Solar Customer Financing Options

The four structures of solar customer financing

Solar customer financing is fundamentally different from every other home improvement trade because the product — a solar energy system — has a 25–30 year productive life, generates ongoing financial value (energy production), and is eligible for a federal tax credit that significantly changes the economics depending on who owns the system.

This creates four distinct financing structures, each suited to different homeowner profiles:

Solar loans: the ownership model

A solar loan is the closest analog to conventional home improvement financing: the homeowner borrows money to purchase and own the system outright.

How it works: the homeowner applies for a solar loan, typically $0 down. The lender pays the solar contractor directly at installation. The homeowner makes fixed monthly payments to the lender over 10, 15, or 25 years.

The ITC advantage: because the homeowner owns the system, they can claim the 30% federal investment tax credit on their next federal tax return. On a $25,000 system, that’s a $7,500 reduction in federal tax owed — not a deduction, but a direct credit against taxes. Many solar loan structures account for this: the loan is structured so that when the homeowner receives the ITC refund (or applies the credit), they can make an early principal payment, reducing the monthly payment going forward.

System cost after ITC (illustrative estimates):

Prices are illustrative estimates. Actual system costs and utility rates vary significantly by location, roof type, and equipment.

Who benefits most from solar loans: homeowners with federal tax liability (the ITC requires tax owed to apply against), good credit, and long-term plans to stay in the home. Homeowners who itemize deductions or have significant annual tax bills benefit most.

Solar leases: the no-ownership model

A solar lease allows homeowners to use a solar system installed on their roof without owning it. The financing company or leasing entity owns the system, claims the ITC, handles maintenance, and charges the homeowner a fixed monthly lease payment.

How it works: the homeowner signs a lease agreement, typically 20–25 years. The solar company installs the system. The homeowner pays a fixed monthly lease payment in exchange for the power the system generates. When the lease ends, the homeowner typically has options to renew, purchase the system, or have it removed.

Rate escalators: many solar leases include a fixed annual payment escalator — often 1–2.9% per year. This means the monthly payment increases each year. Homeowners should compare projected lease payments against projected utility rate increases.

Home sale considerations: when a home with a leased solar system is sold, the lease must either be transferred to the buyer or paid off. Most buyers accept the transfer if the lease terms are favorable, but some refuse. This is a material disclosure item in real estate transactions.

Who benefits most from solar leases: homeowners who want lower utility bills with no maintenance responsibility, homeowners without sufficient federal tax liability to benefit from the ITC, or homeowners who want $0 upfront with a simpler arrangement.

Power Purchase Agreements (PPAs)

A PPA is similar to a lease in that the financing company owns the system — but instead of a fixed monthly payment, the homeowner pays a per-kilowatt-hour rate for the electricity the system actually produces.

How it works: the homeowner signs a PPA for 20–25 years. The solar company installs and maintains the system at no upfront cost. Each month, the homeowner pays for the kilowatt-hours their solar panels produced at the agreed PPA rate — which is typically set below the current utility rate at signing.

Example: if the homeowner’s utility charges $0.14/kWh and the PPA rate is $0.10/kWh, the homeowner saves $0.04 per kWh generated. On a system that generates 10,000 kWh annually, that’s $400/year in savings.

Rate escalators in PPAs: most PPAs include escalators (often 1–2.9% annually), meaning the PPA rate increases each year. If utility rates increase faster than the escalator, the PPA remains advantageous. If utility rates decrease or stay flat, the PPA may become less favorable over time.

Production variability: unlike a lease (fixed payment regardless of production), a PPA payment varies with actual system output. Months with more sun = higher PPA bill, but also more power generated. Months with clouds, snow cover, or panel soiling = lower production and lower PPA bill.

PACE financing

PACE (Property Assessed Clean Energy) financing is available in certain states — primarily California, Florida, and Missouri — and allows homeowners to finance solar systems through a property tax assessment.

How PACE works: the homeowner applies for PACE financing, which is assessed against the property and appears as a line item on the property tax bill. There is typically no monthly loan payment separate from property taxes. Repayment terms of 5–25 years are common.

