Solar Energy Technologies Program

Inverter

Residential Grid-Connected PV System

Solar

Panels

Utility

Service

Home Power/

Appliances

Meter

This guide provides an overview of the 

financing options that may be available to 

homeowners who are considering installing a 

solar electric system on their house. 

How a PV System Works

Solar electric systems, also known as 

photovoltaic (PV) systems, convert sunlight 

into electricity. Because they are made up 

of individual modules, PV systems can be 

designed to meet most electrical requirements, 

both large and small. The size of a residential 

PV system is expressed in terms of kilowatts 

(kW) of power, and the electricity produced 

by a PV system is expressed in kilowatt hours 

(kWh) of energy. Systems are said to be “gridconnected” when they remain plugged into the 

local utility. Grid-connected PV systems may 

have a battery back-up system, but most do 

not. Battery back-up is typically used for offgrid systems and provides power at night when 

the sun is not shining. Grid-connected systems 

rely on their utility to provide power at night. 

The diagram on the right illustrates a basic PV 

system installation. Maintenance requirements 

for PV systems are minimal: they may require 

occasional cleaning for optimal performance, 

and often require a new inverter after 10-15 

years. The best way to ensure a PV system is 

working well is to install a monitoring device 

that tracks the electricity output of the system. 

Numerous online system monitoring tools are 

available, and some are included in the cost of 

the installation.

Benefits of a PV System

Installing a PV system on the roof or in 

the yard provides several benefits to a 

homeowner. Because you are producing your 

own electricity, your utility bills will be lower. 

PV systems can last for 30 years or longer, 

and therefore provide long-term protection 

against rising electricity rates your utility may 

charge as worldwide energy markets change. 

A PV system may also increase the value of 

your home. Finally, a PV system produces 

electricity without a emitting any pollution, 

including greenhouse gases.

Getting Ready to Install a PV 

System

If you are interested in “going solar,” there are 

several important steps to take in preparation. 

If your goal is to reduce your environmental 

impact or the cost of the installation, consult 

Credit: Altair Energy, PIX 07900

Homeowners Guide to Financing a Grid-Connected 

Solar Electric System
2 Solar Energy Technologies Program

a professional prior to installing a solar 

PV system about home energy efficiency 

improvements such as sealing unwanted air 

leaks, improving insulation, and replacing 

inefficient lighting. This will reduce the 

amount of electricity your home uses so 

that you can meet a greater percentage of 

your electricity needs with your PV system 

or reduce the size of the system required. 

If you plan to install PV on your roof (as 

opposed to mounting it on the ground), 

have a solar installer or general contractor 

check to see if your roof needs to be 

reinforced or replaced, especially if it is an 

older roof. Get bids from multiple solar 

companies, and seek out solar installers that 

guarantee their work and, when possible, 

are certified by the North American 

Board of Certified Energy Practitioners 

(NABCEP). For a list of installers in 

your area, check the Web site of the Solar 

Energy Industries Association (http://www.

seia.org/cs/membership/member_directory). If 

you learn that your property is not well 

suited for a PV system because of shade 

or other issues, check with your utility 

about options to invest in an offsite solar 

system through a green power purchase or 

“community solar” program. Finally, learn 

about solar technologies, financing options, 

and available PV incentives to ensure that 

you have the information you need to make 

the best decisions. By reading this guide, 

you are off to a good start. 

What a PV System Costs

Although the cost of a residential PV 

installation has declined in recent years, 

it is still a significant investment for 

homeowners. Even after subtracting 

available incentives, an average-sized PV 

system of 4 kWh can cost $20,000 or 

more. As a result, most homeowners will 

need to finance this upfront investment. 

Fortunately, as the residential solar market 

has evolved, a number of financing options 

are now available in many areas across 

the country, in addition to the traditional 

use of a home equity loan.1

 Under some 

financing structures, the homeowner owns 

the PV system; under other financing 

structures a third party owns and operates 

the system on the homeowner’s property. 

Homeowners should factor maintenance 

requirements into their financing decision. 

While all PV systems have minimal 

maintenance needs, customers who are not 

interested in checking system performance 

and arranging for inverter replacement, 

which can cost several thousand dollars, 

should consider third-party financing 

options or, if possible, set up a maintenance 

contract with their solar installer. This 

guide compares some common financing 

options: a cash purchase, a home equity 

loan, other loan products, a solar lease, a 

solar power purchase agreement (PPA), and 

property tax assessment financing.

Key Terms 

The following terms are some that you 

will likely hear during conversations with 

solar installers and administrators of solar 

incentive programs. Understanding these 

terms can help you make the best financing 

decisions.

Interconnection: This is the process of 

connecting the PV system to the electric 

grid of the local utility. The solar installer 

will likely coordinate this process, although 

the homeowner may need to provide 

documentation such as proof of sufficient 

homeowners’ insurance.

