Can’t Afford Solar? Try These Financing Options

There are many ways to go solar and many ways to finance a home solar installation. How you pay for your rooftop array or solar roof has a big impact on your solar payback period and how much you save by going solar.

It costs around $16,000 for the average U.S. household to install solar. Knock off 30% at tax time for the federal credit and you’re still left with a cost of $11,200. You might also get a state tax credit, sales tax exemption, or rebate to reduce costs by another 5-35%, leaving a likely cost of somewhere between $8,000 and $10,400. (Note that you have to deduct state incentives before you calculate the federal tax credit.)

How do most people pay for home solar? The most common solar financing options include:

1. Getting a solar grant
2. Paying the full cost upfront in cash
3. Taking out a solar loan
4. PACE financing
5. Home equity loan
6. Signing a power purchase agreement (PPA) or lease with a third-party.

#1. Solar grants

The best solar financing option by far is a home solar grant. These don’t have to be paid back and are usually designed to make solar accessible for homeowners facing financial barriers. 

Grants are only available in some states and cities and for eligible homeowners, though. Many grant schemes have short application or enrolment periods and limited funds, so if you’re thinking of applying, do your research and plan accordingly. Otherwise, while you may technically qualify for a solar grant, it might not be there when you need it.

Here are a few of the solar grant programs available as of July 2022:

National grants

1. REAP Grants – Providing up to $20,000, the USDA’s Rural Energy for America Program helps farmers and small rural businesses install solar and other renewable energy systems. 
2. High Energy Cost Grants – These USDA grants help rural communities in areas with abnormally high energy costs improve access to renewable energy.
3. Renewable Energy Grants – The U.S. Department of the Treasury offers the 1603 Program to reimburse applicants who install a solar electrical system.

State or city grants

1. Colorado’s Weatherization Assistance Program (WAP) – Offers financial help for residents with high energy burdens to install rooftop solar PV.
2. The City of Boulder, Colorado, home solar grant program – created in 2020, this grant can cover up to 50% of your total project costs after rebates, incentives and tax credits. Intended for low- to moderate-income families (a family of four with an income below $102,450 a year, for example).
3. Delaware’s Delmarva Power Green Energy Grant – a straightforward grant which pays $0.80 per Watt, up to $8,000 total, for home solar installation.
4. Dunedin, Florida, offers a Solar Energy Rebate Grant Program at a rate of $0.25 per watt of solar power generated for a maximum grant of $2,500.
5. Philadelphia Energy Authority Solar Savings Grant Program managed by Philly Green Capital – provides grants for low- and moderate-income households to cover part of the cost of home solar. 
6. Commerce Rhode Island solar grants – available for residential and small-scale solar photovoltaic systems and domestic solar water heating systems. Solar PV grants provide $0.65/W for direct ownership, to a maximum of $5,000 per project. If you add energy storage, you can access an additional $2,000 for each project.

Other grants may be available, so check with your local government, energy authority, and with your chosen solar installer. You can also check the U.S. Department of Energy’s Office of Energy Efficiency and Renewable Energy and sign up to receive an email whenever new grants are released. 

For rural homeowners, communities, and agricultural businesses, the U.S. Department of Agriculture’s Rural Development offers information on renewable energy and electricity production loans and grants.

While grants are great, they’re not an option for most homeowners installing solar. Instead, the majority of solar energy systems are paid for using a combination of savings and loans.

#2. Paying in full upfront

If you can afford to pay for your home solar installation upfront, you’ll reap the biggest rewards and reduce your solar payback period. 

By paying for solar upfront, you own the array outright. This means you:

• Don’t have to pay interest on a loan
• Can access the federal solar investment tax credit (ITC)
• Can receive other rebates 
• Are eligible for net metering 
• Can sell your Solar Renewable Energy Certificates (SRECs)
• Benefit from increased property prices when it comes time to sell.

If you do plan on paying the full cost upfront, it’s essential to note that tax credits and rebates aren’t instant. Even if you qualify for, say, $8,000 back in rebates and credits on a $16,000 array, you still have to pay the $16,000 in full. Rebates can take a few weeks to months to make it to your bank balance and tax credits aren’t cash in hand; they just reduce the tax you owe each year.

In contrast to rebates and tax credits, sales tax exemptions do lower the upfront cost as installers include these in their pricing.

If you can’t spring for the full cost of a solar installation, chances are you can access a loan to help you out.

