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There are a number of ways to fund your solar project, and which one you choose will be based on your personal financial circumstances, your tolerance for risk, and whether you’re willing to trade some financial benefit for a lower-involvement project. Our numbers are presented on an after-tax basis.
Access to credit or cash has a significant impact on your decision to go solar. If cash is available, we recommend you look at going solar as an investment much like any other part of your portfolio including real estate, stocks, bonds, etc. With 15% to above 20% returns, an investment in solar is a great balance against your other investments whose performance is heavily tied to the overall economy. Solar will provide excellent returns regardless of an economic recession or boon. Having said that, the following factors will influence which financing options makes the most sense for you.
: An all cash purchase means that by the time the system goes live, the owner will have paid the dealer the outstanding balance of the system in cash. The owner retains complete system ownership and rights to all tax credits, renewable energy credits (RECs), etc. Legislation in the future is expected to make these RECs valuable.
Access to credit or cash has a significant impact on your decision to go solar
: The loan route allows the homeowner to retain ownership of the system, but use a new or existing mortgage, line of credit, or other loan for the outstanding balance after incentives are accounted for. In most of California, if your electric bill is around $125 or higher, you can finance solar with no out of pocket or additional annual energy costs.
: Residential solar leases or PPA’s are relatively new and available through a select group of dealers, however they offer a packaged bundle of solar and services with no to low cash-down. This option is extremely attractive if you don’t have sufficient cash or credit available and want an all-inclusive solar solution (maintenance, monitoring, performance guarantees, insurance). In both of these situations, the other party continues to own the solar panel that is placed on your roof, and you agree to certain terms – either payments to them for the equipment, or payments to them for the electricity it generates.
All numbers are presented here on an after-tax basis. This is to accurately reflect the cash situation that the property owner would experience.
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Cash purchase |
Loan
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Lease or PPA |
Cash available
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 |
 |
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| 680+ FICO score |
N/A |
|
N/A |
| Equity available in home |
N/A |
|
N/A |
| Want RECs (cash & social value) |
|
|
 |
| Want all-inclusive package |
|
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Benefits |
Drawbacks
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| Cash Purchase |
- Great long-term (5+ year) investment based on 15-20% returns which are not tied to the overall economy
- Provides the best financial return of all options
- Provides owner with RECs which may have more value in the future
- System is owned from beginning, so once payback is achieved, energy produced is essentially free
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- Must have cash available which becomes illiquid until house is sold or money recouped
- Some dealers provide “service packages” including maintenance or warranty add-ons, but others may charge a-la-carte or not have options available
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| Loan |
- If low-cost credit (such as a home equity line of credit or mortgage) is available, loans provide low or no cash down options
- Typically allow customer to deduct interest on taxes
- Retain RECs for future use
- At end of term, system is owned by consumer and paid off in full
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- Paying interest on net system cost
- Similar issue with “service packages” as cash purchase
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| Lease or PPA |
- Hassle-free option as lease or PPA provider is benefits from the more power the system provides, therefore they usually include monitoring, performance guarantees, warranty work, and maintenance in the rates you pay
- Usually offer low or no-cash down option
- Typically offer buy-out at the end of the 15-18 year term for a pre-specified price
- Versus
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- System is not owned by consumer, so it must be purchased at end of term if consumer wants to keep it
- All costs, implied interest and services incorporated into the kWh or lease payment
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Cash purchase |
Loan
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Lease or PPA |
Gross cost
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$37,125 |
$37,125 |
$0 |
| State Rebate & Tax credit |
$17,760 |
$17,760 |
$0 |
| Upfront cash payment |
$19,365 |
$0 |
$1000 |
| Monthly payment |
$0 |
$175 |
$224 |
| 1st year Monthly savings |
$134 |
$2 |
$0 |
| 9th year Monthly savings |
$216 |
$75 |
$103 |
| Payment duration |
None |
15 years |
18 years |
| Payback (in years) |
9 |
0 |
5 |
| Financial return (IRR) |
12.4% |
Infinite |
37.7% |
| Value of Project (NPV) |
$23,556 |
$25,240 |
$13,409 |
| Max Increase in property value |
$62k at year 12 |
$50k at year 15 |
$24k at year 9 |
| Own system |
Yes |
Yes |
No (optional buyout) |
Other
- 10 yrs for entire system / 25 yrs for panels
- Inverter replaced at 15 years |
10/25 warranty
$3000 for inverter |
10/25 warranty
$3000 for inverter |
All included for 18 year term |
Assumptions for financing comparison matrix:
- Total cost is $7.50 per DC Watt
- EPBB election on CSI at Step 3
- Newport Beach - based site with no shading issues
- Array installed at a 17° angle, facing 225° SW, at 4.5” stand-off
- SunPower 225B Panels and a SMA6000SB (240V) inverter
- Economic inflation of 3.5%
- Utility rate inflation of 6.5%
- Loan interest rate of 6.5% available from a HELOC
- $3000 down for lease or PPA option
- Discount rate at 5.0%
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