applicable incentives just like any loan or cash purchase. PACE financing often requires that you have some equity in the home and a good history of paying property taxes, but it typically does not rely on a traditional credit score as much as other loans (the debt is attached to the property itself). Terms can range around 5 to 20 years, and interest rates might be fixed and somewhat higher than a mortgage rate since it’s specialized financing.
Advantages: No upfront payment – you can get solar with $0 down through PACE. Qualification can be easier for some homeowners who might not have great credit but have home equity, since the loan is tied to the property. Repayment via property taxes means it’s just rolled into a bill you already pay, and it might have potential tax benefits (in some cases, interest paid might be deductible as part of property taxes, but this can be complex and subject to SALT deduction limits). Importantly, because you own the system, you are eligible for all incentives (ITC, rebates, SRECs, etc.) which can dramatically lower your net cost. PACE terms can be long (up to 20+ years), keeping annual payments relatively low – often targeting that the energy savings will offset the added tax payment. If you sell your home, the PACE loan can sometimes transfer to the next owner along with the property (since it’s a tax assessment on the property, not a personal debt), potentially freeing you from having to pay it off at sale – however, see the cautions below.
Disadvantages: PACE financing has some risks and potential downsides. Because it places a priority lien on your home (like a tax lien), it can make selling or refinancing the home more difficult (PACE - DFPI). Many mortgage lenders require a PACE loan to be paid off before a new buyer can get a loan or before refinancing, because the PACE lien takes precedence over the mortgage in case of default. This means in practice you might have to pay off the remaining balance when selling the house, rather than actually leaving it for the next owner. Property tax bills will increase significantly – some homeowners might be surprised by how much (one study found PACE loans caused property taxes to jump about $2,700 per year on average in California, an 88% increase in the tax bill) (CFPB Finalizes Rule to Protect Homeowners on Solar Panel Loans ...). If you cannot pay your higher property taxes, you could face penalties or even foreclosure, just as if you failed to pay normal taxes (PACE - DFPI) (PACE - DFPI). Interest rates and fees for PACE programs can be higher than other options; you might pay more in interest than with a standard home equity loan. Also, PACE availability is limited – it’s common in a few states like California, Florida, and others, but not offered everywhere. As with any loan, you’re committing to long-term payments, which reduces your net savings (though hopefully offset by energy savings). Bottom line: PACE can be a useful financing tool if you can’t or don’t want to take a traditional loan, but you should carefully consider the costs and how it affects your property obligations.
Financial Implications (Example): For a $20,000 solar project financed via PACE at, say, 6.5% interest over 20 years, your annual PACE assessment might be around $1,800 (covering principal and interest), added to your property tax bill. That’s about $150 per month. If your solar system saves you $125/month on electric bills, you’d actually be paying a bit more per month initially ($150 vs $125) – essentially, you’d still be out-of-pocket $25/month in the early years. However, with the 30% federal tax credit ($6,000) you receive, you could apply that to your PACE balance or keep it. If applied, it could shorten the effective term or lower the balance. Over 20 years, you would pay roughly $36,000 in total through taxes for the $20k loan (interest makes it cost ~$16k extra). After 20 years, you own the system outright and enjoy the full savings. If you sold your home after, say, 5 years with $15k remaining on the PACE loan, the buyer or their lender may insist that you pay off that $15k to remove the lien. This could cut into the money you get from selling the home. In summary, PACE spreads the cost over time via taxes, but be mindful of the higher interest and the impact on selling or refinancing.
- It’s a credit, not a deduction. It directly reduces your tax bill, dollar for dollar.
- It is non-refundable – you can’t get more back than you owe in taxes. However, if you can’t use the entire credit in one year, you can roll over the unused amount to future years (as long as the credit is still active) (Issue Spotlight: Solar Financing | Consumer Financial Protection Bureau) (Solar Energy System Equipment Credit).
- To claim it, you must own the solar system. If you have a solar loan or paid cash, you qualify. If you are leasing or in a PPA, the third-party owner gets the tax credit, not you (Homeowner’s Guide to Going Solar | Department of Energy). (They may indirectly give you a lower rate because of it, but you can’t claim it on your taxes.)
