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Residents and business owners have many options when it comes to financing the installation of solar electric systems. A breakdown of the more common financing options, and their corresponding benefits, is below. More information is also available in A Massachusetts Homeowner's Guide to Solar Leases, Loans, and PPAs.
The GW Solar Institute video Rooftop Solar Financing 101 introduces three common solar financing methods: loans, leases, and power purchase agreements (PPAs) and briefly explains some of the advantage and disadvantages of each.
Direct purchasing involves buying the solar electric system outright, without the need for a loan or other financing mechanisms. This is typically the least expensive path to solar ownership, and provides the highest return on investment over time. At the same time, purchasing a solar electric system has the largest up-front cash investment. There are several programs and financial incentives available to help defray the up-front cost.
Many home and business owners opt to take out a loan, such as a home equity loan, to finance a solar electric system purchase. Financing a solar electric installation provides the system owner with many of the benefits of a direct purchase with a lower up-front investment, though interest payments and other fees may apply. In recent years, loans dedicated to solar installations have become popular in Massachusetts. Mass Solar Loan, run by MassCEC and the Massachusetts Department of Energy Resources, connects homeowners with low-interest loans for residential solar projects.
Loans can be a cost-effective option for many homeowners, however, loan terms can vary widely depending on the lender, so residents and businesses should be sure to understand all charges and fees before agreeing to terms. In particular, homeowners may want to ask lenders and their representatives about:
- Dealer fees or other closing costs associated with financing
- What happens if payments are missed, particularly for ‘same-as-cash’ financing arrangements
- Whether interest paid is tax deductible
- Whether the lender takes a security interest in your home or in the solar installation
Under a solar lease, a property owner agrees to pay a pre-determined monthly bill to a solar company, which then installs, owns and operates the solar electric system. The property owner then has access to the electricity generated by the system, lowering the property owner's monthly utility bill. A solar lease provides the opportunity for a resident or business owner to benefit from solar electricity with little or no up-front cost.
Power Purchase Agreements (PPAs)
Similar to a solar lease, under a PPA, the solar company will own and operate the system on the property owner's roof. Rather than a fixed monthly payment, however, the property owner agrees to purchase the electricity generated by the system at an agreed-upon per-kilowatt-hour price, often lower than typical utility rates. Like a solar lease, a PPA allows a home or business owner to begin saving money immediately, with little or no up-front cost.
When considering a solar lease or PPA , review the contract carefully to understand all terms and conditions. While contractual terms may vary, items to consider are:
- The length of the contract
- Who benefits from incentives like tax credits and solar renewable energy certificates
- Whether there is an option to buy the system at a later date
- The initial electricity price and any applicable price changes over time
- What happens at the end of the contract term
- What happens if you move out of the house or business.