How to Buy Solar Panels: FAQs About Solar Financing

January 19, 2017

Home solar financing might be easier than you think.

Editor's Note: In 2020, SunPower announced the completion of the strategic spin-off of its manufacturing division into a separate business named Maxeon Solar Technologies, Ltd. As a result, SunPower has expanded its offerings to drive future growth. The SunPower Equinox® system now offers multiple panel options, including front- and back-contact panels, all of which are responsibly and rigorously quality tested to provide the best energy solution for your home. Learn more about the differences in panel technology.

Many homeowners who are interested in going solar aren’t sure whether they can afford it and may not be aware that there are several ways to finance a new home solar system.

In the past, purchasing a home solar system might have required a full, upfront payment or a home equity loan. But these days there are several ways consumers can finance a solar system.

Solar financing options include a solar lease or a loan, both of which can help homeowners affordably pay for solar, while potentially paying less for electricity than under their current, traditional utility plan. As a result, not only can homeowners help the environment by going solar, but they can potentially save money, too.

Here’s a list of frequently asked questions on home solar financing basics. Note that policies and pricing vary by state, so what’s true for a homeowner in one state may not be true for another state. But it’s a good starting point for understanding your options.

How does a solar lease work?

With a solar lease you are renting your solar energy system. Similar to leasing a home, apartment or vehicle, someone else owns and maintains the equipment, and you pay a monthly fee to use it. SunPower solar leases run for 20 years. Depending on the lease terms, you may have the option to purchase the system at the end of your lease. Otherwise when your lease ends, you can choose to renew your lease for an additional term or request that the leasing company remove the panels. If you sell your home during your lease term, you generally have the option to purchase the system or transfer your lease to the new homebuyer.

For qualified customers, solar leases usually cost no money upfront, so you may begin to see savings immediately compared to your previous utility bill. If you lease your solar system, depending where you live, you may not be able to receive any tax incentives or rebates that are available to buyers, however you may still benefit from these incentives, as leasing companies often factor tax incentives and rebates into their pricing in order to reduce the monthly lease payments. (New York state does offer tax incentives for solar leases.)

Monthly lease payments are typically fixed so that they do not fluctuate based on solar system production or usage. Some leases, however, include an annual price escalator, which increases your monthly payments each year by a certain percentage. To help ensure customers have a good value proposition, many leases also include a performance guarantee, which compensates the homeowner should the system fail to produce within a certain pre-specified range of electricity every month.

Like other financial products, solar leases require homeowners to meet certain credit criteria in order to qualify. Typically, you must own and live in the property as your primary residence and have a minimum FICO score. Leases also may not be available in all areas. 

What is a solar loan?

A solar loan allows you to borrow money to buy your solar system outright. Unlike a lease, once you pay off the loan you own the system and can benefit from its electricity generation for as long as your system lasts. Be sure to check this out, as some panels last much longer than others and warranties can vary. As the owner, you also are responsible for system maintenance.

Many solar loans are unsecuritized so you don’t need equity to get one or you’ll need to pledge your home as collateral, but you do need a fairly healthy credit score (usually a 650 FICO score or higher).

To make solar loans competitive with solar leasing options, lenders that offer solar loans often sell $0-down options, with flexible repayment terms of five to 25 years and relatively low interest rates for qualified customers. Like a lease, by not paying money down, customers may be able to save money immediately, though this often varies based on the duration of the loan term.  Unlike leases, since solar loan customers own the system, if qualified, they generally are able to receive applicable tax credits and local incentives directly.*

During a home sale, homeowners may also be able to pay off their solar loans early or transfer the loan to the new buyer.

In addition to solar-specific loans, it is also possible to pay for solar through traditional bank products such as home improvement loans, HELOCs, mortgages, refinancing, etc. However, these may require more effort depending on the familiarity of your bank with solar and often require more significant collateral and liens

What is the federal solar Investment Tax Credit (ITC)?

The federal solar ITC allows qualified U.S. homeowners who purchase solar energy systems to claim a 30 percent credit on their federal income taxes in the year they buy their systems.* Congress renewed the ITC in 2016, but it may not be around forever as federal policies change. Moreover, it is set to decrease over time, so if you’re thinking about solar, you should consider signing up soon. 

What’s a solar PPA?

A solar power purchase agreement, or PPA, may be available in your area. With a PPA, you sign an agreement to buy solar-generated energy (just the energy, not the solar equipment) from a utility or solar power plant operator in your area at a set rate over a certain period of time. Like a lease, someone else owns and maintains the equipment. However, instead of paying a fixed monthly fee to rent the system, you pay a fixed $/kWh rate for all of the electricity generated from the system over the term of the contract.

PPAs and solar leases generally have similar contract durations, credit criteria and rules governing purchase options, incentives and terms. The primary difference between leases and PPAs is that many PPAs do not include performance guarantees promising a certain range of system production. Instead you just pay for what the system produces. Again, because not all solar equipment is equal, it is important to understand the system’s projected degradation and warranties. If you wind up getting less electricity than expected with a PPA you will pay less for your solar, but you may not offset as much of your utility bill as estimated and therefore would save less money overall.  SunPower does not offer residential PPAs at this time.

How much can I save with solar?

The financing option you choose, your local utility rates and your monthly electricity usage all determine how soon you’ll see a return on your investment. A solar consultant can calculate that for you in a free evaluation of your home, and you can also try out an online solar calculator such as SunPower’s Solar Savings Calculator or Google’s Project Sunroof. These tools allow you to enter your address and get a savings estimate based on your electric bill and rates in your area.

The cost to install solar has dropped 60 percent in the last 10 years, making it affordable and accessible to more homeowners than ever before, whether through a solar purchase, lease or loan. You might be surprised to learn that it is a bright option for you today.

Learn more about solar financing from the Solar Energy Industries Association's guide to residential solar.