- The credit applies to the total installed cost of the solar PV system, including equipment and installation labor. If you add battery storage at the same time (or under current rules, even later in some cases), that may also qualify.
- There is no maximum cap on this federal credit for residential solar.
State Tax Credits: Some states offer their own tax credits for solar installations. For example, New York provides a state income tax credit equal to 25% of your solar system cost (up to $5,000) (Solar Energy System Equipment Credit). South Carolina offers a 25% state tax credit as well (capped at $35,000). These credits directly reduce your state tax liability, similar to the federal ITC. Not all states have them, but those that do effectively give you additional savings on top of the federal credit.
Cash Rebates or Grants: Certain states, local governments, or utility companies have rebate programs that give you an upfront discount or cash back for installing solar. These might be a fixed amount (e.g. $1,000 for installing solar) or based on system size (e.g. $/watt of solar installed). Rebates directly cut the upfront cost. For instance, a utility might offer $0.50 per watt rebate – for a 6 kW (6,000 W) system, that would be $3,000 off. Rebates were more common in the early days of solar and in states like California, but some programs still exist or come and go with funding. Your solar installer can often help identify these.
Property Tax Exemptions: Normally, adding solar panels could increase your home’s value, which might raise your property tax assessment. To prevent a tax penalty for improving energy efficiency, many states (around 36 states) exempt the added value of a solar system from property tax (Solar Tax Exemptions – SEIA). That means even if your home is worth more with solar, the assessor won’t count that value when calculating your property taxes. For example, New Jersey law exempts solar installations from local property taxes as long as the system is meeting on-site energy needs (Solar Tax Exemptions – SEIA). This incentive ensures you don’t get hit with higher annual taxes just because you went solar.
Sales Tax Exemptions: To reduce the upfront cost, some states waive the sales tax on solar equipment purchases. At least 25 states have sales tax exemptions for solar (Solar Tax Exemptions – SEIA). If your state has, say, a 6% sales tax, this could save you 6% on a solar installation by not having to pay tax on the $20,000 (a
$1,200 savings in that example). Arizona, for instance, exempts solar energy devices from sales tax ([Solar Tax Exemptions – SEIA](https://seia.org/solar-tax-exemptions/#::text=Sales%20tax%20incentives%20typically%20provide,alternating%20current%20electricity%20from%20a)). This makes solar a bit cheaper.Performance-Based Incentives (PBIs) and SRECs: In some states, you can earn money based on the energy your solar panels produce. One common mechanism is through Solar Renewable Energy Certificates (SRECs) or similar programs. Basically, for every unit of electricity your system produces (often measured in megawatt-hours), you earn a certificate that utilities purchase to meet state renewable energy requirements. In certain states (currently about 8 states plus D.C.), utilities are required to buy these credits from homeowners as part of Renewable Portfolio Standards (Issue Spotlight: Solar Financing | Consumer Financial Protection Bureau). This means you get paid for generating clean energy. For example, a state might give you one SREC per 1,000 kWh produced, and if the market rate for an SREC is $50, that’s $50 income to you. The value and availability of these programs vary a lot by state (with states like New Jersey, Massachusetts, Maryland, etc. historically having active SREC markets) (Issue Spotlight: Solar Financing | Consumer Financial Protection Bureau). It can be a significant long-term income stream in those areas, further improving solar economics (Issue Spotlight: Solar Financing | Consumer Financial Protection Bureau).
Net Metering Credits: While not exactly an "incentive" you apply for, net metering policies are crucial at the state/local level. Net metering allows you to send excess solar energy to the grid and get credits on your electric bill in return (Issue Spotlight: Solar Financing | Consumer Financial Protection Bureau). In many states, net metering credits your excess generation at the full retail electricity rate – effectively letting you “bank” surplus power in the grid to offset power you draw at other times. For example, if your solar produces more than you need during the day, you send it out and get a credit; then at night you use grid power and the credits cancel out the cost. This can lead to very low electric bills (sometimes just a small monthly service charge) if your solar is sized to produce as much as you use over a billing period (Issue Spotlight: Solar Financing | Consumer Financial Protection Bureau). Not all states have strong net metering (some have caps or lower credit rates) (Issue Spotlight: Solar Financing | Consumer Financial Protection Bureau), but where it exists, it’s a key policy that makes solar financially attractive by ensuring you maximize the value of every kilowatt-hour your panels produce.
