Solar PV is a far cheaper option than it once was but for many owners a whizzbang system still means taking out a loan. Clean Energy Council director smart energy Darren Gladman weighs all the options.

A decade ago, when the solar boom began, there was basically a single business model – you bought a rooftop solar power system and it was installed on your home.

With solar now on the rooves of more than 1.5 million Australian homes, solar companies and installers have been expanding into new markets such as rental properties and the commercial and industrial sector. A variety of new business and finance models have been tried in recent years.

The result is more flexibility in the way solar power is financed, whether a customer is a young family who owns a free-standing house, a solo apartment renter, a brewery, a large commercial or industrial facility or a mum-and-dad small business.

Before we get started, just a reminder to make sure you do your research before choosing a solar company. Companies that have been approved under the Clean Energy Council’s voluntary Solar Retailer Code of Conduct have shown their commitment to responsible sales and marketing practices and a five-year whole-of-system warranty, as well as solar industry best practice. They will also ensure you receive particular information that will help you understand your finance arrangement. (A list of approved solar retailers under the program can be found at

The most commonly used financing models are as follows:

Ownership through conventional finance

The basics: You find the money and then pay for a solar power system, either through cash, a bank loan or simply extending your mortgage. This is the classic model and is still the way most rooftop solar is financed. Home-owners or businesses pay the cost, with support from the Small-scale Renewable Energy Scheme. The owner of the system is responsible for organising their own maintenance.

Why it works: You pay once and get the benefits of a reduced power bill for the life of the solar power system.

Things to consider: While solar power systems now cost less than a quarter of what they did last decade, buying a system outright does require a substantial investment up front – or separate finance. If you are planning to move, the system will stay with the house.

Solar leasing

The basics: Like many major appliances, it is possible to lease a solar power system, allowing you to lower your electricity bill with no up-front cost. A solar business will install and maintain the system, and you make monthly payments to use it. Some companies offer some kind of performance guarantee, taking into account normal weather variation. Solar leasing is generally suited to larger solar power systems rather than small rooftop systems.

Why it works: Being able to install a system without being out of pocket is understandably appealing. A well-designed solar system will reduce your bill, with your savings exceeding the leasing cost. That means you will save money – although perhaps not as much as you would save if you owned the system outright. This is offset by the flexibility of a leasing arrangement, and the fact that someone else is taking care of the maintenance.

Things to consider: The economics of solar leasing make it better suited to larger systems. Leasing arrangements typically have a minimum duration (such as, five years or longer). It may be worth getting financial advice before signing a contract.

Solar power purchase agreements (PPAs)

The basics: Just like solar leasing, a solar PPA can cut your electricity bill without an upfront cost. The main difference is that solar leasing operates through a monthly payment system, while PPAs require you to pay for the units of electricity that you use. Under a standard PPA agreement, a company installs and maintains a solar power system and then sells the electricity to customers – usually at a price lower than they could buy electricity from the grid. The agreements typically have a minimum duration and could last 10-15 years. In some cases, large solar systems can be installed with the solar electricity sold to multiple customers in the area.

Why it works: Paying per unit of electricity means you are saving on whatever you end up using. You don’t have to pay for anything up front and someone else takes care of the maintenance costs. If the price of grid electricity increases faster than the cost of the PPA, the savings will be even greater.

Things to consider: If a PPA agreement is based on a single system, it is important that the system is sized appropriately for your circumstances or you may end up paying for more than you need (as some contracts may require the user pay for electricity that is not consumed). It is also important to think carefully about how your circumstances might change if you are signing an agreement for a decade or more. Consider seeking financial advice before signing a contract.

Local government finance mechanisms

The basics: Some local governments offer special finance mechanisms to support building improvements and overcome the “tenant-landlord split incentive”, where the installation of solar or energy efficiency improvements would mostly benefit the tenant of a property. These mechanisms are often referred to as “environmental upgrade agreements” although they go by different names in different places. The idea is for a financier to lend money to a building owner for environmental upgrades that can include the installation of solar power. The loan is tied to the property rather than the owner of the property, and repayments are made through a charge collected by the local council and passed on to the financier.

Why it works: Capital may be available at more favourable terms due to the council involvement. Tenants save on their power bills, while building owners get the benefit of lower operating and maintenance costs, better capital value and long-term attractiveness for tenants.

Things to consider: Local government finance mechanisms are only available in certain local government areas, and currently only in Victoria, South Australia and NSW. Check with your local government for details.

Chattel mortgage

The basics: It has become common for home-owners to extend their mortgage to install solar power systems under conventional finance arrangements. However, a chattel mortgage on a solar power system is geared towards the business market, and basically means you are borrowing money to install a solar system at your property. You will own the system, but you are taking out a loan over a period of time, similar to a home loan. The lender takes the mortgage as security for the loan, which is generally paid back over 3-10 years.

Why it works: You have minimal upfront costs but you will still own the solar power system at the end of the mortgage.

Things to consider: If your energy savings will be less than your mortgage repayments you will not see benefits until after the loan is repaid. As with other forms of outright ownership the maintenance of the system falls back on you. Also, the mortgage stays with the system, adding an extra complication if you decide to sell your home. Consumer credit protection does not apply to chattel mortgages, so be sure you understand the risks or seek financial and legal advice before entering into any contracts.

Which to choose?

It really depends on your individual circumstances. Buying your system outright using cash or extending your mortgage has worked well for most home-owners. There is still not an ideal model for residential renters, especially not in high-rise apartments where roof space is limited.

Finance models like solar leasing and solar PPAs generally make more sense for the business market, while local government mechanisms such as environmental upgrade agreements are generally best suited to building owners making substantial investments.