#3. Solar loans

It’s almost always better to buy your home solar system outright, rather than to lease equipment. This way, you’re eligible for more tax credits and other financial incentives, and you reduce your overall solar payback period. 

Fronting the full cost of a solar array is a challenge for many homeowners and businesses, though. Tax credits and rebates can take a few weeks or months to come through, while the full cost usually has to be paid once installation is complete. 

To help homeowners and businesses go solar, some utility companies, states, solar installers, and even advocacy organizations and non-profits offer low-cost or interest-free loans as well as PACE financing (which isn’t strictly a loan; more on this below). 

Low-cost, subsidized solar loans are increasingly common as banks, credit unions, and even local governments realize the value in incentivizing greater adoption of renewable energy systems. ‘Green’ loans tend to have generous interest rates, are more accessible for individuals and businesses with low credit ratings, and don’t penalize you for paying your loan off early.

Types of solar loans

In some cases, you may be able to access a solar loan that specifically covers the rebate portion of your installation. This kind of short-term loan (usually 12-15 months) assumes you’ll get the full tax credit of 30% and will pay off the full loan amount (without penalty) once you get your refund. 

Other loan options can cover the remaining 70% of the installation cost. You may be able to combine the tax credit loan with the additional loan to cover up to 100% of the cost of going solar.

Loans are sometimes provided through partnerships between the federal government and non-profit organizations, schools, tribes, and farms. Some utilities and credit unions also offer loans and grants, often in exchange for homeowners’ SRECs for a set period of time.

Solar loans are a particularly good option for newer homeowners who have the income to pay monthly installments but don’t have existing equity built up in their home to qualify for a HELOC or home equity loan. Interest rates are usually higher for these kinds of loans than for a mortgage, HELOC, or home equity loan but are much lower than paying for solar on your credit card or through most non-specific loans.

Solar loan programs to consider

Here are a few of the solar loan options available as of July 2022:

National Grid’s Connected Solutions battery program – eligible customers in Connecticut, Massachusetts, and Rhode Island, can take out a zero-interest HEAT Loan for the equipment and labor costs associated with installing a battery storage system. 

Delaware’s Energize Delaware Solar Loan program – offers low-interest loans to credit-qualified residents wanting to install home solar.

Kauai Island Utility Cooperative – members can apply for a $1,500 rebate or a zero-interest loan to replace their existing electric water heater or non-functioning solar water heater with a new solar water heater.

Hawaii’s Green Energy Money Saver (GEMS) Program – makes solar loans available to low-income homeowners. Monthly payments are built into customers’ utility bills after system installation.

Hawaii State Federal Credit Union – offers low-cost solar and photovoltaic loans with 0% interest and no payments for 24 months, after which interest rates may be as low as 7.70%.

The City and County of Honolulu solar loan program – offers low-cost, or even 0% interest loans up to a 20-year payment term for eligible low-income homeowners. 

Idaho solar loans – Eligible residents can access state-funded low-interest loans to install renewable energy system. Five-year loans are available up to $15,000 for residential and $100,000 for commercial solar installations with interest rates capped at 4%.

Maine’s Home Energy Loan program – Homeowners installing solar can borrow up to $15,000 for up to 15 years at a low interest rate.

City of Columbia, Missouri, Columbia Water & Light (CWL) – offers low-interest loans to residential and commercial customers for installing PV systems and solar water heaters. The maximum loan is $15,000 for residential and $30,000 for commercial customers, with 1% interest on a 3-year loan, 3% interest on a 4-5-year loan, and 5% interest on a 6-10-year loan.

Montana’s Alternative Energy Revolving Loan Program (AERLP) – provides low-interest loans with a 3.0% interest rate, 10-year terms and a $40,000 max loan amount. 

Montana’s Clearwater Credit Union – offers low-interest loans with a 3.9% interest rate over a 15-year term up to $75,000, with re-amortization options after you receive state and federal rebates.

City of Helena, Montana – offers homeowners loans for installing solar energy systems within the city limits of Helena. These are 0% interest loans with repayments added as an assessment on annual property tax bills.

Connecticut’s Smart-E Loans – families can borrow up to $40,000 for 5-12 years to install solar at a rate of 4.49-6.99%.

Florida’s Clay Electric utility – offers its customers rebates for solar water heating systems and solar window film and offers a loan program with loans up to $7,500 for solar thermal water heating and solar pool heating.

