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The 7 Terms All Solar-Curious Homeowners Need to Know

02/09/2015 08:38 pm ET | Updated Apr 11, 2015

By Jake Rozmaryn and Amanda Brodbaek

You are a homeowner and you're interested in solar power because it can help save money on utility bills and power your home with renewable energy. But you don't understand how the varying solar financing terms work. Financing terms can be confusing, but they don't have to be.

Brief History

Traditionally, solar photovoltaic (PV) systems were purchased with a large, lump sum of cash. The homeowner assumed any rebates and saved on the reduced cost of the electric bills by generating solar electricity. This upfront purchase could also be obtained if homeowners secured a conventional loan. To this day, if you have the assets, this is considered the best option in terms of payback.

However, the majority of homeowners don't have the funds available to buy a PV system upfront, and luckily, these days they don't have to. Over the past decade the market has shifted from a conventional loan structure to a solar finance structure. This shift has made it possible for solar systems in California to go from being 11 percent leased (or third-party owned) and 89 percent purchased in 2008 to 70 percent leased and 30 percent purchased in 2013. Due in large part to these financing options, the number of solar systems installed during this timeframe also grew over 250 percent.[1]

Solar Finance Terminology

So what does this mean for homeowners? Solar is now much more accessible thanks to the introduction of solar finance options. But there are varying options, and it is important for homeowners to understand what they are and what is available where they live, as these options can differ by state. Below is a starting guide to better understand common solar financing terminology.

Power Purchase Agreement (PPA): A third party owns and maintains the PV System, but it is on your roof. You only pay for the electric output. Tax credits don't apply -- that is, you don't receive the tax credits because they go to the third-party owner.

Solar Lease:Third-party owned and maintained. You pay a fixed monthly fee, with no or little upfront payment.

Solar Loan: Loans specific to a solar project with system ownership at the end of the loan. This means you pay off your loan for the length specified, in addition to your monthly electric bill.

Property Assessed Clean Energy (PACE): Local government offers a loan and you pay it back through your property tax.

Solar Investment Tax Credit (ITC): Thirty percent federal tax credit for solar systems, currently in place until the end of 2016. Whoever owns the solar system typically receives this tax credit.

Net Metering: Solar system owner sells the surplus electricity back to their utility. However, net metering only applies in certain states and has been contended by some utilities.

Solar Renewable Energy Credits (SRECs): Documentation of solar production typically bought and sold by utilities to meet renewable energy obligations. Solar systems produce these credits and the solar system owner typically receives the SREC revenue.

When it comes to choosing the solar financing option that is best for you, an online solar savings calculator can be incredibly helpful. While most data will give you an idea of solar financing options, if you are looking for impartial data, note that some of this information is provided by solar installation companies, some from companies that sell information to solar companies and other data comes from nonprofit organizations and industry associations. Do your homework and research diligently so you understand which rebates and tax credits are available in your area. Good resources are national and local associations like the Solar Electric Power Association (SEPA) and Solar Energy Industries Associations (SEIA) or the Database of State Incentives for Renewables and Efficiency (DSIRE). Once you begin the conversation with an installation company, remember a good solar installer will be able to explain how these finance options are applicable to your home, city and state.

This may feel like a lot of information but don't be afraid to start a solar conversation. This is a great time to go solar, and once you make the decision to do so, you are on your way to saving on electricity costs for decades to come -- and helping the environment at the same time.


[1] Source: CSI, Completed systems, Small commercial <10kW and all Residential systems