Cash, loan, lease or PPA: choosing how to pay for solar

Two neighbors can install identical systems and end up with very different results because they paid for them differently. The right choice depends on your budget, your tax situation, how long you plan to stay in the home and how involved you want to be in ownership.

Here is how the four main options compare, using the same sample 7.8 kW system for illustration.

Cash purchase

Paying cash gives you the lowest total cost over the life of the system and usually the fastest payback. You own the equipment, keep any incentives you qualify for and typically add resale value to your home.

The tradeoff is the upfront investment. For a sample $21,600 system, that is money that could otherwise sit in savings or be used for other projects. Homeowners who choose cash usually plan to stay at least seven years.

Solar loan

A solar loan lets you own the system with little or no money down. You make a fixed monthly payment for a set term, often 10 to 25 years. In many Valley homes, the loan payment plus the smaller remaining utility bill is close to or below the previous utility bill from the first month.

Interest raises the total cost compared to cash, so read the fine print. Watch for dealer fees built into low advertised rates, and ask whether the loan has a prepayment option without penalty.

• Ownership and potential home value
• Can bundle a battery, roof or panel upgrade
• Credit approval required

Solar lease

With a lease, a third-party company owns the system and you pay a fixed monthly amount to use it. Maintenance, monitoring and repairs are generally included. Because the owner is a business, it may qualify for incentives that homeowners cannot always use, which can lower your payment.

You will not own the system, so it does not add ownership value to your home. If you sell, the buyer typically assumes the lease after a credit check. Some leases include annual payment escalators, so compare the total payments over the full term.

Power purchase agreement (PPA)

A PPA is similar to a lease, but instead of a fixed monthly amount you pay for each kWh the system produces, usually at a rate below your utility's. If the system produces more, you pay more, and if it underperforms you pay less.

PPAs are popular with businesses and with homeowners who want the provider to carry performance risk. As with leases, look carefully at the escalator and what happens at the end of the term.

A simple way to decide

Answer these questions honestly and the best option usually becomes clear.

• Do you have savings you are comfortable investing? Cash may win.
• Do you want ownership without a big upfront cost? Consider a loan.
• Would you rather never think about maintenance? Look at a lease or PPA.
• Might you move within five years? Compare transfer terms and resale impact.
• Do you expect to benefit from tax credits? Talk to a tax professional first.

This article is general information with sample figures, not financial or tax advice.