Going solar can cost tens of thousands of dollars and not a lot of homeowners can afford to pay in cash. Luckily there are many good financing options available. In this article, we`ll help you sort through them and find which one would be the best choice in your situation.
- Solar Lease
- Power Purchase Agreement (PPA)
- Home Equity Loan
- Energy Efficient Mortgage (EEM)
- Property Assessed Clean Energy (PACE) Program
- Peer-to-Peer Lending
- Shared Solar
- Group Purchase
The market for third-party-owned solar has exploded since SolarCity introduced solar leasing back in 2006. PV Solar Report found that more than 70% of Californians prefer third-party-owned solar (solar lease or PPA). The same trend can be seen in many other states.
With both solar leasing and PPAs (power purchase agreements), the solar provider pays for and is the rightful owner of the solar system. They will take care of the system installation and they are responsible for maintenance, monitoring and repairs. In return they receive the financial incentives (including the federal 30% tax credit).
You can lease (or sign a PPA) for little or no money down. With a solar lease, you simply pay the solar provider a pre-determined monthly amount; regardless of how much electricity the solar panels produce.
The leasing fee is typically significantly lower than the price of electricity from your utility company.
Power Purchase Agreement (PPA)
What is the difference between solar leases and power purchase agreements?
A power purchase agreement is very similar to a solar lease, however, there is one key difference: You pay a predetermined monthly amount for every kWh the solar system produce (as opposed to paying a monthly fee regardless of power production.)
Home Equity Loan
We generally recommend homeowners that can afford to pay a solar system in cash, or have access to a well-structured loan, to avoid third-party ownership.
Financing solar through home equity loans, energy efficient mortgages or PACE programs will undoubtedly bring in more savings in the long run.
Home equity loans are essentially equity loans with your property as collateral.
The borrower creates a lien against the home and reduces its equity.
Depending on the structure of the loan, homeowners save more in electricity bills compare to their loan payments already from the start:
- Interest rates range from 3.5-7.5%.
- Terms are typically 7-20 years.
- Interest may be tax deductible.
Energy Efficient Mortgage (EEM)
The federal government offers energy efficient mortgages that can be used to finance solar panels. An energy efficient mortgage credits a home’s energy efficiency in the mortgage itself.
Your home needs to be home energy rated through a professional energy audit before financing is approved.
Property Assessed Clean Energy (PACE) Program
In some states you can finance solar through a PACE program. The homeowner borrows money from certain municipalities (city, town, county or state) and pays back through higher property taxes over 15 to 20 years.
PACE programs do not reduce equity in your home.
If you sell your home, the tax liability is simply transferred to the new owner. Terms typically last for 15-20 years and no credit check required
As with home equity loans, in many cases, electricity savings exceed loan payments from the start. Legislation for PACE programs have been processed and passed in 27 states across the U.S.
Peer-to-peer lending is relatively new way of financing where borrowers and lenders are matched through crowdsourcing platforms such as Prosper and Lending Club.
You are typically not required to use your property as collateral. On the other hand, interests rates are higher than those of home equity loans, which ultimately will yield a lower return on investment (less long term savings).
Many homes are not suited for solar due to shading, structure and ownership issues. According to NREL, only 22 to 27% of residential rooftop area is a good fit for solar panels. With shared solar, everyone have the opportunity to go solar.
Shared solar can be both community- or third-party-owned. The finances can be structured in several ways. In most cases, the homeowner subscribes to shared solar and receive energy bill credits accordingly.
You`ve probably heard of Groupon – an internet-based platform where people can sign up for offers together and unlock group discounts. One Block Off the Grid (1BOG) is using the same concept on the residential solar panel market. Homeowners typically save 10-20% with 1BOG`s financing programs.