Florida’s Solar and Energy Loan Fund (SELF) – offers low-interest loans to install solar photovoltaic (PV) panels, a solar water heater, solar pool heater, solar pool pump, or solar attic fan, and window film and solar screens. The loans are unsecured, with interest rates as low as 7%, on 3-10-year terms, for up to $50,000.

City of Tallahassee, Florida, solar loans – residential and commercial electric customers can access low-cost (5% interest) loans to install solar water heaters and solar photovoltaic system, with payments made on monthly utility bills. 

The Nebraska Dollar and Energy Savings Loan Program – offers low-interest loans for residential and commercial energy efficiency improvements and renewable energy projects. The simple interest rates are 5%, 3.5%, or less and have terms of up to 10 years for solar projects.

NY-Sun loan program – offers low-cost financing options to residents facing barriers to accessing traditional financing. These include On-Bill Recovery, Smart Energy, and Companion loans for renewable and energy efficiency projects. Loans range from $1,500 to $25,000 with loan terms of five, 10, or 15 years.

New York State Renewable Energy Tax Credit Bridge Loan – residents can access a short-term loan to finance federal and state tax credits.

North Carolina’s Piedmont Electric Membership Corporation’s (PEMC) Energy Efficiency and Renewable Energy Loan Program – members can access financing for solar water heaters and solar panels through 5% interest loans of up to $10,000 for seven years.

North Carolina Electel Cooperative Federal Credit Union – offers energy-efficient loans from $5,000-$35,000 with repayment up to 10 years at low interest rates.

Ohio’s ECO-Link – offers low-cost loans for solar installations. Eligible borrowers can receive up to a 3% interest rate reduction on new or existing home improvement loans up to $50,000.

South Carolina’s Santee Cooper Smart Energy Loan Program for Renewable Energy – offers low-cost (currently 2% interest) loans with on-bill financing for qualifying residential customers. Loans are available up to $40,000, with customers transferring all SRECs to the utility for a period determined by the contract.

The City of Plano, Texas, Smart Loan program – in partnership with BTH Bank, offers low-cost financing for solar PV and solar water heaters as well as other residential energy improvements. The terms vary and are set by the BTH Bank, with loan amounts ranging from $2,500 to $25,000. 

Wisconsin’s Greenpenny solar loans – the virtual bank offers financing for solar and other renewable energy projects. Loans come with low interest rates (currently 4.75%), no prepayment penalties, and are accessible even for those with a low credit rating. Greenpenny currently offers a Solar Tax Credit loan option where you can borrow 26% of your solar installation cost for up to 15 months as a single-payment loan. Then, when you get your federal solar ITC credit back at tax time, you can pay off the full loan. The second option is a Residential Solar Loan with a repayment plan of up to 20 years to finance 74% of your project cost. You can also combine the loans to finance up to 100% of the upfront cost of installing solar. With the federal solar tax credit increasing to 30% as of August 2022, chances are Greenpenny will also increase its Solar Tax Credit loan option to reflect the new amount.

Wisconsin’s Clean Energy Credit Union – offers low-interest loans for solar installations. CECU offers both a 12-month or 18-month loan that covers your solar tax credit (i.e., up to 30% of the eligible project cost) and a 12-year, 15-year, or 20-year fixed rate loan on up to 74% of the eligible project cost. You can also choose to combine the loans.

The City of Milwaukee, Wisconsin, Milwaukee Shines solar program – provides low-interest loans to homeowners who install solar energy in the city. Loans are available up to $20,000 at prime plus 1.5%, with 15-year repayment periods, no fees or down payments and no penalties for early payment. Eligible projects include solar electric systems up to 6 kW, solar hot water systems (of 1-8 panels) and solar hot air. 

Washington’s Clark Public Utilities Solar Loan Program – offers low-interest loans, up to $30,000. Current interest rates are set at 4.99%, with loans up to $10,000 payable within five years, and loans over $10,000 payable in seven years. Loans for solar installations on manufactured homes are limited to $7,500.

Availability, eligibility, and terms of conditions of all the programs above are subject to change. Check with the provider for full, current details.

If you don’t qualify for any of the solar loan options above, you might want to consider taking out a solar loan from one of the many financial institutions, new and old, getting into the solar financing game. We look at some of the most popular solar loan providers here.

