Everything you need to know about solar financing. Learn about the different measures you can take to help you finance your very own solar energy system.
Financing Options - A Brief Introduction
The easiest part of going solar is deciding to do so. Going solar reduces your carbon footprint and offers the best long-term price of electricity than any alternative power solution. The hardest part is figuring out how to finance your solar system: solar lease or solar loan. Solar systems can be expensive. It is important to understand how to navigate your financing options.
Buying your own solar system may involve taking out a solar loan. A solar loan is when a homeowner borrows money from a lender. Lenders can be banks or solar companies. The borrower will then make monthly payments to pay off the loan plus additional interest. Solar loans can be either secured or unsecured.
- Secured Solar Loans: A secured loan is a loan that requires the property owner to provide an asset (typically a house) as collateral for the money that is being borrowed. Secured loan lenders undertake less risk compared to unsecured lenders. Thus, many secured loans have lower credit score requirements, don’t impose prepayment penalties, and the interest paid is tax-deductible.
- Unsecured Solar Loans: Unsecured solar loans do not require the borrower to use their house as collateral. This means that the lender cannot foreclose on the borrower’s home. Unsecured loans pose a higher risk for lenders and as a result have high interest rates. The interest rates paid on these loans is most likely not tax-deductible.
- PACE Financing: PACE programs are solar loans that are funded by the city or state and get paid back through expenses on homeowner property taxes. PACE programs permit a property owner to finance the up-front costs of new energy systems or property improvements such as solar systems. The owner pays back the costs over time through additional payments on their property tax bills.
Solar Leases and PPAs
Solar leases and PPAs can be compared to renting a solar system. Under either agreement, the installation company will install a solar system on your property. Unlike with a loan or cash purchase, the homeowner does not own the system. Instead, leases and PPAs give the lessee the right to use the energy produced by the system. Solar leases and PPAs differ in their payment scheme.
- Solar Leases: With a lease, you pay a flat monthly rate to utilize the solar system and equipment on your property. You will have the right to use all of the energy produced by the system each month.
- PPAs: Under a PPA you pay directly for the energy produced by the system. In some cases, a PPA is also a flat monthly rate regardless of energy usage. However, some PPAs give you the flexibility to pay only for the energy you use.
What are Solar Loans?
Solar loans are a great option for financing a solar energy project for your home or business. If you lack the capital to pay upfront in cash or prefer to own the system, consider a solar loan. Like other home improvement loans, solar loans allow you to borrow money from a bank to purchase a solar system and make monthly payments to pay off the balance of the loan plus some additional interest.
When evaluating a solar loan, important considerations include the interest rate, duration of the loan, and down payment amount. All else being equal, a lower interest rate results in lower monthly payments and less total interest paid over the duration of the loan. A longer loan duration also results in lower monthly payments but can increase the total interest paid. As for the down payment, paying more initially can reduce the interest rate and duration of the loan. Zero or low down payment loans exist for those who may not be able to pay a significant portion upfront.
Secured vs. unsecured loans
Another important consideration is the type of solar loan. Loans can be either secured or unsecured. For secured loans, borrowers put up collateral that can be used as payment should the loan not be paid back. In the case of solar loans, the solar system itself or your home are commonly used as collateral.
An advantage of secured loans is that they typically offer more favorable terms to borrowers. They typically feature lower rates as they are less risky for lenders compared to unsecured loans. On the other hand, unsecured loans generally have higher rates but do not require collateral. These loans are riskier for lenders and are therefore usually offered to those with good credit.
Advantages of solar loans
There are two major advantages to financing with a solar loan. First, loans allow you to spread out the cost of the solar system over the course of many years. This makes potentially expensive solar systems more accessible. It also allows you to start saving money immediately. In many instances, the monthly payment on the loan is less than the money saved on each month’s energy bill.
- “The goal is to provide a variety of terms and options so that any homeowner can power their property with solar for $0 down, with the strong possibility of paying less for your monthly solar payments than you currently pay for your electric bill.”
– Alexander Hood, IGS Energy Sales Specialist
The second main advantage to solar loans is they result in you owning a valuable solar energy system. After the loan is completely paid off, your realized savings will increase as you no longer must make monthly payments but will continue to save on energy for years to come. Furthermore, owning the system adds equity to your property. According to the Solar Energy Industries Association, adding a solar system to a home boosts its value by 4.1%, offsetting a major portion of the initial cost.
The upfront savings and long-term payoff make financing with a solar loan a smart financial decision. Start exploring financing options with our capital partners today!
What is PACE Financing for Solar?
The Property Assessment Clean Energy (PACE) model is an innovative way to finance energy-efficient improvements for private properties. PACE programs exist for both commercial and residential owners. PACE financing is available where the local or state government has devoted funds.
