Installing a solar panel system can be an expensive endeavor. But there are ways to reduce upfront costs and pay back your system over time.
Cheap panels can be an attractive option for homeowners, but it is always wise to shop around to find the best deal. This includes comparing panels based on quality, power output, brand and warranty.
Paying in Full
One of the cheapest ways to obtain solar panels is to pay in full. This eliminates any need for financing your system and you can start enjoying savings immediately after installation.
Another option is to enter into a lease or power purchase agreement (PPA), in which a third party owns your solar panels and sells you electricity at a lower rate than what you would pay the utility company. This type of solar financing could be suitable for homeowners with poor credit who may not qualify for traditional loan financing options.
Homeowners also have the option of working with a property assessed clean energy program called PACE, which finances solar projects and remits payments over 30 years through an increase on their property taxes. Unfortunately, these programs aren’t available in every state.
Financing
Financing solar panels comes in many forms; some can be obtained through your local utility or private company; meanwhile, other lenders specialize in helping homeowners finance their solar projects.
Financing allows you to defer the full cost of your solar system and pay it back over time. Your loan length, monthly payment amount and APR will depend on your credit profile, debt-to-income ratio and capacity for making large payments.
A federal tax credit of up to 30% on solar panel installation costs can reduce your monthly loan payments and remortize the loan, helping you save even more. Some companies provide zero-down loans that cover the full cost of installing your system.
You could finance your solar panels with a home equity line of credit or mortgage loan. Both options require some form of collateral, but they offer lower interest rates and long repayment periods.
Power Purchase Agreements
If you’re looking to reduce your electricity costs without investing in a solar system outright, power purchase agreements (PPAs) are an ideal solution. Under these contracts, your energy partner designs, builds and maintains your solar system at no upfront expense to you; additionally, you pay a fixed rate for electricity throughout the duration of the agreement.
For the cheapest way to acquire solar panels, customers can sign a physical power purchase agreement (also known as a physical PPA or financial PPA). Through a physical PPA, customers obtain ownership of the energy produced at a specific site through their local grid.
In some physical PPAs, RECs are released to the customer at the end of their contract term. If your customer plans on making green power use claims, it’s essential that they comprehend how RECs are handled within their particular agreement.
Tax Credits
There are various methods available to reduce the upfront costs of solar installation. These include utility incentives and state government tax credits.
Congress extended the federal tax credit for residential solar to 30% with the Inflation Reduction Act of 2022; however, this credit will expire at the end of 2023 unless Congress renews it once more.
Tax credits can be claimed on your income taxes and amount to a dollar-for-dollar reduction of your final tax bill. Unlike deductions, which reduce taxable income, tax credits do not depend on marginal tax rates.
The amount of this credit will depend on the size of your system and how much energy it produces. Furthermore, some states provide subsidized loans for solar installations; check with your local contractor to learn what incentives may be available in your area.