Before you can figure out how you’re going to pay for a solar installation, you need to figure out how much you’re going to need to pay for the system. If you plan on financing, then you also need to be aware of the various factors that can affect the cost of installing a solar-powered system.

By being aware of these factors, you can have some impact on the final bottom-line costs. And they could ultimately influence whether or not you decide to move forward with a solar installation at all.

Factors that affect the cost of solar installation

Local market conditions – Where you live will have an impact on the cost of installing a system. According to U.S. installers, the national average to install is about $3.14 per watt. Overall, per watt costs range from $2.71 up to $3.57.

States that are close to that average include Oregon, Colorado, Utah, California, Georgia, South Carolina, and New Hampshire.

However, Arizona, Indiana, Ohio, Illinois, Michigan, Nevada, Washington, Florida, and Maine are well below the national average.

On the flip side, Rhode Island, Vermont, Missouri, Iowa, Wisconsin, Minnesota, New Mexico, and Louisiana are well above the national average.

How many solar panels you purchase – You have to decide how big of a system you want and how much of your power bill is going to be canceled out by your amount of solar energy production. The bigger the system, the more it will cost overall, but the more you will save on your future power bills. The average home installation is a 6-kilowatt system, but you can install a 3 kW or 4 kW system for a lower cost.

Also keep in mind that the larger the system you purchase, the more likely you may get a price break when you buy solar panels in quantity. You should talk with solar energy vendors to see where those price breaks fall and if they may result in savings for you.

In general, figure that a single panel will cost between $.85 and $1.20 per watt. The output for each panel ranges from 150 to 350 watts.

The quality of the panels you choose – Not all panels are created equal. Some are more efficient than others, producing more energy and lasting longer than others. This can add up to more significant savings over time, but it will also add to the up-front costs as well, which will affect your break-even point.

For example, an 8-year break-even point is a lot different than a 10-year break-even point. You could have two additional years of monthly savings from solar power if the numbers pencil out favorably for your situation.

Another factor likely to impact the overall cost of installing a solar system is the type of solar panels you decide to use. The three types of solar panels on the market are monocrystalline cells solar, polycrystalline cells, solar, and thin-film solar. You may have a choice on which type of construction to use, but it could also be up to the installer and not you. Thin-film solar panels cost less than crystalline panels, but they are not as durable or efficient.

Installation conditions – The type and shape of your roof, how your panels are positioned, and other similar variables will have an impact on your final installation costs.

You will also need to compare labor costs for each bid you receive as well. For a flat roof or a roof that has less than ideal solar absorbing direction, create a more complicated installation.

Homeowners who want to generate their own electricity through a solar PV system and connect to the larger electrical distribution grid must go through an interconnection process. Each state has interconnection standards regulating this process. Incentives may be provided up to only a specific size and influence the size a homeowner chooses because interconnection complexity and fees may increase for larger systems.

Who you choose to install and what warranty you receive – Not all panels are created equal, and the same thing applies to solar installers as well. An installer who does a poor job not only costs you money in lost savings but could cause added out-of-pocket expenses after the fact. Pay attention to installer reviews and make sure to ask about warranties, which are typically 20 to 25 years. You want to find the sweet spot between experience, professionalism, and protection for your investment.

Incentives and rebates – If you qualify, you could save a substantial amount by applying rebates and incentives to your installation. You’ll need to research federal, state, and local offers to see what may apply to you.

Solar Financing Options – Pros and Cons

You can opt to pay cash for your solar installation up front, but for many people, this is not viable. Instead, you will need to look at various financing options that are available to you and decide which one will work the best for your situation.

You have two primary choices when it comes to financing. You can either take out a loan or sign a solar lease.

Some solar companies arrange for the installation of a solar system and also provide financing for the system as well. These companies are often called full-service solar developers. It’s also common for an installer to be a completely different entity that the lender for the system.

Solar Loans

If you want to own your system, then you should consider a secured or unsecured loan.

The cheapest way to finance a solar system purchase is to use debt secured against your home. You can do this by taking out a Home Equity Line of Credit (HELOC) refinancing your entire home.

For example, Fannie Mae has a HomeStyle Energy mortgage that gives borrowers the opportunity to complete clean energy upgrades up to 15% of the as-completed appraised property value of the home.

Another advantage of buying a solar system, is you don’t have to worry about transferring the lease. Purchasing a solar system also generally adds more to a home’s value than leasing, although the exact amount is debatable. It is worth more to some potential buyers than others.