Key characteristics:

• No credit score requirement (secured by property, not by creditworthiness)
• The assessment transfers to the next owner when the home is sold
• The homeowner owns the system and can claim the ITC
• Higher-than-market interest rates are common
• Requires lender approval if there is a mortgage (lenders have first-lien position concerns)

Geographic limitations: PACE is not available in all states. Solar contractors should verify PACE availability in their service area before offering it as an option.

Dealer fees in solar financing

Solar contractor dealer fees vary more than in other home improvement trades:

For solar loans, the contractor structure is similar to other home improvement financing: the lender pays the contractor in full at installation, minus a dealer fee tied to the homeowner’s interest rate.

For leases and PPAs, the solar company or contractor typically receives payment directly from the financing company, sometimes at project completion and sometimes based on a milestone schedule.

Integrating financing into the solar sales appointment

Solar is a consultative sale — homeowners need to understand what they’re committing to for 20–25 years. The financing conversation is central to every solar appointment.

Always start with the utility bill: pull the homeowner’s annual kWh consumption and average monthly bill before discussing any financing structure. This establishes the baseline cost the solar system is replacing.

Present the ownership vs. no-ownership choice first: before going into product types, help the homeowner decide if they want to own the system (and get the ITC) or use the system (lease/PPA). This determines which financing products are relevant.

Show the 30-year economics for ownership: for homeowners who qualify for the ITC and plan to stay in the home, a side-by-side comparison of projected utility costs vs. loan payments often shows significant lifetime savings — sometimes $20,000–$50,000+ over 25 years.

Qualify for ITC eligibility early: the ITC only benefits homeowners with federal tax liability. A retired homeowner on fixed income with minimal tax owed may benefit more from a lease or PPA.

How solar financing interacts with the contractor’s cash flow

Solar contractors face unique cash flow considerations because:

1. Commission structures vary: some solar contractors receive payment upfront from the financing company at installation; others receive payment after inspection and utility interconnection, which can take 30–90 days.

2. Permitting and inspection delays: solar installations require permits and utility interconnection approval. Payment milestones often include “permission to operate” (PTO) sign-off, which can delay final payment significantly.

3. Chargeback risk on loans: some solar loan programs have clawback provisions if the homeowner cancels during a rescission period.

For solar contractor financing — the working capital the solar installation business uses for its own operations between customer payment milestones — see the linked page.

Frequently asked questions

What is solar customer financing?

Solar customer financing is any payment structure that allows a homeowner to go solar without paying the full system cost upfront. The four main structures are solar loans (homeowner owns the system, pays a lender), solar leases (homeowner rents the system from a financing company), PPAs (homeowner buys the power produced, not the system), and PACE financing (repaid through property taxes). Each has different implications for ownership, tax credits, and long-term costs.

What is the difference between a solar loan and a solar lease?

A solar loan allows the homeowner to own the system outright. The homeowner qualifies for the 30% federal investment tax credit (ITC), benefits from system appreciation, and is responsible for maintenance. A solar lease means the financing company owns the system. The homeowner makes fixed monthly lease payments and does not receive the ITC, but also has no maintenance responsibility. Leases typically transfer to the home buyer if the home is sold.

What is a solar power purchase agreement (PPA)?

A PPA is a contract where the homeowner pays for the electricity the solar system produces rather than the system itself. The solar company or a financing partner installs, owns, and maintains the system. The homeowner pays a per-kilowatt-hour rate, typically lower than the utility rate, for the power generated. PPAs usually run 20–25 years and include rate escalators.

Who gets the federal solar tax credit?

The 30% federal investment tax credit (ITC) goes to the system owner. If the homeowner takes a solar loan or pays cash, they own the system and can claim the ITC on their federal tax return. If the homeowner signs a lease or PPA, the financing company owns the system and claims the ITC — the homeowner gets no direct credit.

How much does a residential solar system cost?

A typical residential solar system costs $15,000–$35,000 before incentives for a 6–12 kW system. After the 30% federal ITC, the net cost drops to $10,500–$24,500. State incentives, utility rebates, and local programs can reduce costs further. System cost varies by roof type, energy consumption, location, and equipment tier.

What is PACE solar financing?

PACE (Property Assessed Clean Energy) financing is available in some states and allows homeowners to finance solar systems through a property tax assessment. Repayment is added to the property tax bill rather than made to a lender. PACE typically has no credit score requirement, longer terms (10–25 years), and the assessment transfers to the next owner if the home is sold. Availability varies significantly by state.