solar financing

Originally published on Home Solar PV.
By Jeff McIntire-Strasburg

Even though the price of solar panels has dropped over the past few years, a solar energy system for your home will still cost $20,000 – 30,000. Most of us don’t have that kind of money just sitting around: if we do have those kind of assets, they’re tied up in home equity, our retirement savings, or other investments. And while you can leverage that wealth through a conventional loan, if you’re serious about solar power for your home, you’ll want to check out the range of financing options available. As demand for these systems has grown, financial institutions, state and local governments, utilities, and manufacturers have all created alternatives for solar energy financing.

Your First Consideration: Do You Want to Own the Solar Array on Your Roof?

If you’re relatively new to home solar power, that question might have you scratching your head. What other options are there? A variety of third-party solar financing options, however, give you the benefits of solar-generated electricity without the responsibilities of owning the system that generates that power.

The two main alternatives here: the solar lease, and the power purchase agreement (or PPA). The first involves leasing the system itself: as you would with any other product your might rent or lease, you make regular payments to use the system that’s owned by someone else. Various options might include no money down, or lease to own.

As with a lease, a solar system used in a PPA is owned by the company offering its use, but instead of leasing the system itself, a customer pays for the power the system generates. The advantage here is that the cost of power from such an arrangement is generally cheaper than local utility power; the price also won’t rise as significantly (and you’ll know up front when cost increases are set to occur). A customer can expect to save 10-15% on the electricity s/he purchases from the solar array.

While third-party systems are popular, and represent the majority of home solar power systems in a number of states, they do come with downsides. The owner of the array gets to take advantage of all financial incentives offered by state and local governments, and power utilities. They can also create headaches if you want to sell your home, and possibly even hurt your home’s value. If you’re planning to stay put, and just want solar power with minimal investment, though, these arrangements are worth exploring.

Options Available for Future Solar Power System Owners

Owning a solar system come with its own benefits and drawbacks: you get the financial incentives available to you, but you’re also responsible for maintaining and repairing your panel array. If you’ve figure out that you’d rather own your solar energy system, make sure you explore all of the financing options available. In addition to conventional loans secured by home equity or other assets, you may have options available specifically for renewable energy systems.

Solar loans: Some banks and finance companies offer unsecured (no collateral) loans for solar systems, or loans that use the system itself as collateral. Because such loans are riskier for the lender, you’ll pay more in interest than you would with a home equity or other secured loan. Depending on the size of your solar system, and the percentage of your home’s power need it covers, you may end up cutting your electricity spending immediately.

You may also want to check for loans from banks or governments that tie payments to the expected energy savings produced by the system you plan to install.

If you’re interested in this kind of financing, you may want to explore options from Admiral’s Bank, Dividend Solar, and Mosaic.

Property Assessed Clean Energy (PACE): A newer option available to residential and commercial property owners in many states, Property Assessed Clean Energy (or PACE) programs offer a number of benefits for going solar (or, often, for improving your home’s energy efficiency). PACE loans come through state or local governments, and are tied to a property (rather than the owner). As such, they don’t create hassles if you choose to sell your home, because the loan doesn’t have to be paid off at the time of the sale. Payments are added to the homeowner’s property tax bill, and this can lead to lower interest rates because of the high security tied to such an arrangement. In some cases, repayments for PACE loans may be deductible from income taxes (also because they’re tied to property taxes).

Twenty-three states and the District of Columbia have passed legislation enabling PACE programs, but not all of those states have an active program running at this point. PACENation has a current list of programs and their status.

Other Financial Benefits of Ownership

If you choose the ownership option, various incentives offered by your state and local governments and utility providers may bring the price of your solar energy system down further. Among the types of incentives available:

Net Metering: More than likely, your home is already connected to the electrical grid, and you plan to keep that connection after installing a solar system. Net metering requires that utilities “buy back” any excess generation from your home-based “power plant” by crediting your account at the retail rate. This means that any power you use that doesn’t come from your solar panels will be partially, or maybe even totally, offset by electricity you send to the power grid.

Tax credits and deductions: The US federal tax credit for solar systems provides a significant incentive for going solar: homeowners can claim a tax credit of up to 30% of qualified expenses tied to their solar purchase (or a few other renewable energy systems) – currently this incentive is set to expire at the end of 2016. States and municipalities may also offer such credits and deductions.

Rebates: Electrical utilities may offer cash rebates on your solar system, as well as on energy efficiency measures you take in anticipation of installing solar.

Grants: For lower-income people interested in the environmental and economic savings that come from solar power, grants may be available to cover some of your costs.

Want to learn more about the financial incentives available to you. Spend some time on the Database of State Incentives for Renewable Energy (DSIRE). This very thorough database shows you everything that available to you by your location. A reputable solar installer should also have some insight into the incentives for which you might qualify.

Want to learn more about what kind of financing options might work best for you. Head over to Cost of Solar to generate a free report on the solar potential for your home.

Photo credit: Andrey Popov via Shutterstock

Reprinted with permission.