Solar Panel Financing Options

Regarding solar power finance, homeowners have quite a few options they can choose from based on their financial situation, the current solar market, and solar companies. There are many factors that determine what finance option is the best fit for every homeowner, and each homeowners’ situation is unique when it comes to investing in solar power projects. For these reasons, homeowners exploring solar financing options should educate themselves on the different situations each option is appropriate for. Solar Loan Vs. Solar Lease The core solar financing question that every homeowner considering solar panels must ask themselves is whether they want to go with a solar loan or solar lease. Each of these solar power financing options has their pros and cons, but the basis of the decision is founded on whether or not the homeowner wants to own their solar and solar panels or not. Owning solar by going with a solar loan ultimately presents the highest ROI in the long run, but solar leases can be a great option for those that can’t get tax incentives by taking advantage of the Federal Solar Tax Credit. Let’s take a look at the two options and see who they are right for, and what is required of each.  Going solar with a loan means that the homeowner gets their solar paid for by a third party lender. The third-party lender provides the capital for the loan, and the homeowner pays back the lender over a given term, paying interest on the loan agreed to at the beginning of the term. Much like a car loan, the homeowner pays back the loan in monthly payments, which are determined by the length of the term. Who offers Solar Loans? The solar company the homeowner works with should be able to fully set up the financing situation. Some types of solar financing providers in the solar industry include solar panel manufacturers, banks, credit unions, and financing institutions. Some examples of solar financing institutions are: Renew Financial Lightstream Mosaic For a more complete list of institutions that provide solar power loans, check out the list at Energysage.How do Solar Loans Save The Homeowner Money? Solar loans save homeowners money in both the long and short term. Short Term Savings In the short-term, solar loans can help homeowners save money by allowing them to eliminate their power bill by installing the solar with zero money down. Once installed and running, the solar produces power during the day, powering the home in place of the power being purchased from the utility. While the solar homeowner still has to pay a monthly loan payment, the payment is typically worked out so that it is less than the power bill was before getting the solar installed. So with no power bill, and a monthly payment less than the previous power bill, the homeowner can save on their bills in the first month of installing solar. For example, someone with $150/month utility bill could typically get a solar loan by making payments of $100/month. So, they could be saving $50/month ($600/year) in the short run. Long Term Savings The real financial benefit of owning a solar system comes in the long-term, after the solar has been paid off. After they pay off their loan, they will no longer be making solar payments, they will no longer be paying for their power bill, and they will no longer be paying interest. They will also be shielded from any electric rate hikes in the future. For example: After a number of years (5-10, etc.), the loan is paid off, so the homeowner is not making ANY payments every month (except maybe a minimum monthly utility bill). Now, the homeowner will be saving the entire $150/month ($1,800 per year) in the long run. Plus, during this time, everyone else’s electric bill has gone up a lot, so while they were paying $150/month, now they’re paying $200/month. So, he’s actually saving $200/month ($2,400 per year). The Federal Solar Tax Credit A Solar loan can save the homeowner money immediately by allowing them to redeem the Federal Solar Tax Credit for owning their solar. The Solar Investment Tax Credit allows homeowners who go with a loan to deduct 30% of the cost of their solar installation from their Federal Tax Liability. Basically, it’s like the U.S. government is paying for 30% of your new solar energy system. On a $21,000 solar energy system, that means U.S. pays $6,300 and you pay only $14,700.The cool thing about it is that if the homeowner doesn’t have the tax liability to deduct the 30% the year they install solar, the credit can be rolled over to the following year. Homeowners should know that the Federal Solar Tax Credit is being phased out starting after next year. The way that the Tax Credit is designed, it will decrease from 30% to 26% in 2020, then to 22% in 2021 and then will decrease all the way to 10%, and will be available only for commercial installations from 2022 on. So in order to save the most money, homeowners should get installed in the next three years to receive the most benefit from the credit.  How Do Solar Loans Work? Solar loans, like most other home improvement loans, just require that the homeowner have good credit and have paid off loans in the past. There are different types of solar loans, some requiring collateral, and some not. The types of home equity loans are: The SunPower by Stellar Solar Mosaic Solar Loan One common loan that we at SunPower by Stellar Solar provide is a solar loan through Mosaic. Mosaic boasts a streamlined lending process that allows for zero down loans with fixed interest rates and multiple term options. There are also no prepayment penalties and little to no loan fees. Currently, the Mosaic loan offers three different terms: a 10-year loan with 3.99% interest, a 15-year at 4.99%, and a 20-year loan at 5.49%. Home Equity Loans Home equity solar loans allow homeowners to borrow against their home equity to pay for their solar. Home equity loans normally have 7-20 year terms and require interest rates of around 5%-7.5%. A positive aspect of home equity loans is that homeowners may be able to write off their interest. With a home equity loan, the system is paid for in one upfront lump sum, and is