#4. PACE financing

Property Assessed Clean Energy (PACE) programs are an innovative way to fund energy efficiency upgrades and renewable energy projects, including solar. While many of these programs are restricted to commercial solar projects, some are available to finance home solar.

Unlike a loan, PACE is a voluntarily property assessment and the ‘loan’ is secured by the property. Payments are added to your regular property tax bill as a separate line item, so you just pay off PACE assessment on your usual property tax schedule. With some lenders, you may be able to make monthly payments into a mortgage escrow account instead. Any failure to pay typically results in the same set of repercussions as you’d see if you failed to pay your property tax bill.

Because PACE assessments are attached to the property, not the property owner, this kind of solar financing doesn’t affect your credit score. You may also have an easier time transferring the ‘loan’ if you sell your home. However, some mortgage lenders do insist you pay off the full PACE amount before refinancing or selling.

One big advantage of PACE financing is that the interest is tax deductible, which can help offset the cost of financing solar. With regular solar loans and HELOCs, etc., you can’t deduct the interest come tax time.

PACE financing is typically payable over a 5-20-year period and has a low interest rate. These programs are designed to give greater access to residential solar for people who might not qualify for more conventional loans due to a low credit rating and other issues.

PACE programs aren’t available everywhere. They usually have to be approved through state legislation and then authorized by local governments. Then, counties and cities can offer residential PACE programs themselves. 

PACE-enabling legislation is active in D.C. and 38 states. However, launched and operating PACE programs are only available in 28 states plus D.C., and most of these are commercial only. Residential PACE is currently offered only in California, Florida, and Missouri. Many more states are working to enable and launch active PACE programs for residential and commercial customers.

Municipalities can also allow residential PACE programs through public-private partnerships. This kind of PACE program is offered by Dividend and Ygrene.

What if you don’t live in California, Florida, or Missouri? If you’re interested in PACE as a way to finance your home solar project, check PACEnation to see if there are any programs set to launch where you live, or contact the providers above to see if they’re set to expand into your region.

#5. Home equity loans and lines of credit

If you don’t have access to a specialized solar loan, you may be able to finance solar through a home equity loan agreement or line of credit.

If you’re a homeowner with significant equity, check your eligibility for a low-cost home equity line of credit (HELOC). HELOCs are typically offered as a percentage of the value of your home and have a variable interest rate linked to the Prime interest rate. 

With a HELOC, you usually apply for or are granted a certain amount of credit. Instead of being a lump sum loan, you can then draw on the line of credit as needed. This is a great option if you aren’t sure how much your home solar project will cost or if you’ll actually need to borrow any money. With a HELOC, you only pay interest on money you withdraw, which can save considerable interest compared to an upfront loan. 

HELOCs are also great to have in case your project goes over budget. This way, you’re not scrambling to apply for an emergency loan with much less favorable interest and conditions. That said, read the small print before applying for a HELOC. These loans use your home as collateral, meaning if you can’t pay back your loan, the bank can repossess your home.

Similar to HELOCs, a home equity loan uses your home as collateral. The difference is that these loans normally have a fixed interest rate and are awarded as a single lump sum. If you know exactly how much you’ll need to finance your solar project, this kind of loan is a good option, especially if you can lock in a low interest rate.

You can also ask your existing mortgage provider about refinancing to borrow a little extra for your solar installation. Depending on your current mortgage rate, this may be better than a line of credit or home equity loan! 

All of these options are more likely to have lower interest rates and more generous payback terms than a straight-up unsecured bank loan. If you do take out a line of credit or add to your existing mortgage, make sure you read the terms and conditions first. And if you can pay off a chunk of the loan without penalty once rebates and tax credits come in, do it!

Conventional loans

If you’ve maxed out your mortgage and can’t access a HELOC or home equity loan, you may still be able to access other types of loans. These more conventional loans come with higher interest rates and harsher payment terms. 

A conventional loan can be a good option in the case of short-term cash flow issues. For example, you might use a small loan to bridge the cost of going solar while waiting for a rebate of a few hundred or thousand dollars. Other cases where conventional loans may make sense include where you have savings in a bond or certificate of deposit (a GIC in Canada) but would be penalized for withdrawing those savings early. The cost of interest on a short-term loan may, in this case, be less than the interest you’d lose by withdrawing your savings a month or two early.

#6. Signing a power purchase agreement (PPA) or lease

If you don’t have the savings, can’t access PACE, and don’t want to take out a loan, you might consider signing a power purchase agreement (PPA) or lease to go solar at home. PPAs are also a great option for homeowners who want many of the benefits of home solar but feel overwhelmed by all the decisions involved and the upfront expense.

