US Solar Financing

Learn more about solar financing, solar investments, and the return on investments

Key Details

• Homeowners can choose from different financing options such as cash purchase, lease, and solar loan.
• The average cost of a 6Kw solar panel system is $2.86/watt without Federal tax credits.
• Factors like size, type, brand & quality, location can affect the overall cost of a system.
• Third-party ownership covers leased or power purchase agreements where a homeowner buys power from a third-party at lower rates than electricity retail rate.

Solar energy is on the rise in the United States. As of 2023, more than 2.5 million United States residents generate energy with solar installations. Also, the United States Energy Information Administration (EIA) forecasts that solar energy will account for 20% of energy generation by 2050.

Solar panels have also become more affordable. According to an EIA report, the average construction costs for solar photovoltaic systems have been on a steady decline over the last decade.

As of 2023, there are different financing options tailored to the economic status of different homeowners in the United States. These financing options make ownership and acquisition of solar panels easier. More importantly, solar panels have proven to yield an impressive return on investments for homeowners in the United States.

What Solar Financing Options are available to me in the US?

Solar financing options help lessen the economic burden of installing solar technology for homeowners in the United States. The three main options include the Cash Purchase option, the Lease option, and the Solar Loan option.

Cash Purchase Option

With the Cash Purchase option, homeowners pay the upfront cost of the solar panel. Aside from outright ownership, the upfront purchase allows a homeowner to maximize their savings on the Solar energy system.

An upfront investment in a solar energy system typically yields the greatest return for homeowners. With outright ownership – especially for a capacity suited for your home – you are protected from the cost of power purchase in your state for decades.

You also get to enjoy the return on investment faster than the other solar financing options. Also, you are not bound by any third-party conditions of energy consumption.

However, a solar energy system costs between $20,000 and $30,000 in any State in the US. This is apart from installation costs. As a result, the cash purchase option may not always be a viable solution for low-income families or small and medium enterprises who may not be able to afford the option.

State rebates, tax incentives, and financing incentives help cushion the economic effect of an upfront purchase.

The Solar Loan Option

Solar loans are loans directed toward the acquisition and installation of solar energy systems. With this option, you would essentially borrow to purchase a solar energy system.

This option allows you considerably reduce the economic burden of purchase while enjoying the benefits peculiar to ownership. The Federal government and some states in the United States offer some low-interest loans to citizens to purchase solar energy systems or appliances powered with solar tech.

Relative to cash purchases, it is cheaper and easier to afford. However, it takes longer to make a significant return on investment.

The Property Assessed Clean Energy (PACE) program, which is run by several States in the US, is a type of solar loan option. As of 2023, 31 out of the 50 States in the United States have programs that enable PACE. The scope of PACE programs differs with states.

While some may cover solar energy systems, most cover energy upgrades, appliances, photovoltaic systems, and other forms of solar technology. Apart from State-run PACE programs, private or investor utility companies also have property-assessed clean energy programs.

Solar Leases and Power Purchase Agreements

For homeowners that prioritize ease of payment over return on investment and incentives, this may be the best option. Solar leases and Power purchase agreements allow a homeowner to enjoy the benefits of solar energy without necessarily owning it. With this option, homeowners acquire a solar lease or a power purchase agreement.

The power purchase agreements stipulate the conditions of payment and energy consumption. Also, with this option, homeowners are not entitled to any form of solar incentive whatsoever on the leased solar energy system.

Aside from the cost-friendliness, homeowners are not responsible for the upgrade and maintenance of leased solar energy systems. Essentially, the energy system is as limited a liability as it is an asset.

How much will my Solar Energy System Cost?

As of 2023, the average cost of a solar energy system in the United States is $2.86 per watt without taking the Investment tax credit into account. Since the 6kw is the most common solar panel size for homes in the United States, it would cost an average of $17,160 dollars without the Federal solar tax credit.

However, with the Federal solar tax credit, a 6kw solar energy system in the United States would cost $12,012 on average.

