You’re a solar installer, so you know that convincing a potential customer of the benefits of going solar isn’t too complicated. Still, explaining how they overcome the upfront cost can be challenging.

The cost of solar has dropped in recent years. But, for the average homeowner, spending five figures upfront—especially on an investment that could take years to break even—can sometimes be a challenge.

It’s no secret that more homeowners are financing solar rather than paying cash upfront. Last year, the research firm Wood Mackenzie estimated that loans alone would make up 70% of residential solar installations in 2023.

Offering loans, leases, and other financing options makes solar panel installation more attainable to the average homeowner—turning it from a potential big hit to their household budget into a wise investment.

But integrating a full range of financing options into your business isn’t easy. And matching customers with the best solar financing option for them—let alone explaining it to them—can also be challenging. But it doesn’t have to be.

To make solar financing easy to understand and sell, let’s break it down into two categories:

Customer-owned systems

• - Solar Loans and RICs

Third-party-owned financing

• - PPAs
• - Solar Lease

Customer-Owned

Solar Loans and RICs

Like a mortgage, a customer-owned solar financing option lets the customer pay off their installation over time. The homeowner makes monthly payments over time, typically a 5-25 year period, with a low or even $0 upfront payment.

A common financing option for owning an asset (be it a car or solar panels) is a Retail Installment Contract (RIC). RICs are very similar to bank loans. With RICs and loans, you essentially upgrade to solar by agreeing to make payments over time.

Customer-owned solar financing can provide several financial advantages: a solar tax credit and increased property value. On the flip side, loans with high credit score requirements can be a barrier for some customers.

Third-Party-Owned

Power Purchase Agreements (PPAs)

With PPAs and solar leases, you sell the homeowner greener and often cheaper power.

The third-party financing company owns and maintains the solar system. The homeowner gets a fixed price per kilowatt-hour (kWh) for power generated by the system, which is typically lower than the rate offered by their electric company.

The homeowner’s monthly bill will vary depending on which type of PPA they choose.

With a monthly Variable PPA payment:
The payment is calculated by multiplying the actual monthly kWh production by the price per kWh rate. The monthly bill reflects charges for energy generated by the system plus any applicable taxes and fees. The homeowner’s solar bill will be slightly higher during sunnier months than during months with less sunshine. Still, their utility bill will be much lower because they’re getting more power from solar panels and less from the local grid.

With a monthly Fixed PPA payment:
The payment is calculated by multiplying the estimated yearly kWh production by the price per kWh rate and dividing by 12 (to convert from an annual to a monthly value). Their bill will reflect the monthly payment for that monthly billing period plus any applicable taxes and fees.

The homeowner’s bill will reflect their monthly payment on a fixed price for every kilowatt-hour of electricity generated by their system. Typically, the financier estimates their yearly production and divides it by twelve months. There are also no increasing or decreasing bills based on sunshine hours.

Solar Leases

The major difference between a PPA and a solar operating lease is that instead of paying the third-party solar owner for the kilowatt-hours generated by their solar system, the homeowner pays a fixed monthly fee for the system itself.

The other difference between a PPA and Lease is that the homeowner can end the agreement early if they sell their home or purchase the system after the sixth anniversary of the in-service date.

Typically you will only offer the Lease option in states where the PPA is unavailable.

Expand your solar business with solar financing.

Understanding these solar financing options is one thing, but explaining them to potential customers is another.

The average homeowner isn’t well-versed in solar, let alone financing. So, it’s critical to educate yourself about the various products on the market.

Conveying expertise and demonstrating that you’re well-versed in all things solar and solar financing will help you build trust and confidence with your potential customers and their referral network.