Solar Financing Options

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Solar power stands out as the clean, renewable energy source that our world needs. Although it will save you money in the long run, installing solar panels on your home is a considerable expense. Thankfully, there are several solar panel financing options available to help pay for your solar power system.

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    What are the financing options for a new solar roof?

    Purchase with Cash

    If you have the money, purchasing a system outright is the best option. However, purchasing outright is the best option for buying a car and a home, too, but let’s be honest, it’s not feasible for most people. But, if you have it, it’s a great choice. 

    Solar Loan

    Getting a loan is an excellent option for funding your solar panel system. You can go to your bank or financial institution, or find a solar installer in your area that provides access to lenders. As always, with loans, make sure that you have a fair interest rate. Average solar loans have an APR of between 3-8% depending on your credit score. 

    Types of Solar Loans

    • Secured loans/Home Equity Line of Credit (HELOC)
      In such a loan, the lender keeps the interest rate low by taking advantage of your home’s equity. With a good credit score and home equity, you may be able to get a rate below 5%, which would translate to low monthly payments. Often, the interest paid on a secured loan is tax-deductible.

       

    • Unsecured loans
      These loans do not have any collateral backing, so interest rates are usually higher with shorter loan terms. The interest is not tax-deductible. However, unsecured loans are easier to get, as you need “good enough credit,” which usually means a minimum FICO score of 650. Some companies also offer additional perks, like an extended warranty on the solar installation with unsecured loans.

       

    • Property Assessed Clean Energy (PACE) Program
      PACE is another popular option in solar PV financing and is available in several states. Offered to homeowners by the local government, the amount loaned is attached to the property instead of to the individual borrower. The borrower then makes the repayment through increased taxes on the property.

      PACE loans are pretty easy to qualify for, since you can usually get one with low credit scores. However, you’ll need to have a consistent record of making your mortgage payments. These loans also offer up to 100% financing, and the loan repayment is transferred to the new owner whenever the property is sold. This solar financing option is particularly helpful for homeowners who want to go for a solar installation but do not have spare cash.

    Loans are one of the most popular means of solar financing, since you can get your system at zero or low upfront costs. Another benefit of solar loans is that you can start saving almost immediately, as the monthly payment is generally about the same or lower than your usual energy bill. In several states, residential loan programs for solar are also offered by state agencies listed on DSIRE.

    Leasing Solar Panels

    In some areas, lease arrangements are available. A lease offers financial convenience, sparing the homeowner the up-front costs of financing solar power. Solar leases have helped many a homeowner shift to a renewable electricity source, and ensure a stable monthly electric bill for years to come.

    In a lease arrangement, the solar lease company will handle all aspects of the planning and installation — but often keep all local and federal credits. The homeowner will, therefore, miss out on the financial rewards that come with buying.

    And a leasing company is not going to regard the aesthetics of a home the way its occupants do. People who are interested in the leasing option should examine the precise final placement plans and know the number of panels the company is going to place on the roof before signing a contract.

    Through escalation clauses, the monthly payment in many solar lease contracts goes up 3% each year. Given that many leasers are working with a twenty-year contract, this is another aspect of leasing that severely limits the home occupant’s savings and maximizes profit for the leasing company. The homeowner may have the option to buy the panels later, at a discounted price, which may or may not be worth it, considering all the extra payments you would accrue over the years.

    If the homeowner decides to sell their home during the course of the contract, the company will typically ask the homeowner to buy out the solar lease. This could mean facing what amounts to an early payment penalty. 

    Power Purchase Agreement (PPA)

    A PPA is basically a third-party ownership agreement in which a solar finance company purchases, installs, and maintains a system on your property. The homeowner pays no or a low upfront cost and buys energy generated by the solar installation on a decided per-kilowatt-hour rate. Ideally, this rate will be lower than your usual retail energy rate, giving you immediate cash savings.

    The contract term of PPAs is usually 10-25 years. During this period, the homeowner does not need to maintain or repair the system. At the end of the term, you can choose to get an extension, ask the company to remove the solar energy system, or purchase the system outright.

    How much does a solar panel installation cost?

    Homeowners in the United States are now paying between $2.87 and $3.85 per watt — a refreshingly reasonable $3.16 per watt, on average — to install new systems.

    Before tax credits, the average outlay for a full system currently adds up to about $17,000. Bigger systems are pricier, as they involve more panels and more work hours. And the higher the panels’ efficiency, the more expensive the system will be. But buying a bigger or more efficient system will translate into higher savings on electricity bills in return for that initial investment.

    As solar panels can reduce a household’s electricity bill by 70% or more, most roof systems, whether modest or large in scale, will pay for themselves within seven to ten years, while adding extra overall value and curb appeal to the home.

    What solar incentives are available?

    The federal tax credit, or investment tax credit (ITC), can save homeowners big on the cost of installation. As of 2020, the ITC currently offers new residential and commercial solar owners a generous 26 percent deduction of the cost of the system from their taxes. This initiative, however, is slated to be phased out by 2022, so to benefit from this money-saving incentive, the time is now.

    The U.S. Department of Energy (DOE) Solar Energy Technologies Office (SETO) offers some funding opportunities to individuals and small businesses looking to make the switch to solar power. Such opportunities vary and are competitive to applicants, so be sure to check frequently for funding opportunities available!

    Also, different states may offer additional incentives for those residents looking to make the switch to clean, renewable energy. Incentives and rebates do vary by state (and sometimes city), so check with your local utility company or municipality to see what local savings you may be entitled to. 

    Conclusion

    Overall, solar panels offer green-minded consumers renewable energy that comes from a clean source. Given the array of financing options available, and the reasonable cost of this investment today, owning a PV system is possible for many homeowners. Here at Solar Metric, we’ll be keeping up with current solar pricing and options — and keeping you informed.

    In the last ten years, the cost of solar installation has gone down by over 70% — helping more people go the eco-friendly way without breaking the bank. Additional financing options make it even easier for you to convert your home or commercial property to a solar-powered one. Of course, there is always the option of paying for your solar PV system upfront with cash for the entire amount. But as with other financing options, there are pros and cons to paying with cash, too. Take time to evaluate all your options carefully and pick the one that is the most advantageous for you.

    Jo Colagiacomi
    Jo Colagiacomi

    Jo is a writer and educator who lives in an eco-community in the Midwest. She is committed to environmental justice, sustainability, and collaboration, and loves to share her knowledge of solar power with others.

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