Depending on the state and the types of Federal incentives a homeowner takes advantage of, the cost may be considerably lower than this – per watt or for a 6Kw.

Factors that affect the Cost of Solar Energy Systems?

Different factors affect the cost of a solar energy system. Some of these include

• Systems Size: This is an important variable for pricing solar energy systems. The bigger the capacity of a solar energy system, the more energy it can generate and the more it costs to purchase. The average price for a 10kw solar energy system, for instance, is $28,600 in the United States.

• Panel Type: There are three major types of solar panels. There is the Monocrystalline solar panel, which averagely costs about $1 to $1.5 dollar per watt. The monocrystalline panel is regarded as the most energy-efficient solar panel, especially for households. There is also the polycrystalline solar panel which averagely costs about $0.9 to $1 per watt. The last major type is the thin-line solar panel; this type also costs between $1 to $1.50 on average in the United States.

• Brand and Quality: US Solar companies have different pricing metrics; this may also affect the cost of solar panels. Depending on the brand, the solar energy system may cost more or less than the average. Furthermore, panel brand may or may not determine panel quality. However, quality panels – and brands they are attributed to – may sell for more than the National average.

• Location: Aside from state-specific, state-specific incentives and rebate programs may considerably reduce the cost of solar panels.

Aside from the cost of the solar energy system, other factors influence the cost of installation and, therefore, the overall cost of the energy system. These factors include

• Roof type: The type of roof, proximity to the sun, angle of elevation, and roof size, among other factors, determine the ease of installation. The easier the installation, the cheaper the cost. The ideal angle of elevation optimal for solar installation is 30 degrees facing southward.

• Cost of Interconnection: The cost of connecting a solar energy system to the grid significantly affects the cost of installation and the overall cost of the system. The same applies to the cost of getting permits for interconnection and operation, especially in the instance of net metering.

• Labor: The actual cost of labor – by contractor or company – significantly affects the cost of installation and overall cost of solar panels.

• Cost of Solar Batteries: Solar batteries for homes may differ in price depending on the energy capacity of the home.

How Long Does it take for Solar Panels to Pay for Themselves in the US?

The average solar payback time in the United state is between 9 to 12 years, depending on your state. Aside from the location factor, there are other conditions that influence the solar payback period in the United States.

As a homeowner, it helps to know these factors. This knowledge may not necessarily help to arrive at a quantitative value in time for solar ROI. It, however, allows you to get a numerical estimate of solar payback time if you reside in the United States.

You can get specific numeric values by using digital solar calculators. Here is a brief breakdown of these factors:

• Cost of Solar Energy System: Systems cost differently depending on the size, weight, number, company, type, and even brand. A higher upfront cost translates to a longer solar payback period. Affordable energy systems pay themselves back quicker and more easily than relatively unaffordable ones.

• Cost of Electricity: Solar payback periods are shorter for states, regions, or counties with higher costs of electricity. Solar panels can offset as much of the cost as possible in a shorter time. In that sense, the solar payback period may be shorter for homeowners in Hawaii relative to those in Washington.

• Solar Incentives and Rebates: Incentives, rebates, and energy metering policies contribute significantly to the solar payback period. States with sophisticated solar incentives and rebates have a shorter payback period. Also, states with friendly net energy metering policies have a shorter payback period relative to others. Essentially, the more and better the incentives, the shorter the payback period.

• Energy Consumption: The energy demand for a household is inversely proportional to the payback period. The higher the energy consumption rate of a household, the shorter the solar payback period for such households.

• Systems Efficiency: More Efficient Energy systems have shorter payback periods relative to other solar panels. The better your solar panel operates, the quicker it is for you to earn your money’s worth.

• Exposure: States and houses with better exposure to sunlight may have shorter payback periods than states with limited exposure.

• Cost of Installation: The cost of installing a solar energy system adds up to the overall cost of the system. The higher the cost of installation, the longer the solar payback period.

What does it Mean to go Solar through Third-party Ownership in the US?