Other Local Programs: Some areas have additional incentives like local grants, expedited permitting fee waivers, or even feed-in tariffs (where you sell power at a set price to the utility). There are also low-interest loan programs or “green banks” in some states that help finance solar at below-market rates. For example, some states offer subsidized solar loans through specific programs (Homeowner’s Guide to Going Solar | Department of Energy), and the federal government has programs (FHA and Fannie Mae options) to roll solar costs into mortgages (Homeowner’s Guide to Going Solar | Department of Energy).
Cash Purchase: You pay $20,000 upfront. You later get a $6,000 federal tax credit back, making your net cost $14,000. Your solar saves you roughly $1,200/year on electricity. So in about 12 years your $14k net investment is paid back in savings. Over 25 years, you’d save about $30,000 (total savings minus your net cost). You handle maintenance, but panels are low-maintenance and have warranties. You also potentially increase your home value. Total out-of-pocket cost: $14,000 (after credit). Total 25-year savings: ~$30,000 (highest of all options).
Loan (Own with financing): You finance $20,000 with a solar loan at 5% interest for 15 years. Assume no down payment. Your monthly payment is about $158/month. Annual loan cost ~$1,900. Your solar still saves ~$1,200/year on your utility bills, so during the loan you’re paying about $700 net each year ($1,900 loan – $1,200 savings). You claim the $6,000 tax credit and apply it to the loan in year 1 (optional, but many do), which effectively shortens your loan or reduces the balance. Over 15 years, you might pay roughly $24,000 total for the loan (interest included). After year 15, the loan is done and you enjoy the full $1,200/year savings for the remaining life of the system. Total out-of-pocket cost: about $18,000 (principal minus the $6k credit, plus ~$4k interest) over time. Total 25-year savings: ~$22,000 (less than cash, because of interest). However, you needed $0 upfront and were cash-flow positive or neutral from the start.
Solar Lease: The solar company owns the $20k system. You pay, say, $110/month lease (initially) with 2% yearly escalation for 20 years. In year 1, that’s $1,320 for the year. You save $1,200 on your electric bill, so you pay about $120 more than you saved in the first year – essentially you’re slightly negative initially in this scenario. As utility rates rise and the solar output saves more, you might break even or come out ahead in later years. Over 20 years, you might pay roughly $30,000 in lease payments (due to the annual increases). Your total electricity savings over 20 years might be around $27,000 (assuming utility rates rise 2% a year, starting at $1,200 savings first year). That means you’d end up about $3,000 behind over 20 years. It’s possible to structure a lease so that it’s immediately cheaper (e.g., a lower starting payment). Many leases aim to save the homeowner maybe 10–20% on their bills. If instead your lease was $90/month fixed, you’d pay $1,080/year and save $1,200, netting $120 savings in year 1. Over time if that’s fixed, you’d save around $3,000–$5,000 total over 20 years. Total out-of-pocket cost: $0 down, then ~$25k–30k in payments. Total savings: modest (a few thousand at best, or possibly none if poorly structured). You never had to spend a lump sum and never dealt with maintenance, though.
PPA: The company owns the system and sells you power. Say they charge $0.13/kWh with no escalation. At 8,000 kWh/year production, you pay $1,040/year for solar power. That’s $160 less than the $1,200 you’d pay the utility – so $160/year saved initially. Over 20 years, if that rate holds, you pay the PPA owner $20,800 instead of $24,000 to the utility, saving $3,200 in total. If the PPA rate had a 2% increase each year, you’d pay more like $25,000 over 20 years, basically erasing savings (especially if your utility rate also rose similarly). Total out-of-pocket cost: $0 down, then payments for power (which replace your old electric bill). Total savings: a few thousand dollars at best, but you had no maintenance or upfront costs.
