correction

A previous version of this article incorrectly said the company Go Solar was in Glendale, Calif. It is located in Salt Lake City. This article has been corrected.

In recent years, concern over rising energy costs and power outages has increased demand for solar panels. Solar companies installed a record 19.2 gigawatts of capacity in 2020, an increase of 43 percent over 2019, according to a report by Wood Mackenzie and the Solar Energy Industries Association.

Solar panel costs vary according to your location and the size of the system, which depends on your energy use and your roof space. Installing solar panels and an inverter costs between $15,000 and $25,000 on a 3,000-square-foot home with two adults and two kids, says Scott Cramer, CEO of Go Solar in Salt Lake City.

Battery storage for the electricity your panels produce costs about $10,000 to $15,000, says Arno Aghamalian, CEO of Solar Optimum in Glendale, Calif.

With such steep costs, few consumers likely will be able to pay cash for their panels. Here’s a look at how you can finance them:

Lease or loan

Homeowners can finance solar panels with a lease or a loan. About 80 percent of homeowners purchase their solar panels, says Cramer.

Most homeowners finance their solar energy with a home improvement loan, a home equity line of credit or a solar-specific loan, according to Cramer.

“Solar financing is typically a 25-year loan with a low interest rate, currently around 2.99 percent,” says Pablo Diaz, CEO of USA Solar Networks in Phoenix. “Most people want to buy their solar panels so they can take advantage of tax breaks for solar energy, but if someone doesn’t have much taxable income, a lease may be a good option.”

Some people prefer to lease to avoid debt, says Diaz. Solar financing is an unsecured loan without a lien on your property, but it will appear on your credit report, he says.

A few companies offer a hybrid arrangement in which they install the equipment for homeowners without upfront cash or ongoing payments in exchange for the solar credits the panels generate. The rules governing them can be complicated, so be sure you understand them before signing an agreement.

If you sell your home, a lease can be transferred to your buyer as long as they qualify for the payments, says Aghamalian.

Solar energy loans are not assumable by a buyer, so home sellers must pay off the loan or continue making payments until the loan is paid in full, says Diaz.

“Home sellers typically increase their listing price to pay off the solar financing,” Diaz says.

Tax benefits

Homeowners who install a solar energy system are eligible for a 26 percent federal income tax credit for systems installed in 2021 and 2022 and a 22 percent tax credit for systems installed in 2023. The federal tax credit expires at the end of 2023 unless Congress chooses to extend it. A tax credit, unlike a deduction, allows you to directly subtract the amount of your credit from your federal income tax bill.

For example, if you spend $30,000 installing solar panels and battery storage, you may be eligible for a tax credit of $7,800.

State and local jurisdictions also offer incentives for solar energy. Most solar energy installers also provide information to their customers, Diaz says.

Tracking your solar savings

While every utility company is different, many offer “net metering” that tracks the electricity produced by your solar panels and your energy use. Any excess electricity is either stored in your battery or goes onto the grid, says Cramer.

“Some companies credit you one kilowatt for every kilowatt you produce above what you use, while others base your credits on a wholesale rate instead of the retail rate that customers pay,” says Aghamalian.

Some utility companies carry over credits from one month to another, while others pay customers for excess electricity monthly, says Cramer.

“Some utilities pay wholesale rate for all the power generated by homeowner’s solar panels and then have the homeowner purchase the power back at retail rates,” says Cramer.

Many solar installers provide an app so homeowners can monitor their production levels to compare with their utility bills.

Solar panels typically have a 25- to 30-year warranty, with a 20-year warranty on the inverter and a 15- to 20-year warranty for the racking system, says Diaz.