If you live in a location with high electric rates and local incentives, it's very likely that the economics for a rooftop solar system are favorable. But many people don't have the $20-25k cash that these systems typically cost. Fortunately, over the past few years a range of new residential solar financing options have been developed. These new financing options have spurred the growth of rooftop solar throughout the U.S.

In addition to a cash purchase, solar financing options also include a home equity loan (secured) or ordinary bank loan (unsecured), lease or Power Purchase Agreement (PPA), and Property Assessed Clean Energy (PACE) loan. Although the details of these financing options can get pretty complex, with some "back of the envelope" calculations you can figure out the economics for yourself. First, add up your total electric bill for the next 25 years, then subtract out the cost of the system (either up-front cost or periodic payments) to get the total lifetime benefit of the system. You will also need to consider what happens when you sell your house, and any special contractual terms (such as escalation rates or warranty provisions). Because most solar equipment is reliable and guaranteed for 25 years, maintenance (except periodic washing) is usually not an issue.

In general, up-front cash purchases offer the best Return on Investment (ROI). Home equity loans (now that the real estate market has recovered) and PACE loans (if they are available in your location) offer the next best ROI option. Lease/PPA purchases are a great "no money down" alternative if you don't have available cash or don't qualify for a bank loan. Listen up to this week's Energy Show for a practical and candid overview of your residential solar financing options.