Many solar companies will also have access to unsecured financing through various partners. And while the rates they advertise may appear to be low, there are often hidden fees.

Several entities offer solar loans, including banks and credit unions, solar manufacturers, state green banks and financing programs, housing investment funds, and utilities.

Homeowners who own their solar system and want to be covered for damage, find coverage either through their existing homeowner’s insurance policy or through the purchase of a new or expanded policy.

Solar Leases and PPA Agreements

The benefit of going this route is they are usually offered as zero down deals. Both are third-party owned options. In most cases, on a lease, your monthly repayments are lower than the amount you save on your utility bill. So you can realize a profit each month without having to make any upfront investment. With a lease, the third party is usually responsible for maintenance costs, so that relieves the homeowner of that burden as well. Also, you can realize positive cash flow from the first day of installation.

Choosing a lease or PPA for financing will save 10-30% per month over your utility’s electricity bills without any upfront investment required.

If the system provides excess electricity to the grid, then the homeowner may realize a credit for that generation from the electrical utility. But if the homeowner consumes more power than they generate, they will be required the regular utility rate for any electricity over and above what they produce.

A solar power purchase agreement (PPA) is a bit different than a lease. A company owns the panels on your roof, and you buy electricity from that third-party entity. You do not make a fixed monthly payment with a PPA agreement like you would with a lease or a purchase.

In both cases, you may be able to realize an increase in your property value as well. The flip side of this is if your property value is reassessed, you may see an increase in your property taxes.

There are no guarantees that a property will appraise or sell for more, but according to Forbes, homeowners to recoup nearly 97% of the incurred system costs as equity. Energy Sage states that homeowners can resell for up to 154% of the original system value.

Even conservative estimates indicate that a system will usually resell for around $4 per watt in the state of California or $3 per watt anywhere else. With installation prices ranging anywhere from $3.50 to $4.50 per watt, that makes for a 67% to 85% return, which is still a good value.

The disadvantage of a lease or PPA agreement is that they generally require you to lock in an agreement for a long time. This can be problematic if you sell your home. The new owner will need to assume the agreement for both a lease and PPA.

If you plan on transferring your lease, most solar financing companies require that the potential buyer pass a credit check before they can take over the lease. This can significantly slow down the process of selling the home and may lessen the number of offers you will receive on your home.

Also, with a PPA, pricing can rise each year for the electricity you buy. It’s at a lower percentage than electric utility price increases, but it is still a factor to consider.

If the new buyer doesn’t want to deal with the agreement for any reason, a break fee will need to be paid to the leasing or PPA company to end the agreement.

Typically, solar home leases last 20 to 25 years, while commercial leases can range from 7 to 20 years.

When a homeowner finances a solar purchase through a lease or PPA, the contract may limit the homeowner’s ability to change the property. For example, the construction of a chimney could pose a problem if it would cast a shadow on the solar system. When homeowners directly own their solar system, they are not bound by a third-party owner’s restrictions.

Also, consider that a leasing company will pocket all solar incentives you’d otherwise get if you bought a solar system. If you buy, you get to keep all of the incentives and all of the long-term electricity savings yourself.

You should also note that not all states will allow homeowners to use third-party solar PPAs.

The Clean Energy States Alliance (CESA) also offers a Homeowner’s Guide to Solar Financing to help those interested in third party financing. CESA is a national, nonprofit coalition of public agencies and organizations working together to advance clean energy. CESA members are mostly state agencies and include many of the most innovative, successful, and influential public funders of clean energy initiatives in the country.

PACE Financing

Through the Property Assessed Clean Energy (PACE) program, solar customers may have the option to finance solar systems through their local governments. Local governments can create property tax finance districts to issue low-cost, 20-year loans for energy efficiency and renewable energy such as solar PV systems.

Homeowners then pay more on their annual property tax bill to repay the loan. The loans are permanently fixed to real property, so residents don’t need to worry about their system’s break-even point. Then they can pass the loan payments on to subsequent buyers of the property.

Is Good Credit Required?

Not necessarily, but the higher your credit rating, the more lenders will be open to assisting you in securing a loan and at better terms.

Which Option is Right for You?

You need to compare all options based on your unique situation before you make a final decision. Every property is different, and making a significant decision does require that you do your homework. Make sure you do so you can enjoy the maximum benefits and the most savings.