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Financing Your Solar Panel System

Anastasia KravchukMay 5, 201720720

How to Pay For It

If you are considering switching to solar energy, you may be deciding how you will finance your solar project. Luckily, there are many various financing options today that cater to different financial needs and make solar an affordable option even for people with a strained financial situation.

Today, purchasing a solar powered system costs anywhere from $5000 to $30,000 - depending on the size of the system required as well as which brands of solar products are used. You can recover your investment in five to ten years, as your monthly electric bill will go down, letting you pocket $100 to $250 monthly.

There’s no question that to get the biggest return on your solar investment, it is better to buy your system outright; however, not everyone can afford an upfront cash payment. Luckily, there are multiple financing options available for homeowners that still want to save money with solar without spending money right away.

 

Solar Lease / PPA

A solar lease or a PPA (Power Purchase Agreement) is one of the most common ways for homeowners to finance their switch to solar energy. Leasing is a good alternative to buying for those who are looking for an affordable, low-maintenance option with no upfront cost.

With solar leasing, you can rent your own solar system by entering into an arrangement with a third-party - a solar leasing company. The company buys and maintains your solar panels and equipment, while you pay a fixed rate for the solar electricity generated by the system. This agreement usually has a term of around 20 years, and needs to be renewed when it expires.

While the terms “solar lease” and “solar PPA” are very similar in practice, and often used interchangeably, there is a difference between the two. With a solar lease, you are essentially renting your equipment, and your fixed monthly payment is calculated based on the estimated amount of electric power your system will produce.

On the other hand, with a solar power purchase agreement, you pay for the power generated by your solar panels at a set per-kWh price. No power = no payment, so if your system is shut off during a certain month, you will not pay anything since no electricity was used.

Keep in mind that with a solar leasing arrangement, the solar company is entitled to all the tax breaks, rebates, and local incentives that are available, as they are the ones who own the solar panel system. Still, this option appeals to many homeowners who want to save money on their electric bill right away and not wait for years to get a return on their investment.

 

Solar Loan

Cash purchases and solar leases used to be the only options for homeowners looking to go solar. Today there is the newer option of a solar loan, which like a lease, lets you gain immediate returns with no upfront payment.

There are many financial institutions that now offer solar loans, from solar panel manufacturers and utility companies, to traditional banks and other 3rd parties. Interest rates for solar loans range from 3% to 6.5%, usually on a 10 to 20 year loan. Assuming you will put your tax credit toward paying off your loan, you will still save up to 70% on your electric bill. With a solar loan you will get a higher return on your investment than with a solar lease or PPA, as your savings will significantly increase once your pay off your loan completely.

 

Home Equity Loan

A home equity loan is essentially a loan that uses your home or property as collateral. This type of loan requires a good credit history and needs a sizable portion of the property to be under ownership of the borrower. The loan allows the borrower to creates a lien against the property, reducing its equity.

Home equity loans are available to people in all 50 states, and in most cases let you save more money than with a traditional solar loan. Interest rates range from 3.5-7.5% and is typically tax deductible, with terms of 7-20 years. With a home equity loan, you can own your solar energy system outright, as the loan gives the borrower cash in one lump sum.

 

PACE program

In many states, you can finance solar upgrades with Property Assessed Clean Energy, or PACE financing, which like traditional loans, allows property owners to fund renewable energy projects with no up-front costs. Under the PACE program, the city will loan the homeowner the amount needed to cover the cost of their solar panel system and the homeowner agrees to pay it back over time through a voluntary property tax assessment in their existing property tax bill.

PACE does not require a credit check and has terms that typically last 15-20 years. When you sell your home, the tax liability will be transferred to the new owner until the loan is payed off.

In general, PACE programs offer competitive financing terms for solar projects, eliminates the need to pay out of pocket, and will let you save on electricity from the start, with savings exceeding loan payments.

For further details concerning property eligibility (residential, commercial and municipal) and financing terms, contact the individual PACE provider in your area.

 

Government Incentives

In the U.S, government incentives dramatically lower the cost of solar projects. Local, state, and federal governments all offer solar energy tax credits and rebates to encourage people to lower their energy usage and switch to renewable energy. The subsidy amount varies by program, but can cover up to 30% of your costs.

The government also allows you to deduct 30% of your solar energy system costs off your federal taxes through an ITC - investment tax credit. Even if you do not owe any taxes this year, you can roll over your solar tax credit to the following year.

To check for rebates and tax credits available in your area click below.

https://energy.gov/savings

 

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