PACE: You finance $20,000 through a PACE assessment at 6% over 20 years. That’s about $1,750/year added to your property taxes. Your solar saves $1,200/year on utilities, so you’re paying $550/year more in the early years ($1,750 – $1,200) out of pocket. You get the $6,000 tax credit which you could use to offset some of those costs or pay down the balance. Over 20 years, you’ll pay roughly $27,000 in total through taxes (principal + interest). After 20 years, you’re done and save $1,200/year thereafter. If you sell the house after 10 years with, say, $15,000 remaining balance, you likely pay that off from the sale proceeds. Total out-of-pocket cost: effectively $21,000 (if subtract credit from $27k paid). Total 25-year savings: around $8,000 (less than loan due to higher interest). PACE made it possible despite no cash or maybe weaker credit, but cost more in interest.
- U.S. Department of Energy – Homeowner’s Guide to Going Solar (Homeowner’s Guide to Going Solar | Department of Energy) (Homeowner’s Guide to Going Solar | Department of Energy) (Homeowner’s Guide to Going Solar | Department of Energy) (Homeowner’s Guide to Going Solar | Department of Energy)
- Clean Energy States Alliance – A Homeowner’s Guide to Solar Financing: Leases, Loans, and PPAs () () ()
- Consumer Financial Protection Bureau – Issue Spotlight: Solar Financing (Issue Spotlight: Solar Financing | Consumer Financial Protection Bureau) (Issue Spotlight: Solar Financing | Consumer Financial Protection Bureau) (Issue Spotlight: Solar Financing | Consumer Financial Protection Bureau) (Issue Spotlight: Solar Financing | Consumer Financial Protection Bureau)
- Database of State Incentives for Renewables & Efficiency (DSIRE) – via energy.gov (Homeowner’s Guide to Going Solar | Department of Energy)
- Solar Energy Industries Association – Solar Tax Exemptions (Property & Sales) (Solar Tax Exemptions – SEIA) (Solar Tax Exemptions – SEIA)
- New York State Department of Taxation – Solar Equipment Credit (25% up to $5,000) (Solar Energy System Equipment Credit)
- California DFPI – Property Assessed Clean Energy: What Homeowners Need to Know (PACE - DFPI)
- KPMG - Incentives and credits tax provisions in “One Big Beautiful Bill” (KPMG)
Cash, solar loans, solar leases, solar PPAs, and PACE financing are the main options.
Going solar can save money on electricity bills, but the upfront cost of a home solar panel system can be high (). Fortunately, homeowners have multiple payment options to finance a residential solar energy system. Each option has different implications for ownership, costs, incentives, maintenance, and savings. This guide will explain the main financing methods – cash purchase, solar loans, solar leases, power purchase agreements (PPAs), and Property Assessed Clean Energy (PACE) financing – and compare their advantages and disadvantages. We’ll also cover how incentives like the Federal Investment Tax Credit (ITC) and state/local programs can reduce costs.
Most homeowners do not pay cash upfront for solar. In fact, only about 19% of U.S. home solar installations in 2023 were cash purchases, while 58% used loans and 23% used third-party arrangements (leases or PPAs) (Issue Spotlight: Solar Financing | Consumer Financial Protection Bureau). Understanding your options will help you choose the best fit for your budget and goals.
