How to Finance Solar Installation – Loans, Leasing, and More

In the UK, the shift towards renewable energy has accelerated in recent years, driven by rising electricity costs, environmental concerns and government initiatives. Solar power, in particular, has become an increasingly popular solution for homeowners and businesses seeking greater energy independence. However, for many, the initial investment required to install a photovoltaic (PV) system is a significant barrier. That’s where understanding how to finance solar installation becomes crucial. Today, there are multiple ways to make solar energy affordable through a range of financing methods tailored to different needs and financial circumstances.

Why Finance Solar Installation Instead of Paying Upfront?

While paying for a solar installation outright offers the benefit of full ownership and the greatest long-term savings, it is not financially feasible for everyone. Financing a solar installation allows households and businesses to spread the cost over time, making it far more accessible. In fact, many people find that the monthly payments for a financed system are offset by the savings on their electricity bill, meaning that solar becomes cost-effective from the very beginning.

Moreover, financing options allow users to benefit immediately from energy bill reductions, increased property value and environmental advantages, without depleting personal savings or taking on financial risk. Financing can also enable homeowners to access better technology, such as battery storage systems, that they might not have been able to afford otherwise.

Solar Loans in the UK

One of the most straightforward ways to finance solar installation is through a personal loan, also known as an unsecured loan. These are widely available through banks, building societies, and online lenders. Some energy companies and solar installation firms also offer dedicated green loans or partner with third-party financiers to facilitate the process.

Unsecured vs Secured Loans

Unsecured loans are not backed by any collateral, meaning that your property is not at risk if you default. These loans are typically easier to access, though interest rates may be higher, especially for those with limited credit history.

Secured loans, on the other hand, are tied to an asset – often your home. While they may offer lower interest rates and higher borrowing limits, they come with the risk of repossession if payments are missed.

Interest Rates and Terms

Interest rates for personal loans can vary significantly based on your credit score, income, and loan term. In 2024, average APRs for solar loans in the UK range from 4% to 12%, with repayment periods between 2 and 10 years. Some lenders offer promotional green loans with discounted rates specifically for energy efficiency improvements, including solar panels.

When comparing loans, be sure to consider the total repayment amount, not just the monthly cost, and check for any hidden fees or early repayment charges.

Solar Leasing and Power Purchase Agreements (PPAs)

For those who want to go solar without taking on debt or paying upfront, solar leasing is an alternative worth considering. Although less common in the UK than in countries like the United States, solar leasing and PPAs are emerging as viable options in certain areas.

With a solar lease, a third-party provider installs the system on your property and you pay a fixed monthly fee for the use of the equipment and the energy it generates. Similarly, in a PPA arrangement, you agree to purchase the generated electricity at a rate lower than the standard utility tariff.

These arrangements typically last between 15 and 25 years, during which the provider retains ownership of the equipment and is responsible for its maintenance.

Pros and Cons of Leasing

Pros:

• No upfront cost

• Equipment maintenance is covered by the provider

• Predictable monthly payments

Cons:

• You don’t own the system

• You may not be eligible for government incentives

• Selling your home may require transferring the lease

Although these models are still relatively rare in the UK residential market, some companies and community energy groups are beginning to adopt them, particularly for commercial and public buildings.

Government Grants and Support Schemes

One of the key incentives available to help finance solar installation in the UK is the Smart Export Guarantee (SEG). While it doesn’t reduce the initial cost of installation, it does provide a steady income stream by paying households for the excess electricity they export back to the grid.

Smart Export Guarantee (SEG)

Under the SEG, energy suppliers with over 150,000 customers are required to offer tariffs that pay small-scale renewable energy generators (like solar panel owners) for every kilowatt-hour (kWh) exported. Rates vary between suppliers, but can range from 1p to 15p per kWh, depending on the provider and contract terms.

This incentive can significantly improve the return on investment for financed solar systems by reducing the time needed to pay off the cost.

ECO4 Scheme

While not directly applicable to all solar installations, the UK government’s ECO4 scheme aims to help low-income households improve energy efficiency. In certain cases, solar panels may be included as part of a broader package of improvements, particularly in properties with poor energy ratings.

ECO4 is delivered through energy suppliers, so eligibility and access may vary. If you are on certain benefits or your home has a low EPC rating, it’s worth investigating this option.