Third-Party ownership is a financing option available to residences, commercial establishments, and local governments. It is borne from the collaboration between a consumer and an investor toward a symbiotic energy relationship.

In this method of ownership, the third party –for example, an investor utility company– purchases, maintains and operates the solar energy system on the consumer’s property. They also retain rights and privileges of ownership.

Essentially, third-party ownership may be solar leases or power purchase agreements. With the Power purchase option, the consumer benefits by buying solar power from a third party at a cost usually lower than the electricity retail rate. With the lease option, however, the consumer contract requires them to pay the investor for the direct use of the solar energy system for an established period of time.

In most cases, third-party ownership options are the most affordable for financing solar panels in the United States. Ownership agreements involve a documented contract that may last between 10 to 25 years.

Will Going Solar Affect My Insurance in the US?

Most insurance plans in the United States consider a rooftop installation as part of a house, regardless of what’s installed. As a result, solar energy system installations are covered by most household insurance in the United States. By implication, a solar energy system, most times, should not change the household insurance plan nor increase its premium.

However, depending on company policy, it is not impossible that the company insurance policy does not totally cover add-ons. In some cases, insurance policies only cover 20% of the damage dealt to an add-on in the instance of a disaster. In such a case, you may need to get an add-on policy or make another insurance plan for your solar energy system. Solar insurance is necessary, especially considering the cost of purchase, installation, and operation.

How will Solar affect my Home Value if I Want to Sell in the US?

Installing a solar panel definitely affects the home value, but how and by how much? Here is a breakdown of some of the value-added effects of solar panel installation on a home:

• It increases Property Value: Solar Panels literally increase the property value of a home. Some studies have stipulated that a solar energy system can increase a house’s property value by about 4-5%. Also, homes with solar installations pay more in property tax than ones without. The increase in property tax can be avoided by claiming the Federal solar tax credit and other state-specific tax incentives and rebates in the United States.

• Lowers the Cost of Energy Purchase: With solar panels, houses pay significantly lower than the average cost of electricity in the United States. Houses with full-capacity solar panels can totally offset the cost of electricity in a monthly generating cycle. The cost offset adds significant market value to the house.

• Incentives and Benefits: The Federal government and individual state governments in the United States have incentives – in tax, cash, and loans – for solar energy systems. These incentives can be transferred with the sale of a solar energy system. In the market context, this is a significant value-adding selling point.

• Other benefits of the solar panel that increase its value are its environmental friendliness, durability, and sustainability.

Factors that Affect How Much Value a Solar Panel Can Add

Different factors may influence how much value a solar energy system adds to a home. Some of these include:

• Location: Depending on where a house is situated, access to sunlight and availability of solar incentives may significantly affect how much value the solar panel can add. States with sophisticated solar energy policies and access to sunlight attach more value to a home with a solar panel.

• Cost of Electricity: The higher the cost of electricity – at the retail rate – the more cost a solar energy system can offset. After installing a photovoltaic system, the property of your home may appreciate better in Hawaii relative to Washington.

• The Age of the Photovoltaic System: New Systems hold much value property-wise relative to older ones. New PV systems promise more durability and more efficiency and thus will significantly influence the perceived and actual value of a house.

What happens if I Produce more Electricity than I use in the US?

It is possible that your solar energy system generates more electricity than you (can) consume. In this situation, you can take advantage of a process known as Net Energy Metering.

This process allows you to sell excess electricity for electricity credits in the United States. Depending on where you reside, you may be entitled to Net metering on account of state legislation or utility company policy. Also, depending on whether net energy metering is state-mandated, voluntary, or suggested by the Utility company, the conditions for compensation may differ.

The general idea is to sell excess power back to the grid for redistribution. Depending on the state, you may be credited upfront in dollars. You may also be credited at wholesale or at the full retail rate of electricity in the state. This way, the state governments protect the grid by minimizing load. They also encourage private investments in solar energy systems and encourage a semi-autonomous yet regulated energy market.

