September 24, 2023

Exploring Solar Financing Options: Leasing vs. Loans vs. PPAs

Solar Financing

Welcome to Shine Solar's blog post about solar loans vs. solar leases. In today's rapidly changing world, embracing solar energy is not only an environmentally conscious decision but also a smart financial move. However, before you make the transition to solar power, it's crucial to understand the key differences between solar loans, solar leases and Power Purchase Agreements (PPAs). This knowledge will empower you to make an informed choice that aligns with your unique financial situation and long-term energy goals.

If you just want a quick answer. There are all viable options, but the best for most of the cases is Solar Loans, buying upfront would be better, but most people do not dispose of that kind of money. So yes, Solar Loans are, in most cases, the best option when it comes to independency and return of investment (ROI). Specially if it is a Shine Solar’s Loan, as we take one of the only two drawbacks of choosing loans and make it disappear.

Keep reading the blog post if you wish to understand the topic in more detail.

Table of Contents:

Leasing Solar Panels:

Leasing solar panels is an appealing option for homeowners looking to transition to solar energy without the significant upfront investment required for ownership. This financing method offers flexibility and immediate savings on electricity bills. Let's delve deeper into how leasing solar panels works and explore its advantages and drawbacks.

How It Works:

When you choose to lease solar panels, you're essentially entering into an agreement with a third-party solar provider. Here's a more comprehensive breakdown of the leasing process:

  1. No Ownership: Under a solar lease, you do not own the solar panels installed on your property. Instead, the solar leasing company retains ownership of the equipment.
  2. Monthly Lease Payments: In return for the solar lease, you make monthly payments to the solar installer. These payments are typically lower than your previous utility bills, providing immediate savings.
  3. Enjoy Reduced Utility Bills: The solar panels generate electricity for your home, offsetting a portion of your utility bills. While you won't own the system, you will benefit from lower energy costs.

Advantages of Leasing Solar Panels:

  1. Low Upfront Costs: One of the most significant advantages of leasing solar panels is that it often requires little to no down payment. This makes solar energy more accessible to a broader range of homeowners, including those who might not have the funds for an upfront purchase.
  2. Minimal Maintenance Responsibility: When you lease solar panels, you bear minimal responsibility for the maintenance and monitoring of the solar system. Any issues or repairs are typically covered by the solar leasing company, reducing your maintenance burden.
  3. Quick Access to Solar Benefits: Leasing allows you to start saving on your electricity bills and reduce your carbon footprint without a significant initial investment. This means you can enjoy the benefits of solar energy right away.

Drawbacks of Leasing Solar Panels:

  1. No Ownership: The primary drawback of leasing is that you do not own the solar panels. As a result, you won't have access to certain financial incentives and tax credits (30%) available to solar system owners.
  2. Limited Lease Terms: Lease agreements typically run between 20 to 25 years. While this aligns with the lifespan of solar panels, it can be limiting if you plan to stay in your home for a shorter duration. Exiting a lease early can be challenging and costly.
  3. Lower Long-Term Savings: While leasing does provide savings on your electric bills, these savings are generally lower than what you'd achieve with solar panel ownership. With a lease, you're locked into monthly payments for the entire lease duration, and these payments do not contribute to owning the system.

In summary, leasing solar panels offers an accessible entry point to solar energy, especially for those with budget constraints. It provides immediate savings and reduced maintenance responsibilities. However, it comes with the trade-off of not owning the system and limited long-term savings compared to solar panel ownership.

Before committing to a solar lease, it's essential to carefully consider your long-term plans and financial goals. If you're looking for maximum savings and incentives, you may want to explore the option of owning solar panels or consider other financing methods.


Loan Solar Panels:

Opting for a solar loan to finance your solar panel installation is a strategic choice that combines the advantages of ownership with manageable payment structures. In this section, we'll delve into the intricacies of using a solar loan to transition to clean, renewable energy.

How It Works:

A solar loan is essentially a financial arrangement that allows you to borrow money to cover the costs of purchasing and installing solar panels for your home. Unlike leasing, you will own the solar panel system from the outset. Let's explore the key components of using a solar loan:

  1. Ownership of the Solar System: With a solar loan, you immediately become the owner of the solar panels on your roof. This means that as soon as the installation is complete, you gain all the benefits of solar energy and system ownership.
  2. Monthly Loan Payments: Instead of making lease payments, you will make monthly loan payments to the lending institution that provided the solar loan. These payments typically have a fixed interest rate and term length, often spanning 5, 10, 15, or 20 years.
  3. Utility Bill Savings: Similar to leasing, the solar panels generate electricity for your home, leading to substantial savings on your utility bills. These savings offset the monthly loan payments, making solar energy more cost-effective over time.

