Posted by Todd Filbrun on Fri, Sep 14, 2012 @ 09:32 AM
Investing in solar is an excellent way to cut down on utility costs and possibly even make money. However, not everybody has the cash on hand to purchase an entire solar installation upfront. Fortunately, there are several solar financing options available to you, namely solar loans, solar leases and power purchase agreements (PPAs). As you might expect, each of these solutions is different, and it can be difficult to decide which one is best unless you have all the facts.
The following table outlines the differences in financing options.
|Solar loan||Solar lease||Power purchase agreement|
|You own the equipment||You rent the equipment and do not own it||You rent the equipment and do not own it|
|Fixed rates for the duration of the loan||Lease payment increases 3% to 4% a year||Monthly payment may be flat or variable|
|Zero money down||Zero money down||Upfront down payment typically required|
|Monthly payments go toward equipment ownership||Monthly payments include equipment rental only||Monthly payments include equipment rental and electricity|
|You pay only for the electricity you use||You pay only for the electricity you use||You pay the same monthly fee, no matter how much electricity you use|
|You pay for maintenance only when you need it||Regular maintenance may or may not be included||Maintenance is included in the cost of the PPA|
|Keep all your solar rebates and tax credits||Give up your solar rebates and tax credits||Give up your solar rebates and tax credits|
|You keep the panels forever||You have the option to buy at the end of the lease||You have the option to buy at the end of the PPA|
|Make money on extra power that is generated from your solar panels||The lease provider makes money on extra electricity your panels produce||The PPA provider makes money on extra electricity your panels produce|
|Interest payments are tax-deductible||No payments are tax-deductible||No payments are tax deductible|
|No pre-payment penalties||You get penalized for pre-payment||You get penalized for pre-payment|
As you can see, the benefits of a solar loan far outweigh those of other financing options. Because you own the panels outright, you get to take advantage of solar rebates and other tax incentives. Over the life of a solar loan, you will spend less than a lease or PPA with the exact same terms. Owning the panels also means you add value to your home, which is not the case with a lease or PPA.