In short, a PPA is a contract between a homeowner and solar developer, agreeing that the developer will install and manage a home solar energy system on the homeowner’s property. Under these agreements, homeowners get to use the electricity generated by the rooftop array (at a reduced cost) without having to pay for the installation. Under a PPA, the developer chooses installers, builders, and the technology, and organizes all the paperwork for the system.

With a PPA, the developer, not the homeowner, owns the solar energy system. This means the developer has the rights to any renewable energy credits, rebates, and tax incentives, as well as any proceeds from net metering. The benefits to the homeowner are, as stated, no upfront costs, no obligation for maintenance, and the ability to use any electricity generated by the system at a reduced rate compared to retail electricity prices.

For homeowners, the benefits of PPAs include:

• Less financial risk
• A reduced monthly energy bill from lower energy costs
• Increased home value
• Energy independence
• Fewer headaches over decision making
• Little to no maintenance.

The downsides of PPAs for homeowners include:

• Entering a long-term contract
• Higher property taxes (potentially)
• The possibility of early termination fees
• Possible fees for site upgrades (such as tree trimming) if your property proves unsuitable
• No ability to earn credits from net metering
• No access to tax incentives or rebates associated with solar projects
• No say in the type of solar panels, solar inverter, or the addition of a solar battery
• No long-term benefits of ownership.

Before signing a PPA, be sure to read all the terms and conditions and understand them. Ask for legal advice if anything is unclear. These contracts often last 10-20 years and have early termination fees and other potential penalties. 

You may also see significant increases in your property tax after installing solar, depending on where you live. Check to see if there’s a property tax exemption you can use, or be prepared to pay more come tax time. If this doesn’t offset your savings on your energy bill, a PPA might not be the financially smart way to go solar.

A solar lease

PPAs are different from a solar lease. When you lease solar panels, you pay to rent the panels every month. While you don’t technically own the panels, you may be able to claim the RECs associated with the panels’ production. With a PPA, you’re paying a reduced cost to use the electricity generated by the panels someone else owns, and the developer retains all rights to the RECs.

Solar leases come in various shapes and sizes, so check the terms and conditions of any contract offered and compare options to find one that works for you. 

The best way to go solar at home is the way that works for your family now and in the future. If you can afford a down payment or can access low-cost financing, ownership is a great option, especially if you want to collect the tax incentives. If you want to avoid the upfront costs and there aren’t good state and local rebates or financing options where you live, leasing can be a good option, as can a PPA.

Other ways to lease solar

We’ve looked at a lot of different ways to go solar at home, but we’re not done yet!

In several places in the U.S., homeowners can access attractive Solar for All programs. These offer leasing for income-qualified residents who can’t or don’t want to install solar themselves.

Three notable programs are offered in Washington D.C., Illinois, and Louisiana:

• Washington D.C.’s Sustainable Energy Utility (DCSEU) Solar for All – local solar contractors design and install solar PV systems at no cost to income-qualified homeowners. The systems can offset homeowners’ electricity costs by up to $500 per year. The program also funds community solar projects to increase access to solar for condo owners, renters, and others who can’t install rooftop solar themselves.
• The Illinois Solar for All program – helps low-income households install solar panels with no upfront costs. Qualifying households pay a reduced monthly fee for power produced, up to a maximum of 50% of the value of the energy produced.
• Louisiana’s Solar For All NOLA program – offers solar leasing options for homeowners in New Orleans. Qualifying homeowners can install solar panels with no money down and with no loan. 

Final thoughts on solar financing options

There are many ways to finance a home solar installation. Your options will depend on where you live, your current mortgage and financial situation, the size of your project, and other factors. 

If you can, it’s usually best to own your home solar array outright. If you don’t have enough in savings right now, you may want to consider taking out a loan for a few years. Why? Because the federal tax incentive decreases to 22% at the end of 2022 and then expires in 2024. Most short-term loans (unless they’re very bad) won’t cost you as much as the federal tax credit will save you in taxes. If you have a low tax burden, though, and there are few or no state or local rebates where you live, a PPA or solar lease might be a good option.

Looked at one way, a solar loan is like shifting the money you used to pay your utility company every month to paying your monthly loan installments. And after a few months or years, you’ll have paid off your loan and will have free electricity!