Financing the cost of solar power

Maria Stamas is a fellow at Rocky Mountain Institute.

Solar panels have been commercially available for decades, yet few homeowners in the United States have installed them. In theory, they make perfect sense. They don't pollute, they offer greater security from power outages, and they keep your energy bills from fluctuating with the price of coal or other fossil fuels.

So what's standing in the way of wider adoption?

The biggest barrier is cost. Purchasing photovoltaic panels for your house is the equivalent of paying for 20-plus years' worth of electricity up front, a feat no more affordable than asking a family to buy 20 years' worth of food in advance.

Add to that the large electricity demand of most American homes (hard to meet with a small array of panels), and solar starts to look like a less attractive option—even for the well-intentioned consumer with deep pockets.

Making solar affordable for the average homeowner starts with energy efficiency. If you're thinking of adding solar panels to your roof, it's best to do a thorough audit of your home energy use. That way you can reduce the amount of electricity you need to generate on-site in the first place.

Swap out your incandescent lights for CFLs, install energy-efficient appliances, and make sure your house is sealed up tight so that the heating and air-conditioning units aren't working overtime.

After you've done all that, consider some of the following government and commercial programs.

Solar panel vendors usually charge full price (around $15,000–$30,000) for hardware and installation up front. Fortunately, a number of businesses are sprouting up to help people finance that investment over the life of the panels.

Citizenre REnU, a company based in Colorado, allows its customers to pay a locked-in rent based on their average electricity consumption prior to purchase. This locked-in rent can last up to 25 years and covers installation costs and maintenance fees.

SunEdison sells a similar service in California, Colorado, New Jersey, Connecticut, Rhode Island, and Hawaii.

For other areas, energy-efficient mortgages are an option. Under these mortgages, homeowners can roll the cost of solar panels into their loan and increase their borrowing limit.

The federal government supports energy-efficient mortgages through the Federal Housing Authority.

Energy Star also has a list of EPA-approved lenders for qualifying houses.

Recently, some local governments have drafted plans to promote solar power. One of the most ambitious plans yet was just passed in Berkeley, California.

In November, the city's council approved a proposal to allow property owners to pay for solar panel installation and energy efficiency improvements by placing a tax lien with very low interest rates on their houses.

The homeowner would own the solar panels, and the annual payments would be about the same or less as projected savings on energy bills.

After a pilot phase next year, the city expects to help finance solar panel installations on 100–125 homes and businesses a year, for 10 years.

Aside from large-scale financing, rebates and subsidies available in many states can help offset costs as well. These incentives range from a set cash refund to a consistent discount of a couple cents per kilowatt-hour generated.

To find out what incentives are available in your state, visit the Database of State Incentives for Renewable Energy (DSIRE) or contact your state's energy office.

Also keep in mind that if your solar system is tied to the power grid, your utility company might pay to use any excess electricity you generate. This would further offset the cost of the system. Your local utility can tell you whether this "net-metering" is available in your area.