Advantages of Solar Loans:

  1. System Ownership: The most significant advantage of a solar loan is that you own the solar panel system. This means you can access all available financial incentives, tax credits, and rebates associated with solar energy.
  2.  Higher Long-Term Savings: Solar loans typically result in greater long-term savings compared to leasing. Once your loan is paid off, you continue to enjoy free electricity from your solar panels, leading to substantial utility bill reductions.
  3. Access to Incentives: Solar loans allow you to take full advantage of various solar incentives, such as the federal investment tax credit (ITC), Solar Renewable Energy Credits (SRECs), and local utility incentives. These incentives can significantly lower the overall cost of your solar installation.
  4. Fixed Monthly Payments: Solar loans usually come with fixed interest rates and monthly payments, providing stability and predictability in your financial planning.
  5. Solar Panels Can Increase Your Home's Value: Solar panel installations can enhance the value of your home, making it a more attractive option for potential buyers if you decide to sell in the future.
  6. Typically, the Quickest Payback Period (7-10 Years): Solar loans offer one of the shortest payback periods, usually ranging from 7 to 10 years. This means you'll recoup your initial investment relatively quickly through energy savings and incentives.

Drawbacks of Solar Loans:

  1. Upfront Costs: Usually require an initial down payment or upfront investment.
  2. Credit Requirements: Lenders typically require a good credit score to qualify for a solar loan. If your credit history is less than ideal, securing a favorable loan may be more challenging.

In summary, a solar loan offers homeowners the opportunity to own their solar panel system while enjoying immediate utility bill savings and access to various incentives. It provides a more substantial long-term return on investment compared to leasing. However, eligibility often depends on creditworthiness, and borrowers should be prepared for monthly loan payments.

Before pursuing a solar loan, it's advisable to shop around for favorable loan terms and interest rates. Additionally, consulting with a solar professional can help you determine the most cost-effective financing option tailored to your financial situation and energy goals.


In Shine Solar, we take care of one of the 2 only disadvantage that Loans offers, with our “12 months, no interest, no payments”. It means you don't pay a penny for the first 12-months that you own your solar system. So, you start saving as soon as you get your solar installation!


If you don’t take a loan, but buy your solar installation up front, the benefits will be about the same, with the difference that there will be no monthly loan payments, but a very expensive upfront payment.


Power Purchase Agreements (PPAs):

A Power Purchase Agreement (PPA) represents an alternative approach to financing and benefiting from solar panel installations. In this section, we'll explore PPAs in greater depth, shedding light on how they work and their advantages and drawbacks.

How PPAs Work:

  1. Third-Party Ownership: In a PPA arrangement, a third-party solar provider or financier takes ownership of the solar panel system installed on your property. This entity is responsible for the system's financing, installation, and maintenance.
  2. Energy Purchase Agreement: With a PPA, you enter into an agreement to purchase the electricity generated by the solar panels at a predetermined rate, typically measured in cents per kilowatt-hour (kWh). This rate can remain fixed or escalate incrementally over the contract's duration.
  3. Reduced Utility Bills: The primary benefit of a PPA is immediate utility bill savings. Since you purchase solar-generated electricity at a rate typically lower than your utility's retail rates, you enjoy reduced monthly energy costs.
  4. Contract Terms: PPA contracts often have long-term durations, typically spanning 15 to 25 years. During this period, you are locked into purchasing electricity from the solar provider at the agreed-upon rate.
  5. Escalator Clauses: Many PPAs include escalator clauses, stipulating that the rate you pay for electricity increases annually by a predetermined percentage, often around 2% to 4%. While this escalator can erode initial savings, it provides more predictable future energy costs.

Advantages of PPAs:

  1. No Upfront Costs: PPAs typically require little to no upfront payment. This makes them an attractive option for homeowners who want to switch to solar without a substantial initial investment.
  2. Immediate Savings: With a PPA, you begin saving on your electricity bills right away, often from the first month of installation. These savings can be particularly appealing for households with budget constraints.
  3.  Maintenance Responsibility: One significant advantage of PPAs is that the third-party provider assumes responsibility for monitoring, maintaining, and repairing the solar panel system. This can save you from unexpected maintenance costs.
  4.  Predictable Monthly Payments: While the rate may increase annually due to the escalator clause, PPA payments remain relatively consistent, making it easier to budget for energy expenses.

