Take five minutes to Google solar panels. It could be for module performance, local contractors, energy storage, applicable tax credits; the search terms hardly matter. Then login to the social media channel of your choice and scroll through your feed. Prepare to be inundated with all manner of ads promoting local programs and third-party providers offering “no cost” solar packages, smart home systems, applications for power purchase agreements (PPAs), low-interest loans, and the like.

When navigating a market that’s become increasingly flooded with a mix of start-ups and established utility providers now champing at the bit to make homeowners more energy independent, a bit of upfront skepticism is healthy when being offered anything of value with no upfront costs.

Paying for power

Read the fine print for sure, but also take some comfort in the fact that “most people who go solar don’t pay anything upfront.” This is according to David Feldman, a senior financial analyst with the U.S. Department of Energy’s National Renewable Energy Laboratory (NREL). “The price of these systems has come down so much, and there are so many financial products that allow people to not have to deal with that upfront burden.”

The products he’s referring to comprise leases and PPAs, which represent about 30% of market share, and loans, which have increased in popularity in recent years to attain about 50% of the market. (The remaining 20% are cash purchases, which isn’t as bad as it sounds; due to oversupply, competition, and decreasing freight costs, global module prices are at an all-time low.) Couple these mechanisms with federal tax credits and, where available, state rebate programs, and the overall price of tapping into solar power not only becomes more appealing but accessible as well.

For reference, a Power Purchase Agreement is a financial arrangement in which a third-party developer owns, operates, and maintains a homeowner’s photovoltaic system. The homeowner sites the system on their property and purchases the system’s electric output from the solar services provider for a predetermined period. The individual terms of a PPA are typically determined by state and/or municipal laws, whereas lease agreements are mostly determined by the services provider and leasing agent. Feldman refers to PPAs and leases as “different flavors of the same thing.”

Codifying consumer incentives

Not too long ago, solar power for residential use was an exclusive pursuit, a high-priced luxury. This legacy tends to linger in the minds of many who could access the renewable energy source with relative ease. Whether the goal is to get a loan and own your own equipment, lease the equipment from a third party and “host” a solar array on your property, invest in a community solar farm and qualify for discounts from a local utility provider, or some other variation, this journey will likely begin at the federal level.

Thanks to the Inflation Reduction Act (IRA), the uncapped investment tax credit, aka 25D credit, of 30% for homeowners to claim against the costs of PV panels, inverters, energy storage systems, and various labor-related expenses—installation, permitting, inspection—was extended through 2032. (The 25D credit can also be applied for geothermal heating and other renewable energy systems.) For anyone who lives in one of the DOE’s federally designated Energy Communities, where the extraction and refinement of coal, oil, or natural gas was the chief economic driver for generations, homeowners who produce or invest in solar can qualify for an additional 10% tax credit bonus.

The credits are nonrefundable, which will be of small comfort to many low-income households with little to no federal tax liability. That said, taxpayers can carry over any unused amount of the credit to reduce their liability in future years. Individuals may also see reduced pricing for leasing options or community solar programs, owing to the associated contractor or other commercial entity that’s taking advantage of investment tax credit for businesses, according to a U.S. Department of the Treasury representative.

At the state level

Beyond anything specified in the Internal Revenue Code, private citizens interested in pooling together incentives will find themselves at the whim of their state’s laws. Fortunately, the country as a whole is slightly more progressive on this issue than some might expect, for the most part. California was among the first states to offer consumer rebates, in the form of the California Solar Initiative (CSI), which launched in 2006. This ten-year public program was part of a larger statewide effort—the $3.3 billion Go Solar California—to generate 3000 megawatts. Assisting that campaign, the CSI rebate had a tiered structure to incentivize greater production and adjust accordingly as the market grows, and the prices of solar and storage come down.

Other states have followed suit. The Oregon Department of Energy (ODOE), for example, hosts the Oregon Solar and Storage Rebate Program, which launched in 2020. The program offers homeowners up to $5000 for solar electric and up to $2500 for energy storage. This rebate program, which can be combined with tax credits and other utility-funded rebates, exists to even the playing field. (Go here for a state-by-state breakdown of different incentive programs, including rebates and credits, specific businesses, loan companies, and advocacy groups.)

“Tax credits really favor those with tax liability,” says Rob Del Mar, a senior policy analyst with ODOE. “And if you want to try to serve low- and moderate-income [homeowners], tax credits are not the best way to go about that. That’s a shortcoming of the federal programs.”

While the rebate cap is fixed, the price per watt is adjusted for household income. As a bonus, per IRS guidance, this state-sanctioned rebate doesn’t reduce the amount of federal tax credit that can be claimed, unlike some utility-backed rebates.

Getting around deregulation

In the first quarter of 2023, the U.S. installed 5.7 gigawatts of AC (alternating current) of photovoltaics. This represents the largest Q1 on record, and much of it was installed in the three most populous states: California, Texas, and Florida. In terms of demographics and meteorological conditions, this makes perfect sense. But the political landscapes in which all that solar exists are quite different.

