Tuesday, October 3, 2023
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How To Finance Your Solar Panel Installation

Solar energy has the potential to deliver clean, renewable power and is transforming energy consumption. Harnessing the sun’s energy not only helps reduce our carbon footprint but also offers a viable alternative to traditional energy sources. 

However, switching to solar power is a significant investment. Solar panel installation requires substantial upfront costs; without proper financial planning, these costs can pose challenges. Understanding the cost to finance solar panels, exploring various funding options, and strategic planning can significantly ease the financial burden. 

This article will discuss in detail how you can make the transition to solar energy smoother and more affordable:  

1. Understanding State And Local Solar Incentives 

Beyond the federal level, numerous state and local solar incentives are available. These vary significantly from one location to another, but they all aim to promote the use of solar energy. 

Solar Renewable Energy Certificates (SRECs) are a prime example of such incentives. In certain states, solar panel owners can earn an SREC for each megawatt-hour (MWh) of solar energy they generate. These certificates can then be sold on the open market, providing additional income. 

Local incentives and rebates can also offset the upfront solar panel installation costs. Many utilities, cities, and counties offer cash rebates for installing solar panels, which can make the switch to solar more affordable. 

2. Exploring Solar Loans 

Solar loans are another financing option. These loans come in two types: secured and unsecured. Secured loans require some form of collateral (often the property itself), while unsecured loans do not. However, secured loans often have lower interest rates. 

Applying for a solar loan is like applying for any other type. It requires a good credit score and solid proof of income. Shop around and compare different lenders’ interest rates, fees, and terms. 

While solar loans enable immediate ownership and tax benefits, they also require monthly payments with interest. Considering these factors is crucial when deciding whether a solar loan is right for you. 

3. Utilizing Federal Solar Tax Credits 

Federal solar tax credits, a form of Investment Tax Credit (ITC), play a substantial role in solar panel financing. The ITC allows homeowners and businesses to save tax by deducting a certain percentage of their solar costs from their taxes. The ITC has been instrumental in the solar industry’s growth, making solar energy more accessible to the masses. 

To be eligible for the ITC, you must own the solar panel system. This means leases and Power Purchase Agreements (PPAs) do not qualify. Claiming the ITC involves filling out IRS Form 5695 and including the results in your tax return. 

As for the future of federal solar tax credits, it’s a subject of ongoing legislative discussion. While it’s currently slated for a phase-out, efforts are underway to extend the ITC.

4. Considering Solar Leases And Power Purchase Agreements (PPAs) 

Solar leases and PPAs offer a way to install solar panels without the significant upfront cost. With a solar lease, you pay a fixed monthly rent in exchange for the energy the system produces. In a PPA, you agree to purchase the power generated by the system at a fixed per-kilowatt-hour price. 

Both options their pros and cons. Leases and PPAs require minimal upfront costs but limit the financial benefits since the user does not own the system. When deciding between a lease and a PPA, weighing the financial and practical implications of each is essential. 

5. Opting For Energy-Efficient Mortgages (EEMs) 

An Energy-Efficient Mortgage (EEM) can be an effective way to finance solar panels. EEMs allow homeowners to include the cost of energy-efficient upgrades, like solar panels, into their mortgage. 

To secure an EEM, you’ll need a home energy assessment. This assessment identifies potential energy-saving improvements and their costs. Based on this, the lender determines the mortgage amount. EEMs can increase your mortgage payments, but the decrease in your energy bills may offset the added cost. 

6. Participating In Community Solar Programs 

Community solar programs offer a unique opportunity for those who cannot install solar panels on their property. In a community solar program, you purchase or lease a share of a larger solar farm in your area. 

Such programs have their upsides and downsides. They allow access to solar power without needing individual installation, but the financial returns may be less than if you owned the system outright. 

Participation in community solar programs is typically based on a subscription service. You pay a monthly fee and, in return, receive credits on your electric bill based on your share of the solar energy produced. 


There are numerous financing options for solar panel installation. Each option has its advantages and disadvantages, and what works best largely depends on individual financial circumstances and goals.  

Investing in solar energy is not just a choice for the environment but also a significant financial decision. Being informed can make this decision a positive step toward a sustainable future.

Ajeet Sharma, the founder of Financegab and a well-known name in the field of financial blogging. Blogging since 2017, he has the expertise and excellent knowledge about personal finance. Financegab is all about personal finance which aims to create awareness among people about personal finance and help them to make smart, well-informed financial decisions.


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