Solar Financing models

Direct ownership: Cash purchase (with or without financing)

This option provides the greatest benefits and is the most cost-effective option, but requires cash on hand or a financing. In this instance, the homeowner or system owner keeps all the benefits, including all electricity produced, tax credits, and SMART incentive payouts. The panels are your asset and can add to value of your home until near the end of system life. Since you own the panels, you are generally responsible for any and all system maintenance not covered by applicable system component warranties.

Third-party ownership: Solar Power Purchase Agreement (PPA)

In this model, a third-party owns the system on your roof and sells you the electricity produced by the system at an agreed-upon per-kWh price. The financial benefit is the difference between the PPA price and the retail value of electricity (or the NMC value). Although there is little or no upfront cost or self-financing needed, you will generally need strong credit. One potential advantage of this arrangement is that, if you have little or no tax liability, the system owner is able to monetize ITC savings and pass some of those savings through to you via the PPA price. Generally, the electricity rate is locked in for the term of contract (but watch for price escalators!). Maintenance is usually provided for in contract but be sure to check. Some PPAs can include a buyout provision at end of term. Keep in mind that a PPA can be a liability if you sell your home - make sure you understand what happens if you need to move. Always read the PPA contract carefully!

Third-party ownership: Solar Lease Agreement

This model is similar to the PPA arrangement and generally offers the same advantages and disadvantages but is structured slightly differently. Under this model, rather than paying a per-kWh rate for the electricity the system on your home produces, you pay a flat monthly rate regardless of the amount the PV system produces that month. Under this arrangement, you have more exposure to production fluctuation and system downtime, so make sure the contract addresses these issues and offers a minimum production guarantee that provides greater value than the amount you’ll be required to pay on an annual basis.