Solar Financing Guide: What are the options and which one is best for you?

Solar financing encompasses the various funding choices that people and enterprises have when seeking to invest in solar power systems.

Energy alternatives such as solar photovoltaic systems typically need components like solar panels, inverters, and additional apparatus to operate effectively. Meanwhile, as companies strive to make green energy available to everyone, the expenses associated with it can start to increase.

Moreover, the expenses don’t just stop at buying the necessary equipment; there are also costs involved in installation, repair, and upkeep.

To simplify the process of financing solar, different financing options are available to help individuals and businesses divide the expense into more manageable parts over time.

There are three options for those financing solar panels and associated equipment: cash, loan, and lease. We’ll take you through each option below so you can see which might be most suited to you.

Cash purchase

This option is for those who have the capital to purchase the solar system up front, in one payment.

A cash purchase is the best option for people who have the money available at the time of purchase, as it means that they’ll avoid lengthy loan applications and interest rates.

While this can be a significant chunk of money for a lot of people, it’s the quickest way to settle, and it helps deliver the fastest return on investment through energy savings and tax incentives.

Pros

• You’re settled on the day of purchase, with no further payments to be made.
• You’ll have immediate ownership of the parts you’ve bought.
• There’s a quicker return on investment through energy savings.
• You can capitalize on tax incentives for cash payments.
• You immediately increase the resale value of your residential property.

Cons

• Not suitable or accessible for those who don’t have sufficient funds.
• You are responsible for the cost of maintenance and repairs independently.
• It can be an intimidating amount of money to part with in one go.

Solar loan

Solar loans are designed specifically to provide financing for solar PV systems and equipment. This option is for people who want to spread the cost of their investment over the course of a few months or years.

Solar loans are a good option for those with good credit and who don’t wish to purchase the solar panels outright. However, solar loan applications can be lengthy and they require applicants to have a good credit history or risk being denied.

The goal is to pay off the loan within the loan terms so that by the time everything is paid up, the customer will have full ownership over the solar installation.

There are several loan platforms that supply loans specifically for solar installations. These are accredited and fully licensed companies that are regulated by the appropriate governing bodies.

Popular solar financing companies include Loanpal, Mosaic, Sunlight Financial, Solarinsure, and Dividend Finance. These companies have their own approved vendor list (AVL) – a list of approved solar supplier partners. This list includes Hoymiles, which means that users can apply for solar loans on these platforms if they buy Hoymiles products.

Pros

• You’ll have immediate access to the system even though you’re making monthly payments on the loan.
• There’s no large upfront payment.
• You may be able to access flexible loan terms, with repayment terms that suit you.
• Interest rates should be fixed for a given period of time.

Cons

• Interest may increase after the fixed term has ended.
• Taking on a loan is a big responsibility and can impact your financial freedom and flexibility.
• Some customers may not have the option to access loans due to bad credit.
• There’s always a risk of defaulted payments, which can put customers in tricky financial situations.

When you pay with cash, you own your solar panel system from the get-go. On the other hand, opting for solar leasing means you can benefit from solar power without having to shell out a hefty upfront fee.

This is akin to renting or leasing a home or vehicle. In the case of solar leasing, another company takes care of the solar panel system on your property in exchange for regular monthly or yearly payments.

You won’t own the system, but you keep paying until the solar panels are up and running.

Solar power purchase agreements (PPAs) work in a similar fashion, with a slight twist: instead of leasing the panels, you agree to purchase the electricity the panels generate at a price lower than what you would pay for energy from the grid.

A PPA is a binding agreement over a long period, with the energy supplier and the customer, in this scenario, the property owner or renter, agreeing to a deal where the owner or renter will purchase the energy their solar panels produce from the supplier at a discounted rate.

The solar panels could be installed before or during the contract, but the terms remain consistent: the owner or renter will buy the energy produced by the solar panels from the service provider rather than continuing to lease the panels or repay a loan until you own the system outright.

Understand Your Financing Options

a. Solar Loans

• Secured Loans: These use your home as collateral and often offer lower interest rates.
• Unsecured Loans: These don’t require collateral but may have higher interest rates.
• Home Equity Loans/Lines of Credit (HELOC): These options are tied to the equity in your home and can offer favorable rates.

b. Solar Leases

• You lease the solar panels and pay a monthly fee. The leasing company owns the system, and you benefit from the electricity produced.

c. Power Purchase Agreements (PPAs)

• You pay for the power the solar panels produce, usually at a rate lower than your utility’s electricity rate. The solar company owns and maintains the system.

2. Government Incentives and Rebates

• Federal Investment Tax Credit (ITC): A tax credit for a percentage of the cost of installing a solar energy system.
• State and Local Incentives: Many states offer additional tax credits, rebates, and other incentives.
• Net Metering: Allows you to earn credit for excess electricity your solar panels produce and send back to the grid.

3. Compare Solar Installers and Financing Offers

• Get quotes from multiple solar installers and compare their financing options, warranties, and customer reviews.
• Use online platforms and solar marketplaces to compare offers.

4. Consider Long-Term Savings and Benefits

• Calculate the total cost of each financing option, including interest, fees, and potential savings on your energy bills.
• Consider the long-term value of ownership vs. leasing or PPAs.

5. Check Your Credit Score and Financial Situation

• Your credit score can impact the interest rates and terms you qualify for. Ensure your financial situation aligns with the chosen financing method.

6. Consult with a Solar Financing Expert

• Professional advice can help you navigate complex financing options and choose the best one for your specific situation.

7. Evaluate the Reputation and Reliability of Providers

• Research the reputation and financial stability of the solar installers and financing companies you are considering.

Useful Resources:

• Database of State Incentives for Renewables & Efficiency (DSIRE): A comprehensive source of information on incentives and policies.
• Solar Energy Industries Association (SEIA): Offers resources and guidance on choosing solar financing options.

By carefully evaluating these aspects, you can find the most cost-effective and beneficial solar financing option for your needs in the USA.