Summary of Solar Financing Options
Below is a comparison table summarizing key aspects of each solar financing option for homeowners:
| Comparison Criteria | Cash Purchase | Solar Loan (Home equity, unsecured, or solar-specific) |
Solar Lease | Power Purchase Agreement (PPA) | PACE Financing (Property Assessed Clean Energy) |
|---|---|---|---|---|---|
| Who Owns the System? | Homeowner (you) | Homeowner (you) | Third-party company | Third-party company | Homeowner (you) |
| Upfront Cost | High upfront (pay full cost) | Low/zero upfront (loan pays for system) | No/low upfront | No/low upfront | No upfront (financed via property tax bill) |
| Eligibility for Incentives | Eligible for all incentives (30% federal tax credit, rebates, etc.) [1] | Eligible for all incentives (you own the system) [1] | Not eligible (provider claims tax credits) [6] | Not eligible (provider claims tax credits) [6] | Eligible for all incentives (you own the system) |
| Maintenance Responsibility | Homeowner (warranties often cover equipment) | Homeowner (like any owned system) | Company (usually covers operations & repairs) [7] | Company (covers maintenance, monitoring) [7] | Homeowner (same as other ownership options) |
| Long-Term Savings Potential | Highest savings (no interest or third-party costs) [2] | High savings, but reduced by loan interest and fees [2] | Moderate savings (monthly lease payments reduce your net benefit) | Moderate savings (you pay for power at a set rate, saving a bit vs utility rates) | High savings (similar to other loans, but interest can be higher) |
| Typical Term | N/A (you pay in full) | 5–20 year loan term typical [3][4] | 20–25 year contract (fixed monthly fee, sometimes rising ~2–3% per year) [8] | 20–25 year contract (pay per kWh produced, rate may escalate annually) [9] | 5–20 year assessment on property tax bill |
| Credit & Qualification | No credit needed (but requires available funds) | Credit check required; better credit = better interest rate. Home equity loans offer lower rates but require equity as collateral [5]. | Good credit usually needed; must transfer or buy out lease if home is sold before term ends. | Good credit usually needed; must transfer or buy out if home is sold early. | Must own property (sufficient equity often required); debt attached to property, not personal credit – can complicate selling or refinancing [10]. |
Note: In all cases, you also rely on net metering or similar programs (where available) to credit your bill for excess solar energy sent to the grid, which can significantly impact savings [11].
[1]: Homeowner's Guide to Going Solar | Department of Energy [2]: Homeowner's Guide to Going Solar | Department of Energy [3]: A Homeowner's Guide to Solar Financing [4]: A Homeowner's Guide to Solar Financing [5]: Issue Spotlight: Solar Financing | Consumer Financial Protection Bureau [6]: Homeowner's Guide to Going Solar | Department of Energy [7]: A Homeowner's Guide to Solar Financing [8]: A Homeowner's Guide to Solar Financing [9]: A Homeowner's Guide to Solar Financing [10]: PACE - DFPI [11]: Issue Spotlight: Solar Financing | Consumer Financial Protection Bureau
Cash Purchase
With a cash purchase, you pay for the entire solar system upfront. This means you own the solar panels and equipment outright from day one.
Solar Loans
Solar loans allow you to buy a solar system with little or no money down, by borrowing the cost and paying it back over time (with interest). When financing with a loan, you are still the owner of the solar system, but the bank or lender helps cover the upfront cost, and you repay them monthly like any other loan () (). There are a few types of solar loans:
Solar Lease
A solar lease is an arrangement where a third-party company installs and owns the solar system on your roof, and you pay a fixed monthly “rent” to use the system. In a lease, you do not own the panels – the company does. You simply pay to access the power it produces for a set period.
Power Purchase Agreement (PPA)
A Power Purchase Agreement (PPA) is another third-party ownership model that is similar to a lease in that a company installs and owns the solar system on your home with no upfront cost to you. The difference is how you pay: instead of a fixed lease payment, you pay for the actual solar energy produced each month, usually at a set price per kilowatt-hour (kWh). In essence, the solar company becomes like your mini utility.
Property Assessed Clean Energy (PACE) Financing
Property Assessed Clean Energy (PACE) financing is a special form of loan for clean energy improvements (like solar) that is repaid through your property taxes rather than a regular loan payment. PACE programs allow homeowners to finance energy upgrades with no upfront cost, paying the balance back over many years as an extra assessment on their annual property tax bill (PACE - DFPI).
Incentives and Tax Credits for Solar
Updated July 2025
One of the biggest financial benefits of installing a solar system is the ability to take advantage of incentive programs. These incentives can substantially reduce the net cost of your solar installation and improve your return on investment. Incentives come from the federal government, and many states and local governments or utilities also offer their own programs.
