Solar Financing Options
Are you planning to install a solar system on your house or business property but do not know how to finance it? Perhaps you’re debating on whether to purchase the expensive equipment outright or apply for a more accessible solar financing plan. The good news is that, though going solar is expensive, the prices of solar photovoltaic (PV) system have come down dramatically in recent years. Moreover, there are more financial options available for the customer in order to augment the savings of the system for years to come. But choosing from so many different packages has become increasingly difficult. This article will enable you to make the correct decisions about financing solar.
Solar Lease is the most common way to finance a solar photovoltaic system. Sometimes called third-party ownership, a solar lease is a long-term contract between the customer and third party – usually a solar leasing company for installing, owning and operating the solar system on the owner’s property. The customer consumes whatever electricity is generated by the leased solar system, sells any of the excess electricity to the grid and pay for any electricity consumed beyond what the solar system generates. The benefits of a solar lease include skipping the upfront cost and if mentioned in the contract, transferring the operations and maintenance responsibilities to the third-party leasing company. Generally, the electricity savings are greater than lease costs, making it a constructive transaction.
Power Purchase Agreements (PPA):
Under this scheme, the third-party owner installs, owns and maintains a solar system on customer’s property. The customer buys the energy generated by the solar system on a per kilowatt-hour basis for the length of the contract term, at rates competitive with the retail electricity rates. The benefits of PPA include skipping the upfront cost and insulation from the possible increase in electricity rates. Ideally, per kilowatt-hour rate will be less than the retail electricity rate, making it a cash-positive transaction from day one. Since it is a solar lease, the consumer does not own the system, so any applicable state or federal tax credits will be directed to the third-party solar leasing company.
Solar loans are becoming another popular way of financing solar photovoltaic (PV) system. Similar to leases and PPAs, the customer pays the system’s cost over a period of time, but unlike leases and PPAs, he gets to retain the ownership of the system. Solar loans are offered by a number of lending institutions including solar manufacturers, banks and credit unions, state green banks and financing programs, housing investment funds, and utilities. Because the customer gets to ‘own’ the system, he can benefit directly from state and federal incentives. On the other hand, he is also responsible for maintaining the system and incurring any liabilities that come with ownership.
Property assessed clean energy (PACE):
Property assessed clean energy (PACE) helps customers finance a solar system and pay it back over time through their property taxes. It is a voluntary program wherein homeowner or business owner will receive help from the local government to cover up the upfront cost of the solar equipment and in return will repay through a special evaluation on their property tax over a period of years or decades. In other words, the finance is secured in lieu on the property. PACE has several benefits as it can enhance property value and save customers money by reducing energy costs.