Solar PV Financing

There are a few financing options that can be arranged for commercial solar PV. The exact type of finance structure available would be dependent on the system size, client/timeline needs, client characteristics, capacity, capital and other factors. Below is an overview of what a client can expect in terms of available options.

How does my choice of financing impact my financial statements and performance metrics?

Effect of Operating Lease Effect of Capitalized Lease or Debt
Assets Lower Higher
Liabilities Lower Higher
Net Income (in the earlier years) Higher Lower
Net income (later years) Lower Higher
Total net income Same Same
EBIT (operating income) Lower Higher
Cash flow from operations Lower Higher
Cash flow from financing Higher Lower
Total cash-flow Same Same

Key implications of operating leases vs. finance leases on financial ratios

Ratio Effect of Operating Lease Effect of Capitalized Lease
Return on Capital
  • Decreases EBIT through lease expense
  • Capital does not reflect leases
  • ROC is higher
  • Decreases EBIT through depreciation
  • Capital increases
  • ROC is lower
Return on Equity
  • Net income lowered by after-tax lease expense
  • BV of Equity Unaffected
  • ROE higher earlier years
  • Net income lowered by after-tax interest expense & depreciation
  • BV of Equity unaffected
  • ROE lower earlier years
Interest Coverage
  • EBIT(1-t) decreases
  • Interest Exp. unaffected
  • Coverage ratio generally higher
  • EBIT(1-t) decreases
  • Interest Exp. increases
  • Coverage Ratio generally


Debt Ratio
  • Debt is unaffected
  • Debt Ratio is lower
  • Debt increases
  • Debt Ratio is higher

To gain a more detailed understanding of finance options and their implications, please download our Solar PV Finance Literature

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