Federal Investment Tax Credit (ITC)
The Solar Investment Tax Credit (ITC) is a nationwide incentive that allows you to credit a portion of your solar installation cost against your federal income taxes. As of 2025, the ITC for residential solar is 30% of the system cost (Issue Spotlight: Solar Financing | Consumer Financial Protection Bureau). This means if your solar project costs $20,000, you could potentially reduce your federal taxes by $6,000.
Installing solar still unlocks valuable incentives, but a new federal law (H.R. 1 “One Big Beautiful Bill,” signed July 4, 2025) accelerates the phase‑out of some federal benefits by the end of 2025.
| Date system placed in service | Credit rate |
|---|---|
| Up to December 31, 2025 | 30 % of total installed cost |
| After December 31, 2025 | 0 % – credit phased-out under the new law |
Key things to know about the ITC:
The ITC can significantly lower the effective cost of your system – essentially the federal government covers nearly one-third of the cost. It has been a major driver of solar adoption in the U.S. (Issue Spotlight: Solar Financing | Consumer Financial Protection Bureau). Make sure to consult with a tax professional to confirm you qualify and to file the appropriate IRS forms (e.g. Form 5695 for Residential Energy Credits).
State and Local Incentives
Beyond the federal credit, many states, cities, and utilities offer additional incentives to encourage going solar. These vary widely by location. Here are common types of solar incentives:
Because incentives vary so much by location and change over time, a great resource is the Database of State Incentives for Renewables & Efficiency (DSIRE), which is a DOE-funded database listing incentives state-by-state (Homeowner’s Guide to Going Solar | Department of Energy). By entering your ZIP code on DSIRE’s website, you can get an up-to-date list of all the credits, rebates, and policies available in your area (Homeowner’s Guide to Going Solar | Department of Energy). Also, reputable local solar installers usually know the ins and outs of local incentives and can help you apply for them (Homeowner’s Guide to Going Solar | Department of Energy).
Real-World Cost Comparison Example
To tie everything together, let’s consider a simplified example comparing the financial outcomes of each payment option for the same solar project. Say you’re looking at a 6-kilowatt (6 kW) home solar system that costs $20,000 (before any incentives). We’ll assume this system produces about 8,000 kWh of electricity per year, and your utility rate is $0.15/kWh (so 8,000 kWh would cost $1,200 from the utility). We’ll also factor in the 30% federal tax credit while applicable. Here’s how the options might stack up:
Note: These numbers are simplified estimates for illustration. Actual outcomes depend on specific contract terms, interest rates, solar production, utility rate changes, and available incentives. But the general trend is that cash and standard loans give the greatest net savings over time, while leases/PPAs give smaller savings (or just cost stability) but require no investment, and PACE sits somewhere in between loans and cash in terms of ownership with higher financing cost. Always crunch the numbers for your situation – a reputable solar provider can provide detailed quotes for each option so you can compare the lifetime costs and savings.
Conclusion
Buying a solar energy system for your home is a significant investment, but there are financing options for almost every homeowner’s situation. In summary, if you can afford it, a cash purchase offers the most financial benefit in the long run (Homeowner’s Guide to Going Solar | Department of Energy) and gives you full ownership (and all incentives). Solar loans allow you to own the system with no money down, trading some interest cost for immediate solar savings and tax credits – a very popular route for many. Leases and PPAs let you go solar with no upfront cost and no responsibility for maintenance, which is hassle-free, but your long-term savings are lower and you forfeit the incentives to the third party (Homeowner’s Guide to Going Solar | Department of Energy). PACE financing is an alternative if traditional loans aren’t accessible, using your property tax to repay – it gives you the benefits of ownership but be mindful of the higher interest and property lien implications (PACE - DFPI).
Before deciding, consider your financial goals, current bills, tax situation, and how long you’ll stay in your home. It’s wise to get quotes for multiple options. Ask providers to spell out the total lifetime cost and savings in each scenario. And don’t forget to factor in incentives like the 30% federal tax credit and any state/local programs which can tilt the equation in favor of owning. With the right financing choice, you can enjoy cheaper, cleaner energy and boost the value of your home without breaking the bank upfront.
By understanding these options and comparing offers, you can make an informed decision that brings you the best balance of immediate affordability and long-term savings on your journey to going solar. Happy solar shopping!
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