Solar Panel Financing Options - What's Best for You?
The installation of solar panels is becoming more prevalent among homeowners. There are many options for obtaining solar energy for your home. Additionally, when selling, the type of solar financing you have chosen can greatly affect the transaction.
Purchasing in Full:
The cost for purchasing solar in full is approximately $20,000 for the average CA residence. The specific cost can vary depending on the size of system, equipment selections (inverters and panels), permitting, and installation costs. Other factors include how old your home is, installation location, and the Photovoltaic (PV) manufacturer. Depending on your previous electricity consumption you can expect annual rates of return that range between 10-30 percent. The majority of solar energy purchasers reclaim their initial investment in approximately 7-10 years and receive free electricity for the remainder of the system's lifespan (25 years).
Home Equity Loans:
Many homeowners choose to utilize commercial lenders to affordably finance their solar energy systems. Home equity loans have been a very common method amongst homeowners to purchase their solar systems. This provides consumers with an affordable path that will eventually lead to ownership of the system without having to pay the full cost upfront.
Power Purchase Agreements:
A Power Purchase Agreement, or a PPA, is when a third party installs, maintains and owns the solar system and the consumer agrees to pay them a below market rate to use the solar energy for the duration of the agreement. Homeowners who choose the Power Purchase Agreement option typically have minimal capital costs and pay specifically for the electricity their system generates at a set kilowatt-hour price. This financing option can save upwards of 30 percent on a monthly electricity bill without any upfront deposit necessary. At the end of the PPA the third party owner will decide to either remove or sell the solar energy system at fair market value. Keep in mind, since the homeowner does not have ownership of the solar energy equipment they will not be permitted to any incentives or rebates offered by the government.
The option to lease a solar energy system can be looked upon as a rental agreement. Consumers reap the benefits of owning the system without the initial payment. Simply put, this is the same as renting the system from a company, similar to rental of any other appliance, while earning the benefits of the electricity produced. The consumer pays a fixed monthly fee or lease amount which is determined by using the estimated amount of electricity that the system will produce in return for the rights to use the energy system.
Property Assessed Clean Energy (PACE):
Solar customers also have the opportunity to finance their solar energy systems through their local governments. Some local governments create property tax finance districts to offer loans for renewable energy such as solar Photovoltaic systems. PACE allows local governments to provide low-cost 10-20 year loans to eligible homeowners wishing to install this energy efficient equipment. The property owner then pays a greater amount in property tax bills to pay off the loan. These loans are permanently fixed to real property which provides homeowners peace of mind when it comes to their system's break-even point and the passing along of the system if they are selling the property. PACE financing is currently available in the following CA areas: Los Angeles, San Diego, San Francisco, Palm Desert, Sonoma, and Berkeley.
An interesting aspect of this option is that a PACE assessment can be looked upon as a debt of the property. This means that the debt is linked to the property itself versus to the homeowner. During resale, the repayment can transfer with new property ownership if the buyer chooses to take on the PACE obligation and the seller allows it to stay on the property. This addresses a common hesitation when it comes to investing in solar energy, as many homeowners decide against installation due to uncertainty about how long they will reside in the property.
The Homeowner's Guide to Solar Financing, a resource from the Clean Energy States Alliance (CESA), can help you decide which solar panel option may be right for them. You can find it here: