Contrary to popular belief, solar energy is not free, and it’s certainly not cheap. However, it still beats your local utility in terms of energy costs. Solar energy will provide savings; it’s just a matter of when. The timing of these savings depends on the method you choose to go solar.
For those looking to save on their electric bills without the hefty upfront investment, there are three other primary financing options: loans, leases, and Power Purchase Agreements (PPAs).
Let’s explore these options to see how they can make going solar more accessible and affordable for homeowners.
How much do solar panels cost?
While there are significant government and state incentives (SRECs) to help offset the costs, purchasing a solar system outright with cash for an average-sized home using about 10,000 kWh/year can cost around $45,000 before incentives if you are using a reputable installer with high-quality equipment.
As of this writing, the solar federal tax credit provided by the IRA (Inflation Reduction Act) is 30% so that would be a discount of $13,500 bringing the total cost to $31,500. There are also New Jersey incentives (SRECs) that will provide an additional estimate of $10,000 (depending on the solar production output) which would bring the total net cost to $21,500. Not too shabby.
The government in essence is footing half the bill for qualified homeowners.
Cash purchases remain a popular option in New Jersey, offering long-term savings and complete ownership. However, thankfully this method is not the only way to go solar.
Let’s explore these options to see how they can make going solar more accessible and affordable for homeowners.
Solar Financing Options Explained
Cash Purchase
What is a solar cash option?
A method of paying for a solar system outright at the time of purchase, which provides immediate ownership, the highest long-term savings, and full access to incentives and rebates without incurring any financing charges.
Benefits
- Provides more long-term savings
- Can significantly reduce or eliminate monthly electric expenses
- Receive a big tax credit
- Complete ownership of the solar system
- Enjoy all associated benefits, including standard warranties comparable to financing and leasing options
Drawbacks
- Requires a significant upfront investment
- Rebates and incentives are collected on the back-end, unlike leases and PPAs
- Must manually submit production numbers to receive state incentives
- Longer break-even period compared to financing or third-party ownership (lease/PPA)
Payment Terms
For a cash purchase, payment is typically structured in the following way:
- Initial Deposit: Depending on the installer, an initial deposit of $2,000 to $5,000 is due at the time of the site survey, which usually takes place about a week after signing the contract.
- Progress Payment: 80% of the total invoice amount is due at the time of installation of the equipment, which generally occurs 1 to 3 months after the site survey.
- Final Payment: The remaining balance is due upon system activation, which can be 1 to 3 months after installation, depending on the utility provider.
Long-term savings and return on investment
- Over 30 years, assuming a 4.5% annual rate increase, electric bills would total around $114,000
- Can save approximately $80,000 over three decades
- Breakeven point is 11 years without state incentives, 7 years with state incentives.
- Return on investment (ROI) is 7.2% without state incentives. ROI increases to 12% with state incentives.
Who is this best for?
Purchasing a solar system outright is typically best for homeowners who have enough cash to comfortably cover the cost of a solar system without negatively impacting their finances. Since cash will give the best ROI and most overall savings, it is a wise investment if you meet the above criteria.
Finance
What is a solar finance?
A method of spreading the cost of a solar system over time through monthly payments, typically via a solar loan, which allows you to benefit from solar energy without the large upfront cost and includes interest and potential fees over the loan term.
Benefits
- Qualified individuals can get started with $0 down
- Fixed and locked monthly electric bill, avoiding unpredictable utility rates
- Long-term savings in the tens of thousands
- Full comprehensive warranties included
- No new money spent, using the money already allocated for electricity
- No, or very short break even period (usually less than 2 years)
Drawbacks
- Requires good credit standing
- Potentially high interest rates
- Need a decent debt-to-income ratio since it’s a loan
- Initial solar payments might be slightly higher than the current electric bill
- Doesn’t eliminate a monthly payment if that was the intended goal
- Rebates and incentives are collected on the back-end, unlike leases and PPAs
- Must manually submit production numbers to receive state incentives
Payment Terms
When financing solar, payment is typically structured in the following way:
- $o down at signing
- 18 months to use tax credit
- 1st monthly payment due 2-3 months after installation via check or ACH
- 10 year terms and up to 30 year payment terms are available
- Interest rates range from 3.99% to 10.99%
- No prepayment penalties if paid early
Long-term savings and return on investment
- Total cost of 25-Panel Solar System = $25,000+/- After tax credit
- Monthly payment on 25-Panel Solar System with 10% APR after all incentives = $165/mo
- Amount of money spent on electric bills in 30 years at a 4.5% annual electric rate increase = $114,000
- Can save approximately $65,000+ over the course of 25 years (warranty period)
- Break even point = 1.5 years
Who is this best for?
Homeowners that appreciate the concept of putting their money towards an asset. Instead of paying the utility company every month, you are taking that same money and putting it towards something that you will own. Very similar to paying down a mortgage.
Lease and PPA
What is a solar PPA and a solar lease?
A solar PPA (power purchase agreement) is a contract where you agree to pay for the electricity generated by a solar system installed on your property, usually at a lower rate than your current utility, while the solar provider retains ownership and is responsible for maintenance and repairs.
A lease is a financing option where you pay a monthly fee to use a solar system installed on your property, with the leasing company retaining ownership and handling maintenance and repairs, providing an easy entry into solar energy without the need for an upfront investment.
The monthly payments and terms for a lease and PPA are nearly identical so for the sake of this article we will just talk about a PPA. Just know that if only a lease is available to you because that is the only term your solar provider has access to, that the costs, savings, and everything else is the same.
Benefits
- PPAs typically start with the lowest monthly payments compared to other financing options
- Homeowners with a good credit rating can get a PPA without any initial payment
- Payments start only after the solar system is activated
- Some PPAs offer the option to buy the system at a specific point during the contract term
- PPAs often come with better coverage and performance guarantees
- PPA providers handle federal tax credits and state incentives on behalf of the homeowner
Drawbacks
- A PPA involves ongoing monthly payments for electricity, which may not suit those wanting to eliminate utility expenses entirely
- PPA payments typically increase annually by around 2.9%, which some homeowners might prefer to avoid
- PPA contracts usually last 25 years, which can be longer than some homeowners prefer
- PPAs often result in lower overall savings compared to purchasing the system outright with cash
- Homeowners using a PPA cannot directly claim the federal solar tax credit
Payment Terms
When leasing solar, payment is typically structured in the following way:
- $0 Down at Signing If credit approved
- Federal and state incentives applied automatically keeps monthly payment low
- First payment due 30 days after activation via check or ACH
- 25 year or 300 payments with the option to purchase system
Long-term savings and return on investment
- Amount of money spent on electric bills in 30 years at a 4.5% annual electric rate increase = $114,000
- Total amount of money spent on the lease or PPA contract over 25 year term with 2.9% escalator = $53,000
- Can save approximately $60,000+ over the course of 25 years (warranty period)
- Break even point = N/A
Who is this best for?
A lease or PPA is best for homeowners that want the most hands-off, out of sight, out of mind experience with solar. Since they do not own the solar system, they do not have to worry whatsoever about maintenance or claiming the incentives. It is the easiest way to go solar.
New Jersey Solar Incentives and Rebates
Federal Solar Investment Tax Credit (ITC)
Solar incentives and rebates make solar energy more affordable by cutting down the upfront costs. The Federal Solar Investment Tax Credit (ITC) is a big one, letting homeowners deduct 30% of their solar system cost from federal taxes for systems installed before the end of 2024. Besides federal incentives, many states also offer their own programs to help more people go solar.
New Jersey’s Solar Renewable Energy Certificate (SREC) Program
New Jersey has a Solar Renewable Energy Certificate (SREC) program, which pays you based on how much electricity your solar system produces. Each SREC represents a certain amount of solar energy, and you can sell these certificates to utility companies for extra cash. This applies to all solar financing options. The way you receive these credits is just dependent on which solar option you choose. The details to that are mentioned earlier in this article.
How much does the state of NJ give?
You can get rebates for up to 15 years, earning money for every unit of solar energy your system produces. The current program in NJ pays homeowners 8.5 cents for every kWh you produce.
