What solar finance option is right for you

Over the past few years new solar financing options for homeowners and businesses in an increasing number of states have exploded. Whereas people used to have to come up with significant up-front payments to put a solar array on their rooftop or qualify for a lease like a home improvement loan, they're now able to get a solar array with little to no up-front costs through third-party ownership (TPO) agreements.

TPOs are incredibly popular where they're offered. For instance in California, the nation's largest solar market, TPO-financed solar arrays now account for more than 75 percent of the residential solar installations. These TPOs were first used to help businesses go solar with little to no upfront costs, but as solar has proliferated and states and the federal government have offered solar rebates and incentives to reduce the cost of solar, companies like Clean Power Finance, NRG Energy, SolarCity, Sungevity, SunRun, Vivint Solar and a host of others are now offering TPO agreements to homeowners.

And while Clean Power Finance is not a household name the company works with solar installers in select states to offer its TPO products as a 'white-label' product, where the company provides the financing even though the installation is carried out by a separate company.

Under these agreements, solar installations are financed by a third party or parties that invested in large tax equity or other pool of money set up to fund solar installations. The homeowner signs either a solar lease or power-purchase agreement (PPA) for the solar array, which is installed by the installer while the third-party effectively foots the bill. Then the homeowner repays either set amounts under a solar lease or for the power produced by the solar array under a PPA.

The payments are designed to be lower or close to what the homeowner would otherwise pay for electricity. Hence the homeowner not only gets a solar installation without paying the upfront costs, which can be upwards of $20,000 but also spends the same or less for solar power than they would pay for power from the grid. Depending on how the arrangement is set up the homeowner is likely to pay less for electricity from the array than from the grid over time as well, since the rates for the array and/or the power it produces are either set a constant rate or designed to increase at rate lower than the anticipated rise in the cost of grid-supplied electric.

These TPO options often carry terms of 10 to 25 years and homeowners may choose to purchase the array during the contract, in some cases, or at the end of the contract if they still owe anything.

Overall the cost of a TPO system is still more than the outright cost of a solar system. However, a system financed with a home improvement loan may be as costly because of the interest rate. There are also other benefits of having a solar lease or PPA. For instance, both generally come with service agreements, under such agreements the installer will service the system for the life of the contract. In the case of PPAs particularly the financier of the system has an extra interest in making sure the system is producing as much power as possible since their financier is paid how much electricity the system produces.

As of December 2013, TPO-financed solar power is most commonly offered in Arizona, California, Colorado, Connecticut, Delaware, Hawaii, Maryland, Massachusetts, New Jersey, New York, Oregon, Texas, Washington, and Washington D.C. It is offered in some other states as well, but some states don't currently allow TPO options.

TPO-financed solar power

The best way to find out whether or not a solar lease or PPA is available in your area is to talk with your local solar installers. You can find local solar installers and read reviews from your peers and neighbors here: SolarReviews installers. For a list of high-quality installers in your area check out SolarReviews' exclusive Pre-Screened Solar Pros. A list of solar installers that have proven themselves to be a cut above the rest.

For additional resources on TPO options visit the following links:

Solar PV Project Financing, National Renewable Energy Laboratory (NREL). This NREL report on third-party financing PPA models identifies the challenges and alternatives to such a model.

Solar Financing, Solar Energy Industries Association (SEIA).

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