Not everyone who wants solar power can easily go forward with a $20K - $40K purchase. Fortunately, costs have definitely come down over the last decade thanks to shorter installation times, more streamlined permitting and less costly panel manufacturing. The solar industry, government, forward thinking utilities and the financial world are all contributing to making it easier and more affordable for more and more homeowners.
There are several ways to finance a solar power system. To feel confident you have chosen the right finance path, it is important to understand details of the different options. Also, not all options are available everywhere.
This route gets you the 30% Federal Tax Credit and gives the quickest return on investment on a well designed system. It is often chosen by people who are looking for a low risk, high return on investment. Many consumers take this approach using their home equity for a loan or find a low interest home improvement loan. Because of the growth of the solar industry, banks have become much more open to financing solar loans. In all cases, the interest rate and payment terms need to be evaluated for your financial suitability.
PACE FINANCING - (Property Assessed Clean Energy)
The PACE loan gets you all the advantages of a cash purchase but with easier payment terms. This finance tool was specifically created to allow more people to make energy improvements on their homes. Solar projects are one of the many energy improvements a PACE loan is geared for. It is not universally available however. You should check with your municipality’s tax assessor’s office to confirm that. Your property taxes are the mechanism a PACE loan uses. It is still an interest loan but the payments are spread over the life expectancy of the energy improvement your PACE loan is authorized for, which for solar is 20 years. Therefore, the payment schedule of a solar PACE loan is divided over the X times a year you receive your property tax bill for 20 years. There are qualifying terms depending on the lender. Most require 20% of your house debt to have been paid off but there are no credit score requirements. A PACE loan is also not consider debt, has no effect on future borrowing and adds revenue to your municipality.
Still, you may not want to own the system or might not qualify for financing. There are still some options available to you.
These have been very popular, especially in the early years when costs were higher and financing was harder to procure. Leasing unfortunately eliminates your 30% Federal Tax Credit which instead goes to the vendor who owns your system. The main point of a lease is to lower your electric bill immediately and for the duration of the lease (usually 20 years). You need to be sure the terms of your contract support that. Many leases are $0 down and also allow a down payment option to make your monthly payment smaller or a full payoff option in specific years. Confirm the vendor’s level of responsibility for any repairs or maintenance for the duration of the lease. The lease option gives you some control over what you pay for electricity. Your utility company will still bill you for whatever electricity they continue to supply and the various taxes and delivery charges. Since your utility costs cannot be fixed like the solar lease costs, I recommend ensuring the annual solar production warranties in your lease minimally cover half your expected annual electric usage.
POWER PURCHASE AGREEMENTS (PPA)
These are common in the commercial and non-profit business sectors. They are also available for residential consumers but not every residential solar vendor offers them. The main difference between a residential PPA and a residential lease are as follows. Instead of predetermined monthly payments for the duration of the PPA (usually 20 years), you pay for the amount of electricity generated by the solar system each month. Essentially, you are buying some of your electricity from a second utility provider, your PPA contractor and the “power plant” is you roof (or ground mounted system or carport system). Correct sizing of your system is very important in this scenario as you pay for what’s produced. Any solar production you didn't use that is dumped back on to the grid must still be paid for. Your utility may be giving you credit for that (net metering) but unlikely it’s at the same rate you’re paying your PPA provider. Similar to leasing, the PPA provider owns the system and covers care and maintenance.