Drawbacks of PPAs:

  1. No Ownership: The primary drawback of a PPA is that you do not own the solar panel system. You are essentially renting the equipment, and therefore, you do not have access to the financial incentives, tax credits, or rebates associated with ownership.
  2. Long-Term Commitment: PPA contracts often span several decades. While this ensures long-term energy savings, it can be a drawback if you intend to sell your home before the contract expires or if your energy needs change.
  3. Escalating Rates: The annual rate escalator can offset initial savings over time. While your electricity costs may still be lower than traditional utility rates, you need to consider the long-term implications of increasing rates.
  4. Limited Control: Since you do not own the solar panel system, you have limited control over its maintenance and operations. While the third-party provider is responsible for upkeep, you may not have a say in system upgrades or improvements.


Making the Right Choice: Solar Financing Considerations

Choosing the right solar financing option is a critical decision when transitioning to solar energy. To help you make an informed choice, we'll delve into essential considerations that can guide your decision-making process.

Assess Your Financial Situation:

  1. Budget and Savings: Evaluate your budget and financial reserves. Determine how much you can allocate to solar panel installation. If you have substantial savings, purchasing or using a solar loan may be viable options.
  2. Creditworthiness: Consider your credit score and eligibility for financing. Solar loans and leases often require a good credit history. If your credit is less than ideal, a PPA or solar lease with lower credit requirements may be more suitable.

Understand Your Energy Goals:

  1. Long-Term Plans: Assess your long-term plans for your home. If you intend to stay in your current residence for several years, owning or financing solar panels may yield greater long-term savings. For those planning to move soon, PPAs and leases offer flexibility.
  2. Energy Needs: Analyze your energy consumption and needs. Determine whether your solar panel system should cover all or a portion of your electricity usage. This information will help you select an appropriately sized system.

Consider Tax Incentives and Incentives:

  1. Federal and State Incentives: Research available federal and state solar incentives, including the federal investment tax credit (ITC) and local rebates. These incentives can significantly reduce the cost of ownership.
  2. Solar Rebates: Check if your state or utility company offers solar rebates or incentives for installing solar panels. These can further enhance the financial benefits of solar ownership.

Evaluate Long-Term Savings:

  1. Payback Period: Assess the payback period for each financing option. Solar loans typically offer shorter payback periods (7-10 years), allowing you to recoup your investment sooner.
  2. Total Cost of Ownership: Consider the total cost of ownership, factoring in interest rates, incentives, and maintenance expenses. Compare this against the potential savings over the life of the system.


The Bottom Line

In conclusion, the choice between solar loans, solar leases and PPAs ultimately depends on your unique financial situation, energy goals, and priorities. No matter which financing option you choose, transitioning to solar energy allows you to reduce your carbon footprint and enjoy utility bill savings. If you're interested in solar financing, consult with multiple installers to find the best fit for your needs.

Why Choose Shine Solar?

  • 12 Months, No Interest, No Payments: With Shine Solar, you'll enjoy the first 12 months of owning your solar system without any payments or interest.
  • 30% Tax Credit: Take advantage of the federal government's 30% tax credit, putting money back in your pocket.
  • Energy Efficiency Upgrades Included: Shine Solar includes a free energy efficiency package, including an Energy Audit to assess your home's insulation and determine energy deficiencies.

Exploring solar financing options can be a bit overwhelming, but with the right information and guidance, you can make an informed decision that benefits both your wallet and the environment.

Is solar a good fit for your home?

Find out now!

If you are considering going solar, the first step is to get a solar savings report to determine if solar is right for you and your home. Click the button below to get your solar savings report now!

Get Your Solar Savings Report Now!
Nick Gorden

Nick Gorden is the Co-founder and CEO of Shine Solar. Nick’s energy, enthusiasm, and leadership is contagious and has contributed to attracting a talented and successful executive team. His time is focused on strategic growth, maintaining profitability and creating the optimal customer experience. Nick has started, managed and sold companies within the communications, mortgage lending, insurance and real estate industries resulting in tens of millions of dollars of market value to investors.

Join Our Newsletter

Stay up to date on all of the latest news from Shine Solar

Thank you! Your submission has been received!

Oops! Something went wrong while submitting the form

Related Posts