Florida’s Governor Ron DeSantis, once (and possibly still) a proponent of energy independence in the Sunshine State, made headlines in August 2023 when he elected to block IRA funds from entering the state. Presumably, this would extend to the EPA’s $7 billion Solar for All grant program, which was created by the IRA’s Greenhouse Gas Reduction Fund to increase the accessibility of solar to low-income communities. In fairness, Florida does allow net-metering (more on that below) for consumers, but currently lacks any meaningful oversight of utility companies and electricity cooperatives. But hey, there’s always private enterprise.

Florida PACE is a governmental entity that provides funding for home efficiency upgrades. Executive director Mike Moran describes his organization in terms of carrying out a public interest but with private dollars. (Funds come from selling bonds in the private market.) Founded in 2011, PACE provides non-predatory loans and consumer protection for homeowners looking to “hurricane harden” their property, which extends to roofing, windows and doors, generators, and to a lesser but growing degree, solar arrays and storage.

“When you’re sitting at the kitchen table,” Moran says, “the choice is unsecured debt on a credit card, at 29%, or using PACE,” which he cites at 9% but concedes was much lower before interest rates began ticking upward. “It used to be blue tarps on your roof or nothing. That’s why we exist.”

Moran says that PACE voluntarily “self-inflicts” in matters where the state legislature doesn’t step in. “We are only allowed to finance 20% of the Just Value of the home, which is much lower than Fair Market Value. We don’t let [homeowners] finance more than 90% of the market value of the home, so they can’t get upside down on their house. And we’re not allowed to finance beyond the useful life of the product.” In the end, the contractor doesn’t get paid until the customer is satisfied, and the principal of the loan is applied to their property tax bill.

In Texas, things get even more complicated. While the State House hasn’t rejected IRA funding and Solar for All grants, the state’s rapidly expanding but deregulated solar market is governed, in the loosest sense of the word, by a handful of municipal utilities and retail electric providers. Lacking oversight, best anyone can tell, most of these actors operate in good faith.

Austin Energy, a municipal utility that services customers throughout Travis County and parts of Williamson County, has been in the solar game for decades. In the late 1990s, the utility provider started a community solar program that installed panels on customers’ rooftops and was designed to gauge the impacts of net-metering and community solar strategies.

Tim Harvey, Austin Energy’s manager of customer solutions, estimates this program was among the first, “if not the first” of its kind in the country. “We were really starting to develop an industry,” he says. Austin Energy has continued to stand out ever since, perhaps most notably with its decision to transition from a policy net-metering to a credit model of its own design.

Net-metering method

Currently, 38 states plus Washington, DC, and Puerto Rico have mandatory net-metering rules in place. (Texas isn’t one of them.) Net-metering is when a utility provider records any excess energy generated by solar and applies it to a customer’s bill as a credit toward energy drawn from the grid. Customers simply sell their unused electricity back to the grid. Such regulatory practices are reliant on market forces and whatever a particular utility determines that electricity is worth.

David Feldman refers to net-metering as an easy starting point for states. “But at some point, it’s no longer tenable for some places. Where this isn’t a lot of solar, utilities don’t necessarily need to worry about managing that amount of energy. As you get more electricity from distributed renewables, they really have to start thinking about more grid planning, and then it becomes more of an issue.”

Tim Harvey says that through net-metering, Austin Energy was “under recovering.” “Net-metering policies tend to do this,” he says, “because most utilities wrap their fixed costs into their volumetric charges. And if a customer is deferring those charges, it erodes their cost recovery.” In other words, non-solar customers ended up paying for portions of their neighbors’ solar, and consequently those solar customers saw their credits reduced. Costs shifted; no one benefited.

Getting creative for equity

To realize a more equitable policy that benefited every solar customer, Austin Energy launched Value of Solar in 2012. The methodology behind this was to “decouple the consumption rate from the production credit. Then you can start to have clearer conversations and approaches to setting proper rates. Now we’re looking at transmission cost avoidance and addressing things like line loss. We’re looking at the value of the energy that’s produced,” Harvey says. Originally, applicable credits on customers’ electric bills would dissolve after one year, but after protests, that policy feature was amended to have no expiration date.

This practice of stacking individual values to yield one holistic value is definitely uncommon, for public utilities or any other entity. Austin Energy, on the other hand, saw it as an opportunity to expand its offerings. It has launched a multifamily program and a shared-solar program with virtual metering; and it has broadened its community solar program to include 4.3 megawatts of capacity, with plans to scale up.

To be continued

To be certain, rooftop solar isn’t for everyone. (An estimated 4 million U.S. homes are currently equipped with standalone photovoltaic arrays—a small percentage of U.S. housing stock.) Home orientation, available square footage, and tree canopies can all be a hindrance. Another obstacle—arguably the biggest obstacle—can be not owning your home. This is where community solar enters the picture. I’ll pick up here in “The Cost of Solar Power, Part 2,” which will publish in two weeks.

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The full series

Financing Solar Power, Part 1

Financing Solar Power, Part 2

Financing Solar Power, Part 3

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