paid off with a steady monthly payment. Home Equity Line of Credit   Unlike a home equity loan, a home equity line of credit allows homeowners to draw upon a line of credit that is obtained through the bank in the form of a credit card or checkbook, instead of providing the entire lump sum of the loan up front. Similar to other lines of credit, the homeowner has the ability to draw upon the credit line as much as needed in an agreed upon term. Similar to a home equity loan, with a home equity line of credit, the homeowner is loaned money against their home equity. The difference with a home equity loan is that as the homeowner pays back the loan, equity that they have to drawn is filled back up. Draw periods vary in length and terms but typically last 10-15 years. Property Assessed Clean Energy Loans (PACE) Another option for solar loans is the PACE loan, the Property Assessed Clean Energy Loan. With PACE loans, the money for the loan is provided by local governments who sell bonds to investors who provide the capital for energy retrofits for residential and commercial properties. The homeowner pays back the loan through assessments added to their property tax bill. While PACE loans are less common, they are still a viable option for homeowners without as much home equity.  Solar Leases Solar power leases are great for those homeowners who don’t have a federal tax liability, or are installing solar on a second home and therefore cannot take advantage of the federal solar tax credit as it requires the homeowner to own the panels. That’s because with a solar lease, the homeowner does not own their solar; the leasing company owns it, and the solar installer installs the solar for no money down. The leasing company then charges the homeowner a monthly fee for the power the panels produce. The monthly fee is typically much less than the original power bill, so the savings are immediate. The Upsides of a Solar Lease Immediate Savings Solar leases allow homeowners to get installed for no money upfront, and once their panels are installed and working, they will be greatly reducing or fully eliminating the homeowners power bills. Combine this, and the fact that the solar lease payment will be much less that the power bill was previously, and the homeowner will be saving money every month, and saving money immediately. Production Guarantees With solar leases, there are typically power production guarantees that require the solar company to reimburse the homeowner if the system does not produce what it is supposed to. This means that, even if the solar goes down, the homeowner is guaranteed to not have to pay their power bill, and if they do, they will be paid back for it. Maintenance and Repairs are Covered Along with the production guarantees, with leases, solar system repairs and maintenance are guaranteed and covered for the life of the lease. In order to fulfill those production guarantees, the solar company has a vested interest in the system. So any repairs, whether workmanship or product, will be fully covered and pay for by the solar company. Immunity from Rate Hikes While the savings from leases are mostly short-term, the long-term savings that come from fixed-payment leases are reaped from the compounding savings from electric rate hikes. As the utility raises rates, which they inevitably will, the savings go up as the homeowner who has solar installed will still not be paying their power bill. So while non-solar homeowners will be cringing when they see electric rate hikes, the solar homeowner with a fixed payment lease will have no worries as they will still have no power bill.   The Downsides of a Solar Lease At the End of the Lease, the Panels Belong to the Panel Company One downside to a solar lease is that at the end of the lease term, the homeowner does not own the panels. So at the end of the 20-25 years, the panel company will come in and uninstall the panels, or sell the panels to the homeowner at a discounted price. If the homeowner had been putting those lease payments towards owning the solar, they could have paid it off many years prior to the end of the lease term. The Homeowner Has to Pay the Whole Lease Most leases are set up for a 20-year term, which means the homeowner is expected to make all the payments and pay the leasing company the money for the entire term of the lease. Compare this to a loan, and it turns out it is more expensive, as with a loan, the homeowner can pay off the loan earlier and pay less interest, making it cheaper. If the homeowner wants to sell their home, the lease can usually be “assigned” to the new home buyer and they continue to make the lease payments until the lease is done. But as mentioned previously, in order for this to not create trouble at escrow time, details need to be worked out far in advance. Not Eligible for the Tax Credit The other downside of going with a solar lease is that, because the homeowner doesn’t own the panels, they are not eligible for the 30% Federal Solar Tax Credit. So that is quite a chunk of money, 30% cost of an owned system, that the homeowner will be missing out on. While this may not be of interest to those looking at a solar lease, it should still be considered when comparing the two.  Power Purchase Agreements (PPA’s) Power Purchase Agreements are similar to leases in that the homeowner does not own the panels. Also much like a lease, the homeowner pays the leasing company for the power the system produces, except with a PPA, instead of paying a monthly fee, the homeowner pays for the power they use, at an agreed-upon cost per watt of electricity at the beginning of the term. One downside of PPA’s is that they are subject to escalators as time goes on, typically from 1%-3%. Wrapping Up So, homeowners considering solar are obviously presented with many solar panel financing options to pay for their solar energy. Every homeowner should do their research on the different options and familiarize themselves with the pros and cons of each. We at SunPower by Stellar Solar can answer any questions homeowners may have, so please contact us today!  

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