How Does Solar Financing Work in Colorado?
How Does Solar Financing Work in Colorado
Solar financing allows Colorado homeowners and businesses to install solar energy systems without paying the full cost upfront. Instead of an all-cash purchase, customers can spread payments over several years through a solar loan, solar lease, or power purchase agreement (PPA). Each option offers a different ownership structure, repayment plan, and set of financial benefits.
When a homeowner buys a system outright with cash, they own the panels immediately and can claim all available solar incentives and tax credits, most notably the 30% federal Investment Tax Credit (ITC) valid through the end of 2025. Financing options, on the other hand, make solar accessible to more households by reducing initial costs and allowing energy savings to offset loan or lease payments over time.
Colorado has strong policies that encourage renewable energy adoption. The state’s Renewable Energy Standard (RES) requires investor-owned utilities like Xcel Energy to generate at least 30% of their electricity from renewable sources by 2030. To support this, Colorado residents can access several forms of financial aid, including:
- Federal Solar Investment Tax Credit (ITC): 30% credit on the total system cost for owned systems
- Colorado Property Tax Exemption: Solar systems are exempt from property tax assessments, preventing an increase in assessed home value due to solar installation
- Sales Tax Exemption: Colorado exempts solar equipment from state sales tax, reducing upfront costs by around 2.9%
- Local Utility Rebates: Some municipal utilities and cooperatives, like Holy Cross Energy, Colorado Springs Utilities, and Fort Collins Utilities, offer rebates ranging from $250 to over $1,000 per system
Together, these programs reduce the overall cost of solar ownership, making financing a viable pathway for both residential and commercial customers across the state.
Solar Financing Options in Colorado
Homeowners in Colorado have multiple solar financing options. These include cash purchases, solar loans, solar leases, and third-party ownership (TPO) models such as power purchase agreements (PPAs). Each offers distinct advantages depending on your financial goals, eligibility for tax incentives, and appetite for long-term ownership.
Cash Purchase
Paying cash is the simplest way to go solar, offering the highest return on investment and immediate ownership. Cash buyers qualify for all federal and state incentives, including the ITC. However, this option requires significant upfront capital, typically $17,000 to $22,000 for an average 6 to 7 kW system in Colorado.
Solar Loans
A solar loan allows homeowners to spread the system cost over 5 to 20 years, similar to a home or auto loan. Loan payments are offset by monthly electricity savings, often resulting in net-positive cash flow within a few years. Because the homeowner owns the system, they still qualify for federal and state solar incentives.
Solar Leases
With a solar lease, a third party owns and maintains the system, while the homeowner pays a fixed monthly fee to use the generated power. This structure requires no upfront cost and simplifies maintenance, but the homeowner does not qualify for tax incentives since they don’t own the panels.
Power Purchase Agreements (PPA)
A PPA or power purchase agreement is similar to a lease but differs in payment structure. Instead of a flat monthly payment, the homeowner buys the electricity generated by the system at a predetermined rate, typically lower than the local utility’s price per kilowatt-hour (kWh).
Comparison of Colorado Solar Financing Options
| Financing Option | Ownership | Upfront Cost | Qualifies for Incentives | Maintenance | Typical Term | Ideal For |
|---|---|---|---|---|---|---|
| Cash Purchase | Homeowner | High | Yes | Homeowner | None | Those seeking max savings |
| Solar Loan | Homeowner | Low-to-Moderate | Yes | Homeowner | 5–20 years | Most homeowners |
| Solar Lease | Third Party | $0 | No | Third Party | 15–25 years | Renters or low-credit households |
| Power Purchase Agreement (PPA) | Third Party | $0 | No | Third Party | 15–25 years | Those wanting predictable rates |
Industry data suggests that in Colorado, roughly 45% to 50% of homeowners use solar loans, around 30% opt for leases or PPAs, and 20% to 25% pay with cash.
Types of Solar Loans in Colorado
A wide range of lenders in Colorado provide solar loans, including:
- Local and national banks (e.g., Elevations Credit Union, Wells Fargo)
- Solar installers offering in-house financing programs
- Green-energy lenders such as Mosaic, Sungage, and GoodLeap
- Credit unions specializing in sustainable lending
Solar loans in Colorado are generally classified into two types: secured and unsecured loans.
Secured Solar Loans
A secured solar loan uses collateral, commonly home equity, to reduce the lender’s risk. Because the loan is tied to an asset, borrowers often enjoy lower interest rates and longer repayment terms. However, defaulting can risk loss of the collateral. Home Equity Lines of Credit (HELOCs) and Home Equity Loans are typical examples.
Unsecured Solar Loans
Unsecured loans, also known as signature loans, require no collateral but depend heavily on creditworthiness. Interest rates tend to be higher, but approval is quicker, and the process involves less paperwork. These are often available through solar installers or online green lenders.