Net Metering: This term refers to the ability 

of the homeowner’s PV system to send 

excess electricity to the utility grid in return 

for a credit on utility bills. It is sometimes 

referred to as “spinning the electricity 

meter backward.” Net metering regulations 

vary by state and utility, and where they 

are in place they make solar PV purchases 

more cost-effective for homeowners. To 

participate in net metering, your utility may 

require that an additional meter be installed 

at the home. 

Production Output Guarantees: It is 

increasingly more common for solar 

companies to offer production guarantees 

to the homeowner. The terms of this 

guarantee will vary widely, but in general 

it will be an annual or two-year average 

guarantee of kWh produced. If the PV 

system fails to meet this minimum level 

of production, the solar company will 

compensate the homeowner on a per-kWh 

basis for the shortfall.

Rebates/Incentives: In some states, 

upfront rebates based on the size of the 

system or production incentives based on 

the amount of electricity generated are 

available to reduce the cost of owning a 

residential PV system. The rebates are 

usually expressed in dollar-per-watt terms 

and the production incentives on a perkWh basis. These rebates and incentives 

can be paid by a state agency (such as the 

state energy office), the local utility, or a 

nonprofit organization acting on behalf 

of the state. (State-specific information is 

available at http://dsireusa.org/.)

Renewable Energy Certificates (RECs): A 

REC reflects the environmental attributes 

of producing clean electricity and is priced 

on a megawatt-hour (MWh) basis. Under 

some incentive and financing structures, the 

utility or solar company will automatically 

own the RECs associated with a PV system. 

In other cases, the homeowner will own the 

RECs and can receive compensation by 

selling the RECs to a REC aggregator. 

Residential Investment Tax Credit (ITC): 

If a homeowner purchases a PV system, 

they can take a federal tax credit equivalent 

to 30% of the qualified installed costs of a 

residential PV system. If a homeowner has 

received other upfront cash incentives, they 

should be subtracted from the initial cost of 

the system before calculating the 30% ITC.

Credit: Davis Energy Group, PIX 13639

1

 Home equity loan is a general term for various types of loans 

that use a homeowner’s property as collateral. Home equity 

loans can include standard home equity loans with fixed terms, a 

home equity line of credit, and mortgage refinancing.
Solar Energy Technologies Program 3

Financing Options 

Cash Purchase Option. As with any other 

purchase, buying a PV system outright with 

cash avoids the cost of financing, such as 

interest and fees. With a cash purchase of 

a PV system and no monthly payments of 

any kind to make, your ongoing savings 

will be the highest. Buyers should consider 

alternative investment opportunities and 

ensure that the long-term investment in a 

PV system is right for them. 

Home Equity Loan. Borrowing against the 

value of your home is a common form of 

financing. Because such loans are secured 

(guaranteed by the value of the home), 

the interest rate can be favorable and the 

interest paid is often tax deductible. 

Other Loan Products. Local banks and 

credit unions may be a source of unsecured 

loans (loans not backed by any collateral) 

or loans secured by the PV system itself, 

often in partnership with a solar company. 

The terms of such loans will likely be less 

favorable than the home equity loan. The 

interest paid on these loans is usually not 

considered tax deductible. 

Solar Lease. As with a car, it is possible to 

lease a PV system rather than purchase one 

directly. In this case, the solar company and 

its financial partners own the PV system 

that they install on your property. As the 

owner, the solar leasing company takes 

all the tax credits, rebates, and incentives. 

Under certain solar lease programs, the 

leasing company is responsible for system 

maintenance and repair; under others, 

maintenance and repairs remain an 

obligation of the homeowner. At the end of 

the lease term, the homeowner can renew 

the lease, purchase the system, or have the 

system removed. The homeowner will make 

monthly lease payments to the solar leasing 

company, which will be offset by utility 

bill savings. Terms of the lease will vary by 

program.

Solar Power Purchase Agreement (PPA). A 

solar PPA is similar to a solar lease in that 

the solar company owns the PV system on 

the homeowner’s roof. The difference is that 

instead of leasing the solar equipment, the 

homeowner agrees to purchase all of the 

electricity that the PV system generates over 

some fixed period of time (up to 20 years). 

As with a lease, the PPA provider takes all 

the tax credits, rebates, and incentives. Most 

PPA providers will guarantee a minimum 

amount of energy that the system will 

produce and compensate the homeowner 

if the system fails to produce this agreedupon amount. Unless the homeowner opts 

to pay for all the electricity in a one-time 

payment (a prepaid PPA) they will receive 

two electricity bills—one from the utility 

and another from the PPA provider. The 

sum of these two bills may be less than the 

homeowner’s original utility bill. As the 

owner, the solar PPA provider is responsible 

for system maintenance, repair, and 

insurance for the term of the contract. At 

the end of the agreement, the homeowner 

can renew the PPA, purchase the system, or 

have it removed. 

