When the 30% homeowner solar tax credit went away, the assumption was that leases would become much harder for loans to compete against. TPO providers can still take advantage of commercial tax credits under Section 48E, while a homeowner financing a system with a loan no longer gets the Section 25D credit.
But we've been hearing something different from installers in the OneEthos network. When they compare Climate First Bank's no-dealer-fee loan against standard and prepaid leases, the monthly payments are often much closer than expected. Most of the time, the loan monthly payments are actually lower.
So we built a calculator to compare loans, leases, and prepaids for a variety of cases. Test the embedded version of it below. If you'd like a standalone version, go here: Solar Financing Comparison Calculator
TPO gets the tax credit. Loans get the lower system cost.
The TPO provider's tax advantage is real, but the tax credit isn't the only thing that determines the homeowner's payment. You also have to look at what the system costs before it gets financed.
TPO projects can require FEOC-compliant and domestic-content equipment, along with additional provider requirements. When we compared actual equipment quotes with a leading national distributor, a TPO-compliant bill of materials came in 30% to 61% higher than what the same installer could use for a cash or loan project.
We broke down that difference in our side-by-side comparison of TPO vs. cash and loan pricing.
With a no-dealer-fee loan, you're financing your own installed price instead. Depending on the gap between those two prices, the lower cost of the loan project can offset a surprising amount of the TPO provider's tax advantage.
Here’s exactly what we modeled
The calculator compares three ways to finance the same-sized solar system.
Climate First Bank loan: A 7.25% loan with a 30.5-year structure, no dealer fee, and a $1,125 origination fee rolled into the financing. The homeowner gets a fixed payment and owns the system from day one.
Standard lease: A 25-year TPO lease on the higher-priced TPO system. We assume the provider receives a 40% Section 48E credit, the 30% base credit plus the 10% domestic content bonus, and prices the lease to earn a 10% yield on the remaining system cost. The default escalator is 2.99%, so the payment starts lower and increases every year.
Prepaid lease: The same TPO-priced system, with a 25% prepaid discount as the default. We then assume the homeowner finances that amount with a 20-year loan at 8.99%, plus a $295 loan fee and no dealer fee. The homeowner may be able to purchase the system beginning in year six at its appraised fair market value, which is why the calculator lets you stress-test different buyout amounts rather than assuming one.
For more detail on that structure, see our guide to prepaid solar leases.
Leases can start lower, but loans win soon thereafter
Our default scenario uses a $2.50/W cash or loan price and a $3.50/W TPO price.
At those inputs, the standard lease starts about $29 per month below the loan, but the lease payment passes the loan in year eight as the 2.99% annual escalator compounds. By year 25, the lease payment is about $127 per month higher.
The prepaid lease comes out about $57 per month higher than the Climate First Bank loan. The TPO discount helps, but the homeowner is still financing a more expensive system at a higher rate over a shorter term.
Run your numbers before deciding which financing to lead with
Start by replacing our $2.50/W assumption with what you actually charge for a cash or loan project. Then enter what it costs you to build the equivalent TPO-compliant system. Those two numbers drive much of the comparison.
From there, adjust the lease escalator and prepaid discount to match the products you're actually selling or competing against. If you're looking at prepaid leases, you can also test different year-six fair-market-value buyouts to understand how that future purchase affects the economics.
The goal isn't to prove that loans always beat leases. They don't.
It's to find out whether the assumption that TPO automatically wins without the homeowner tax credit is actually true for your business.
Run your numbers in the calculator.
If the Climate First Bank loan looks competitive with the financing you're already offering, book a call with OneEthos and we'll walk through how it works.
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