Green Mortgages and Home Improvement Loans

For homeowners considering major renovations or property upgrades, a green mortgage may be a valuable option. Some lenders offer mortgage products that provide additional funds or favourable terms for properties that include energy-efficient upgrades like solar installations.

These products may come with incentives such as lower interest rates, cashback, or reduced fees, provided that the property meets certain energy performance requirements after the work is completed.

Alternatively, a home improvement loan secured against the property can also be used to finance solar installation. This route may offer better interest rates than unsecured personal loans but requires a more thorough application process.

Energy Company Financing Schemes

Several energy providers in the UK have begun offering their own financing schemes or partnerships to encourage residential solar adoption. These schemes often include installation, financing, and maintenance bundled into one contract.

For example, Octopus Energy and E.ON have both launched solar installation programmes with flexible payment plans, allowing customers to spread the cost over several years. Some of these packages include solar panels, inverters, and battery storage, providing a comprehensive energy solution.

Such schemes can be convenient and competitively priced, but it’s essential to read the fine print and understand the total cost over time.

Community Solar Projects

For those who can’t install panels on their own roof—such as renters, flat-dwellers, or those with shaded roofs—community solar projects offer a collective approach to accessing solar energy. These projects involve groups of individuals investing in a shared solar array, often located off-site.

Participants receive a proportion of the electricity generated, either directly (if connected to the grid) or as a credit on their energy bill. Community solar can also be a powerful way to lower the cost of solar through economies of scale.

Although still in development in many areas, the UK has several successful community energy organisations, such as Energy4All and Brighton Energy Co-op, that are pioneering this approach.

Self-Financing Through Savings or Staged Installation

Some homeowners opt to self-finance their solar installation through personal savings. While this requires more patience and discipline, it offers the benefit of full ownership without the burden of loan repayments or interest.

Others take a staged approach, beginning with a smaller solar array and expanding it over time as funds become available. This method allows households to start benefiting from solar energy on a modest budget, gradually increasing capacity as savings grow.

Though slower, this approach gives full control over the pace of investment and avoids long-term debt.

Evaluating Return on Investment

Regardless of how you finance solar installation, it’s important to assess the long-term value. A well-positioned solar system can generate significant energy savings over its 25+ year lifespan. For many households, this translates into thousands of pounds in avoided electricity costs.

In addition to direct savings, solar panels can increase property value. Prospective buyers often see solar-equipped homes as more energy-efficient and future-proofed, which can make them more attractive on the market.

When financing, it’s essential to calculate your payback period—the time it takes for the savings to match the cost of the system. This will vary depending on factors like system size, electricity usage, export tariffs, and the method of financing.

Key Considerations Before Financing

Before committing to any financial product or agreement, consider the following:

• Your monthly budget: Ensure you can comfortably manage the repayments over the agreed term.

• Credit rating: A better credit score usually means better loan terms and lower interest.

• Government incentives: Factor in the SEG and any other relevant schemes that may offset your costs.

• System sizing: Work with a certified installer to size the system appropriately to your energy needs and property characteristics.

• Installer reputation: Choose MCS-certified installers with positive customer feedback and strong warranties.

A thorough understanding of your options will help ensure that your investment in solar is not only environmentally sound but also financially sustainable.

FAQ: Frequently Asked Questions About How to Finance Solar Installation

1. Can I get a government grant to install solar panels in the UK?
While direct grants are limited, schemes like the Smart Export Guarantee provide payments for surplus electricity. Some low-income households may qualify for free installations under the ECO4 scheme.

2. How long does it take for a solar system to pay for itself?
Most systems in the UK reach payback within 6 to 10 years, depending on usage, system cost, and energy tariffs. After that, the electricity generated is essentially free.

3. Can I still claim SEG payments if I finance my system?
Yes. If you own the system, even with a loan, you are eligible for SEG payments. However, leased systems are typically not eligible, as you don’t own the equipment.

4. What happens if I sell my house while still paying off my solar loan?
The remaining loan can usually be paid off during the sale, or in some cases, transferred to the new homeowner. Always check the terms of your financing agreement.

5. Are solar loans tax-deductible in the UK?
No, there are currently no tax deductions available for solar loan interest in the UK. However, you can benefit financially through SEG payments and reduced energy bills.