As of 2023, 33 States in the United States offer Net Metering. Here is a brief table that shows the US states that offer Net metering

Net Metering in the US

What Are Solar Renewable Energy Credits

At the mega end of excess solar energy generation, there are Solar renewable energy credits (SRECS). These credits represent the sustainability value of your solar energy system. SRECs are different from net energy metering credits because, with SRECs, you are not necessarily selling electricity. So, how does it work?

The Solar renewable energy credit is proof that you generate green energy. Consumers and generating facilities are credited for every 1000 Kilowatts of electricity they generate. These credits can be sold to utility companies; they are mandated to purchase a specific number of credit vouchers on an annual basis as proof of sustainability. The amount is dependent on the stipulation of the state’s renewable energy portfolio for states that have one.

Utility companies that generate green energy may generate enough electricity to provide the required number of renewable energy credits. Some opt for purchase; they buy renewable energy from facilities to sell to consumers.

Sometimes, even utility companies with their own solar energy source have to buy from consumers and private power-generating facilities because they do not have enough.

Sometimes, the price of renewable energy credit is dependent on the credit supply chain. At other times, companies are willing to pay according to the price of the alternative compliance payment if they cannot meet the sustainability conditions. To sell Solar renewable energy credit in the United States, you must:

Register your solar energy system. Ideally, US Solar companies take care of this process. They register the system to the Public Utilities company and submit it for tracking at the General Attribute Tracking System (GATS). These systems apply to states within the jurisdiction of the PJM. GATS approval takes about 3-5 days.

If your SERC is outside the 13 states, you can direct your inquiry to the SERC trade company. In the event that your energy system is not registered, you should use the service of the SERC company.

You can sell all the SERC rights at an upfront cost or sell through a SERC contract. Upfront sales are safer; you don’t have to worry about future fluctuations in the credit market. However, you earn significantly less by selling the rights upfront. With the contract option, you receive a check from the aggregator every time you hit the energy trademark for a SERC. Also, you will be taking a risk. The returns on your credit are subjected to the fluctuations of the credit supply chain.

The spot market provides an alternative for SERC sales. With this option, you wait for the SERC market to open before you sell your credits. You are required to sell within three years of earning the credit. However, you are subjected to price fluctuations and even total loss if the market does not open.

How Do I Get Compensated for Generating Excess Energy in the United States

Net metering is one uniform way of getting compensated for generating excess energy. First, the amount of solar energy you generate offsets the cost of electricity. Also, you can sell excess electricity back to the grid for credit or payment in cash.

The modalities for Net Metering differ with states. In Colorado, for instance, consumers get paid the full retail rate per Kilowatt hour of electricity. In Minnesota, however, customers are credited above the retail rate of purchasing electricity.

In states like Arizona, net metering was repealed in 2016 in deference to paying customers at an avoided cost rate. For states like Utah, electricity is metered at the Wholesale rate, and customers are paid considerably lesser than the full retail rate.

In some states, the Net metering option is not available. A close compensatory alternative is the Feed-in-tariff option.

Feed-in-Tariffs are essentially long-term contracts where consumers are paid a fixed rate on the excess renewable energy they generate. For instance, the Virgin Islands in the US have a Feed-in-Tariff of $0.26 per Kilowatt hour for energy systems between 10 and 500 Kilowatts.

To qualify and apply for Net Metering in the United States, the following conditions are generally necessary:

• Your energy source must be renewable. The policies extend to include Wind energy, biomass energy, and hydroelectricity.
• The applying energy system must be customer-owned. Utility companies – whether public or investor-owned – cannot apply for Net energy metering.
• The Solar energy system must be interconnected. The very basis of net metering is re-distribution; you must be able to send energy back to the distribution grid.
• You must also install a bi-directional meter. This allows the house or facility to measure the electricity flow between the grid and the solar energy system.
• The solar energy system must meet the safety and regulatory conditions of operation.
• The solar energy system must be within the jurisdiction of the state you are applying to. This also applies to utility companies; you cannot apply outside to a utility company that doesn’t supply you.
• Finally, the solar energy system must meet the size requirements of the state. In Washington, for instance, solar energy systems up to 100 Kilowatt are mandated to meter their electricity.

