Owning a system outright means you purchase the system upfront, either with a loan or an upfront cash payment. Owning a system means you will retain the rights to all of the project’s additional incentives, like the 30 percent federal tax credit. Further, owning your system means you will be able to hedge your bets against rising electricity prices and lock in your solar production. 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.
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 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.
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.
- 30 Percent Federal Tax Credit. The Energy Investment Tax Credit gives you 30 percent off the total cost of your solar system. This is calculated before other incentives. You still have to pay up front for the system, but when you file your taxes, you will receive a 30 percent credit (not a deduction) from the Federal Government. The tax credit is scheduled to drop from 30% to 26% in 2020, and to 22% in 2021. 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.