Property Assessed Clean Energy (PACE). 

PACE2

 is a form of financing offered 

by some local governments that uses a 

property tax assessment mechanism. To 

see if PACE is available in your location, 

consult http://dsireusa.org/. In a PACE 

program, the city or county government 

provides the upfront capital to finance the 

cost of the PV installation. A lien is then 

attached to the homeowner’s property, 

which the homeowner pays off over an 

extended period of time through special 

assessments on their property tax bill. If 

the home is sold, the PACE lien is typically 

transferred to the new owner. To qualify 

for PACE financing, a home energy audit 

may be required. Under a PACE program, 

the homeowner is responsible for system 

maintenance. Homeowners should check 

with their mortgage lender about the 

possible impacts of a PACE lien on their 

mortgage terms.

Group Purchase Programs

Neighbors can organize to solicit 

bids from solar installers for PV 

installations on multiple homes. A 

group purchase program allows 

the members to share the upfront 

work needed to make a purchase 

decision and reduce the amount 

that each homeowner pays. A 

group purchase can use any of the 

different financing options.

Credit: Unger, Cheryl, PIX 15626

2

 As of September 2010, most residential PACE programs in the 

country were on hold given guidance from the Federal Housing 

Finance Agency (FHFA) related to the seniority of a PACE lien 

vis-à-vis existing mortgage loans. Refer to VoteSolar (http:// 

votesolar.org/ ) for periodic updates on PACE.
4 Solar Energy Technologies Program

EERE Information Center

1-877-EERE-INFO (1-877-337-3463)

www.eere.energy.gov/informationcenter

Printed with a renewable-source ink on paper containing at least 50% wastepaper, including 10% post consumer waste.

DOE/GO-102010-3129 • October 2010 

FINANCING 

OPTION:

Purchase with Cash Home Equity Loan Other Loans Solar Lease Residential PPA PACE

Upfront Costs

High

Cash purchase 

includes the full 

cost of the PV 

system minus any 

upfront rebates.

Low

There may be fees 

at the loan closing.

Low

There may be fees 

at the loan closing.

Low

Certain plans may 

also have a down 

payment option.

Low

Certain plans 

may have a down 

payment or a 

prepayment of 

electricity option.

Low

Likely to have an 

upfront fee; usually 

less than $100.

Who owns system? Homeowner Homeowner Homeowner Solar company Solar company Homeowner

Ongoing payments

None Yes – monthly loan 

payments

 Yes – monthly loan 

payments

Yes – monthly lease 

payments

Yes – monthly 

electricity payments

Yes – monthly 

escrow payments as 

part of mortgage*

Who maintains the 

PV system (or pays 

to maintain it)?

Homeowner

(maintenance 

contracts usually 

available)

Homeowner

(maintenance 

contracts usually 

available)

Homeowner

(maintenance 

contracts usually 

available)

Usually the solar 

company but not 

always

Solar company Homeowner

Can homeowner 

take the federal tax 

credit?

Yes Yes Yes No No Yes

Tax deductibility N/A Interest on loan No N/A N/A Interest portion of 

the assessment

Term of financing N/A 5-30 years Up to 10 Years Up to 20 years Up to 20 years 10-20 years

Summary Table of Financing Options

The following table provides a side-by-side comparison of the options available to homeowners who wish to finance a solar installation. Note 

that not all options are available in every state or local jurisdiction, and terms will vary widely. 

*Homeowners without a mortgage will pay their special assessment at the same time as other property taxes are due (annually or bi-annually).

•	 Azimuth—Direct south-facing PV systems in the northern hemisphere have an 

azimuth of 180 degrees, the ideal azimuth for maximum energy production.

•	 Efficiency—Refers to the percent of sunlight converted into electricity by a 

solar cell or module. 

•	 Inverter—Converts electricity from direct current (DC) to alternating current 

(AC).

•	 Kilowatt (kW)—Unit of power equivalent to 1000 watts. Sizes of PV systems 

are expressed in kW.

•	 Kilowatt hours (kWh)—Unit of energy consumption. Homeowners are billed 

on a kWh-basis. 

•	 Load profile—The general pattern of electricity use by a house over a given 

period of time. Load profiles help determine the appropriate size of the PV 

system to install.

•	 Module— Solar cells are combined into a solar module, which is also called a 

solar panel.

•	 North American Board of Certified Energy Practitioners (NABCEP) 

Certification—A professional solar installer certification resulting from the 

completion of a rigorous examination process. 

•	 Tilt angle—The angle at which a PV array is set facing the sun relative to a 

horizontal position.

Glossary of Technical Terms