Aside from these conditions, the following parties are generally not eligible for Net energy metering in the United States:

• Non-residential consumers of energy: Generally, commercial and industrial establishments are not eligible for Net energy metering in states.
• Energy consumers that operate under a power purchase agreement or use a leased energy system are not eligible for net metering.
• Consumers under community solar energy programs are not eligible for net metering in whatever manner whatsoever.
• Residences with solar panels that are not certified by the relevant regulatory and solar safety agencies.

What are the Benefits of Owning my System?

Upfront ownership of a solar energy system has the following benefits:

• Cost Saving: Upon purchase, a homeowner can take full advantage of all of the financial benefits associated with owning a solar energy system. This includes tax credits, rebates, and other financial benefits. Also, the homeowner enjoys the full value of the solar energy system in avoided/offset electricity cost.

• Energy Independence: Owing a solar energy system allows you full autonomy of your energy. You are no longer bound to or dependent on a third party for regulation and control. This independence may be particularly beneficial in instances of power outages or grid collapse.

• Custom Design: Upfront ownership allows you better control of the specifications of your energy system. You can autonomously make design and maintenance decisions and tailor the system to your specific preferences.

• Better Return on Investment: Owning your own system allows you a return on investment. Your solar payback time is relatively shorter, both as a result of avoided cost and government-allocated solar incentives.

How do I Read my Electric Bill?

After a solar installation, your electricity bill will read slightly different from the original. The new bill will include the amount of electricity you export to the grid (Outbound energy). The most important pieces of information on an electric bill include:

• Account information: This includes your service address, account number, and billing period
• Rate information: The bill also explains the different rates at which you are charged for electricity. Your rate schedule may be residential, community, industrial, or commercial
• Payment Information: The bill shows the payment due date, previous balances, credits, current balance, and penalties for late payment.
• Usage information: This is based on your actual or estimated meter reading
• Charges and Fees: The bill includes taxes, distribution charges, delivery charges, transmission charges, and any other fee you owe for the billing period.
• Power usage comparison: The bill compares your power usage for the billing period with the previous year or with other households in your neighborhood.
• Contact information.

A typical electricity bill may also contain customer service information, meter information, and a definition of common energy terms necessary for reading the bill and paying for power.

To read your electricity bill, you need to follow these steps:

Step 1. Identify the billing system and bill type you are reading: Is it measured in Kilowatt-hours? Is it in British Thermal Units? Bills are usually labeled, so you just need to look carefully enough.

Step 2. Understand your billing plan: Are you charged on a monthly basis? Do you operate a monthly budget billing plan? This allows you to estimate your average consumption per cycle and compare it with other bills.

Step 3. Know the breakdown of the charges in the bills: Aside from the electricity consumption, you need to know what other services you are charged for. Ideally, households are charged mainly for electricity supply and transmission.

The transmission fees are used for meeting labor demands and maintaining the grid. You also need to look out for taxes and other miscellaneous fees. For a solar energy system, you may need to take note of the charges of renewable energy and energy efficiency.

Step 4. Calculate your monthly electricity consumption: An electricity bill includes information about your daily usage. Some bills include your monthly consumption. This information can also be found on your meter.

If you own a solar energy system, your meter reading may differ from the amount on the bill. The difference between the two values should account for the amount of energy you generated individually for that billing period.

Step 5. Calculate the cost of electricity: You can confirm that your bills are correct by dividing the total amount charged by the amount of electricity you consume. You can compare this result with the average cost of electricity in your locality.

For a residence with solar energy systems, the payment information carries the original cost of electricity based on your consumption rate and the amount you have earned in credits from the outbound supply. The eventual cost you should pay would significantly reduce.

Some state bills may include the exact cost of electricity for you. However, you may deduct the credited amount from the original consumption cost to get the value you will pay for the billing cycle.