Comparison of Secured vs. Unsecured Solar Loans
| Loan Type | Collateral Required | Interest Rate | Approval Speed | Risk Level | Typical Term | Best For |
|---|---|---|---|---|---|---|
| Secured Loan | Yes | Lower (4% – 7%) | Slower | Higher (asset risk) | 10–20 years | Homeowners with equity |
| Unsecured Loan | No | Higher (6% – 10%) | Fast | Lower (credit-based) | 5–15 years | New homeowners or renters |
The choice between secured and unsecured loans depends on financial stability and long-term goals. Many Coloradans prefer unsecured solar loans for their simplicity, especially when using installer-provided financing.
How to Find the Best Solar Loans in Colorado
Choosing the best solar loan in Colorado involves balancing interest rates, repayment terms, and lender reputation. Because each borrower’s situation differs, understanding how these variables interact is essential.
Key Considerations for Selecting a Solar Loan
- Interest Rate: Rates typically range from 4% to 9%, depending on credit score, loan type, repayment period, and lender
- Loan Term: Most solar loans in Colorado offer durations between 5 and 20 years. Longer terms lower monthly payments but increase total interest paid
- Down Payment: Some loans require a small down payment, while others finance 100% of the project
- Prepayment Flexibility: The best loans allow prepayment without penalties, enabling faster payoff as energy savings accumulate
- Installer Partnerships: Many top solar installers partner with lenders to simplify approvals and offer promotional APRs
An ideal solar loan rate in Colorado is typically below 6% for borrowers with strong credit (700+ FICO). For moderate credit profiles, rates between 7% and 9% are common.
Example: Comparing Loan Scenarios
| System Cost | Loan Type | Term | Interest Rate | Monthly Payment | Total Paid | ITC Value (30%) |
|---|---|---|---|---|---|---|
| $20,000 | Unsecured | 10 years | 7% | ≈$232 | $27,800 | $6,000 |
| $20,000 | Secured | 15 years | 5% | ≈$158 | $28,400 | $6,000 |
Even with interest, both financing paths produce net savings compared to continued utility payments, especially as electricity rates rise across Colorado.
Can I Get Free Solar Panels in Colorado?
“Free solar” programs in Colorado typically refer to third-party financing arrangements such as solar leases and PPAs, not truly free installations. These options allow homeowners to install panels with no upfront cost, paying only for the power the system generates or a fixed lease amount.
Solar Lease
A solar lease lets homeowners use a system owned by a third-party provider. They pay a monthly fee that remains consistent throughout the contract term. The provider handles maintenance, insurance, and performance monitoring. While this eliminates initial costs, it also means the homeowner cannot claim the solar incentives or tax credits.
Power Purchase Agreement (PPA)
A PPA or power purchase agreement differs slightly. Instead of paying a fixed lease, the homeowner pays for the actual power generated by the panels, usually at a discounted rate compared to the utility price. Over time, PPAs can save 10% to 25% on electricity bills, depending on local utility rates and system performance.
Comparison: Solar Lease vs. PPA
| Feature | Solar Lease | Power Purchase Agreement (PPA) |
|---|---|---|
| Ownership | Third Party | Third Party |
| Payment Type | Fixed monthly rate | Per-kWh rate |
| Qualifies for Incentives | No | No |
| Maintenance Responsibility | Provider | Provider |
| Cost to Start | $0 | $0 |
| Potential Savings | Moderate | High (if energy use is high) |
Both solar lease and PPA models fall under third-party ownership (TPO). They make solar adoption feasible for households with limited capital or lower credit scores. However, homeowners who want full control and maximum long-term savings generally prefer solar loans or direct ownership.
How to Get Solar Financing in Colorado
Getting solar financing in Colorado begins with selecting a reputable solar installer. Some solar financing companies provide free home evaluations and can recommend financing solutions tailored to your budget and credit profile. After the site evaluation, installers prepare a detailed proposal outlining system size, cost, expected energy production, and available solar incentives like the 30% federal ITC and state exemptions. This proposal will also show how financing affects your savings over time.
Once you choose your financing method, whether it’s a solar loan, lease, or PPA, you will need to complete a financing application. For solar loans, credit score plays an important role. Most lenders prefer a score of at least 650, though some installer-partnered programs accept lower scores with higher interest rates. Approved borrowers sign the financing agreement, which specifies payment terms, interest rate, and loan duration. When financing is secured, installation usually begins within a few weeks.
If you opt for a solar lease or PPA, the process is simpler. The third-party provider owns and installs the system on your property, and you start paying either a fixed monthly lease or a per-kWh energy rate once the system is operational. You won’t own the panels, but you will enjoy lower energy costs and little to no maintenance responsibilities. These contracts are regulated under Colorado’s consumer protection rules to ensure fairness and transparency.
A solar loan may appear on your credit report and can affect your credit score in the same way as other loans. Making timely payments can help improve your score over time, while late payments can reduce it. Choosing the right loan with manageable monthly payments is therefore essential to maintaining good credit.
Regardless of the financing path chosen, Colorado residents benefit from a favorable solar market supported by state policies, utility rebates, and strong net-metering laws. Financing a solar system, whether through ownership or third-party options, allows homeowners to enjoy immediate savings and long-term energy independence while supporting the state’s clean energy goals.