Choosing the Right Financing Option
When it comes to financing your solar energy system, it’s essential to evaluate various options carefully. Each choice comes with its own set of benefits and considerations, making it vital to align your decision with your financial situation and long-term goals. Here are some key factors to consider:
Factors to Consider
- Budget: If you’re considering cash purchases, ensure that the initial investment doesn’t strain your finances.
- Long-Term Savings: Analyze the long-term savings associated with each financing option. While cash purchases often provide the most significant savings over time due to no interest payments, loans and Power Purchase Agreements (PPAs) may offer lower upfront costs but can lead to higher overall expenses due to interest or fixed rates.
- Maintenance Preferences: Different financing options may affect your responsibilities regarding system maintenance. For example, with a PPA, the solar provider usually handles maintenance, which can be appealing if you prefer a hands-off approach. In contrast, if you purchase your system, you may be responsible for some maintenance even though warranties are comprehensive.
- Eligibility for Incentives: Research any available federal, state, or local incentives that can impact your financing choice. Certain incentives may only apply to specific ownership structures. For example, if you’re leasing a system, you might miss out on tax credits or rebates that are available to outright purchasers.
Tips on Evaluating Different Solar Providers
When comparing solar providers, it’s crucial to ensure you choose one that aligns with your values and financial needs. Here are some tips to guide your evaluation:
- Reputation and Reviews: Look for providers with strong reputations. Check online reviews on platforms like Google. Pay attention to customer feedback regarding installation quality, service responsiveness, and post-install support.
- Experience and Expertise: Choose providers with a proven track record. Experience often translates to better installation practices and customer service. Ask about the number of systems they’ve installed and their experience with your specific type of financing.
- Transparency in Pricing: A reputable solar provider should provide clear and detailed pricing information. Ensure they explain all costs involved, including installation, maintenance, and any financing fees. Avoid providers that offer vague or unclear pricing structures.
- Warranty and Support: Investigate the warranties offered on both the solar equipment and the installation. Strong warranties can provide peace of mind and protect your investment. Additionally, ask about the level of support available after installation, including maintenance services and customer service responsiveness.
- Incentives Knowledge: Select a provider knowledgeable about available incentives. They should guide you through the process of applying for rebates or tax credits, ensuring you maximize your savings.
By considering these factors and following these tips, you can make a well-informed decision that aligns with your financial goals and maximizes the benefits of your solar energy system.
FAQs about solar financing
- What happens if I sell my home with a solar financing agreement?
If you have a loan, you may need to pay it off upon sale or transfer the loan to the new homeowner. With leases and PPAs, you have the option to also buy out the system, or the new homeowner can assume the agreement. - Can I refinance my solar loan?
Yes, many homeowners choose to refinance their solar loans to take advantage of lower interest rates or better terms. - Can I pay off the load early without incurring and penalties?
Yes, there are no prepayment penalties with most reputable solar finance providers - What are the eligibility requirements for solar loans?
Eligibility often depends on factors like credit score, income level, and debt-to-income ratio. Lenders may also consider the value of the home and existing equity. - Does the solar company place a lien on my home when financing solar?
Depends on the solar provider but most reputable ones DO NOT place a lien on the home. Their will be a UCC-1 filing on the solar system itself, not the home. - Does putting solar on my home raise my property taxes
No. Solar does not affect your property taxes. - Can I get solar financing with bad credit?
While it may be more challenging to secure financing with bad credit, some lenders offer options specifically designed for individuals with lower credit scores. - Do I need to put money down to finance solar panels?
Some financing options, like certain solar loans or PPAs, may require little to no money down at signing, but this varies by provider. - Are solar loans secured or unsecured?
Solar loans can be either secured (backed by the value of the solar system or home) or unsecured (not tied to collateral). Secured loans may have lower interest rates. - What happens if my solar panels do not produce as much energy as expected?
With most financing options, homeowners are still responsible for the agreed-upon payments. However, some agreements may include performance guarantees or warranties that can help mitigate this risk.
Conclusion
No matter which solar financing option you choose, you’re making a positive step toward a more sustainable future. Whether you prefer cash purchases, loans, or leases, your decision to invest in solar energy will ultimately lead to significant savings and provide a sense of certainty in an uncertain world. By choosing solar, you’re not just making an investment in your home; you’re contributing to a cleaner environment and securing a reliable energy source for years to come.
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