Solar financing options seem bewilderingly complex with cash purchases, loans with various terms, leases, and Power Purchase Agreements (PPAs) all claiming to be “best.” The truth? Each option works well for specific situations. This guide breaks down the real pros and cons of each payment method so you can choose what matches your financial goals.
UNDERSTANDING YOUR OPTIONS
Let’s start with clear definitions of each payment approach.
Cash Purchase: You pay the full system cost upfront, own the equipment immediately, and receive all financial benefits including tax credits and energy savings.
Solar Loan: You finance the system through a loan (secured or unsecured), own the equipment from day one, claim tax credits yourself, and make monthly payments until paid off.
Solar Lease: A third-party company owns the equipment installed on your roof. You pay fixed monthly lease payments (typically escalating annually) in exchange for the electricity the system produces.
Power Purchase Agreement (PPA): Similar to leasing, but instead of fixed payments, you buy the electricity your panels produce at a predetermined rate (typically lower than utility rates).
Each serves different financial needs and priorities. Let’s examine them in depth.
OPTION 1: CASH PURCHASE
Paying cash upfront delivers the best long-term economics but requires substantial available capital.
How It Works:
- Total system cost: $30,000 (example)
- Federal tax credit (30%): $9,000
- Net cost after tax credit: $21,000
- Annual savings (utility costs avoided): $2,100
- Payback period: 10 years
- Years 11-30: $42,000 additional savings (pure profit)
Advantages:
Highest Total Return: You capture 100% of system value including:
- All energy savings
- Full federal tax credit ($9,000 on $30,000 system)
- State incentives where available
- SRECs (Solar Renewable Energy Credits) in applicable states
- Home value increase ($15,000-25,000 typical)
No Interest Costs: Avoiding loan interest saves thousands over system lifespan.
Simplest Ownership: No monthly payments, no contracts, complete control.
Best Payback: Typically 7-10 years, then 15-18 years of free electricity.
Disadvantages:
High Upfront Cost: $20,000-40,000 is substantial capital many households don’t have readily available or prefer deploying elsewhere.
Opportunity Cost: Money used for solar can’t be invested in other opportunities potentially yielding higher returns.
Liquidity Impact: Tying up significant cash reduces financial flexibility for emergencies or other needs.
Who Should Consider Cash:
✓ Have substantial savings or investments easily accessible ✓ Prefer ownership without long-term payment commitments ✓ Want maximum lifetime savings and return on investment ✓ Have sufficient tax liability to use full 30% credit ✓ Don’t have better uses for capital yielding >8-10% returns
Real Example:
The Anderson family had $35,000 in a savings account earning 0.5% interest. They paid $28,000 cash for solar (net $19,600 after tax credit). The system saves them $230 monthly ($2,760 annually). Their money went from earning $175 annually (0.5% on $35,000) to effectively earning $2,760 annually (14% return on $19,600 net investment). The decision was easy.
