Economics of a system you own

September 18, 2017
Multi-surface solar installation
Multi-surface solar installation

Owning a system outright means you purchase the system upfront. This can be done either through a loan or with an upfront cash payment. Owning a system means you will retain the rights to all of the system’s additional incentives. This includes the federal tax credit. Direct ownership of a system makes sense if you are able to pay for the system upfront or are able to take out a loan.

If you’re planning to sell your home shortly after going solar, it may make sense to purchase the system. Owning the system outright makes it easy to transfer ownership of the panels to the new homeowners and to incorporate their price into the value of your home. Selling your home after going with a third-party ownership model is more complicated. To do so, you’ll need to pay off the remainder of the lease, effectively purchasing the system. If you don’t wish to pay off the system, the new home owners will have to agree to take over your current contract and pay off the remainder of the agreement themselves.

Financing a system you own: Modern financing mechanisms have made solar more affordable and available to anyone interested. When going solar there are several ways to finance a system that you own, including loans, Property Assessed Clean Energy programs, and other incentives.

Unsecured solar loans

You do not need any type of collateral to get an unsecured solar loan. You can choose from many loan products ranging from 1 to 20 years in length. In most cases, these loans do not penalize prepayment. Standard solar loan products are available nationally and directly from banks and individual solar finance companies. New solar loan products are coming on to the market regularly and may be available directly through your installer.

Secured loans

Secured loans require some sort of asset as collateral. The most attractive loan often is a home equity line of credit leveraging the value of your home with the installation of a clean energy system. The interest rates on home equity lines of credit are often very low and the interest paid on them is usually tax-deductible. You can get secured solar loans from a number of banks and credit unions across the nation.

Property Assessed Clean Energy (PACE)

Another promising financing method is Property Assessed Clean Energy (PACE). PACE programs connect building owners with long-term, no-money-down financing for energy upgrades, including solar installations. Under PACE, you repay the project financing over time through an additional charge on your annual property tax. The PACE program administrator will work with your municipality to calculate the additional annual property tax so that it is less than the annual savings from your energy upgrade, making PACE financing cashflow-positive from day one. Unfortunately, PACE is not available in all markets. PACE financing must be enabled through state legislation and enacted by your local government. For a list of active PACE programs, visit pacenation.us.

Available incentives:

  • Federal Tax Credit. The Energy Investment Tax Credit gives you a percent-based credit off the total cost of your solar system. This is calculated before other incentives. You still have to pay up front for the system. When you file your taxes, you will receive a credit (not a deduction) from the Federal Government. For systems installed by the end of 2019 the tax credit is 30%. The credit is 26% in 2020, 22% in 2021, and goes away after that. Learn more about the federal solar investment tax credit.
  • Solar Renewable Energy Credits (SRECs). In some states, when you generate solar electricity from your system, you also generate an associated “green value” for your electricity. This is known as an SREC. Every time your system produces 1,000 kWh, or 1 MWh, of electricity, you get one SREC. These SRECs have a variable monetary value, like a company’s stock or commodity product, and, when sold on the open SREC market, can give you a revenue stream to help pay for your solar system. SREC prices are dictated by supply and demand of solar energy production and legislation called Renewable Portfolio Standards (RPS). Learn more about SRECs.
  • USDA REAP (Rural Energy for America Program). REAP offers grants and loans to agricultural producers and small businesses in rural areas to install renewable energy systems. It also provides funding for energy efficiency improvements. Learn more about the REAP program.
  • Additional Local Incentives. Several states and municipalities have developed additional incentives for those interested in installing solar: additional state tax or property tax credits, grants, rebates, and financing programs.

For a more comprehensive look at the incentives available in your state, see our state guides.

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