PACE programs are solar loans that are funded by the city or state and are paid back through expenses on property taxes. PACE solar loans are funded by local or state governments. PACE programs permit a property owner to finance the up-front costs of new energy systems or property improvements. The owner pays back the costs over time (usually a period of 10 – 20 years) through additional payments on their property tax bills.
How do PACE programs work?
Here we present the process of using PACE financing for solar:
- A local or state government launches a PACE program that makes funds available. This is done through the sale of municipal bonds.
- Funds are given to property owners who want to invest in clean energy. For example, a property owner who wants to invest in a solar system.
- The property owners that are part of the PACE program will pay back the loan through an assessment linked to their property tax bill.
Is PACE financing for solar right for you?
PACE financing may not be for everyone. There are many advantages and disadvantages to consider when thinking about PACE financing.
- Property owners repay their PACE funds once a year over many years (10 – 20 years).
- It is a secure way of financing projects in the long-run.
- Can help deduct payments from property owner income tax liabilities.
- There are no up-front costs so a homeowner gets to enjoy the cost savings immediately. This is because the amount of money saved from lower electricity bills is greater than the annual increase in property taxes.
- PACE loans are attached to the property, not the individual. This means that if a homeowner sells the property, the rest of the money owed for the PACE loan is transferred to the new owner.
- The interest rate is usually higher than other solar loans.
- The PACE loan has first priority over any other loan.
- PACE financing is only available to property owners.
- It is not suitable for small investments or any investment below $2,500.
- PACE financing is not suitable for smart appliances or portable items such as lightbulbs, washing machines, refrigerators, etc.
What are Solar Leases and Solar PPAs?
Solar leases and power purchase agreements (PPAs) allow you to save on your energy bill without paying for an expensive solar system. They are simple, affordable, and low-maintenance options for those looking to benefit from renewable energy for their home or business.
Solar leases and PPAs can be compared to renting a solar system. Under either agreement, the installation company will install a solar system on your property. Unlike with a loan or cash purchase, the homeowner does not own the system. Instead, leases and PPAs give the lessee the right to use the energy produced by the system.
Differences and similarities
Leases and PPAs are extremely similar, but they differ in the nature of the payment. With a lease, you pay a flat monthly rate to utilize the solar system and equipment on your property. You will have the right to use all of the energy produced by the system each month.
On the other hand, under a PPA you pay directly for the energy produced by the system. In some cases, a PPA is also a flat monthly rate regardless of energy usage. However, some PPAs give you the flexibility to pay only for the energy you use.
The best option for you will depend on the exact terms of each agreement and your monthly energy usage. Overall, both leases and PPAs offer unique advantages over other methods of financing a solar system.
The main advantage of leases and PPAs is the monthly payment for each will almost always be less than your old monthly energy bill. This means that you will be saving money every month even without owning a solar system. Instead of paying for energy from a utility company, you can purchase energy at a cheaper rate from the solar system company.
No upfront costs
Many leases and PPAs offer terms with no down payment required. This makes the barrier to entry for solar energy very low when financing with a lease or PPA. Financing with a loan or paying in cash will often incur a higher upfront cost.
Another major advantage of leases and PPAs are that all of the system’s maintenance is the responsibility of the system owner. In this case, the solar company is responsible for all of the costs of maintaining the system. For this reason, leases and PPAs are convenient and hassle-free.
Terms of the agreement
Before agreeing to a lease or PPA it is important to consider the terms of the agreement as well as your specific situation. The length of leases and PPAs generally ranges from 20-25 years. If you plan to move out of your house before the duration of your agreement is up, it is important to know your options.
One option is to purchase the system and add its cost into the sale price of your house. Alternatively, you can sell the property with the lease intact and transfer it to the new owner. However, the latter may make selling the property more difficult.
Furthermore, the monthly rate will vary by installer and location. Some give you the option of making a down payment or prepaying for a certain amount of time or energy with a PPA.
Most of the financial incentives to go solar are only available if you own the solar system. Therefore, the solar lease company would benefit, not the lessee.
Overall, solar leases and PPAs are great ways to finance your next renewable energy project. They allow you to easily begin saving on your monthly energy bill without having to pay for an expensive solar system. If you want to understand more about these options, contact us and we will be happy to help!
Solar Loan vs. Solar Lease - Which One is Right For You?
There are two paths you can take to finance your project – buying or leasing. Buying your own solar system may involve taking out a solar loan. Leasing involves signing a solar lease or entering a PPA (power purchase agreement).
If you finance your project through a solar loan, you own the solar panel system. A solar loan is where you borrow money from a lender, such as a bank or a solar company, and you agree to pay that money back plus interest through monthly instalments for a set period of time.
A solar loan differs from other home improvement loans because, with a solar loan, you get to own an asset that provides you significant financial value. The value comes from the electricity that the solar panel system produces and the solar incentives, such as tax credits and rebates, that you can redeem.
Solar Leases and PPAs
If you finance your project through a solar lease or PPA, you are renting your solar panel system. The solar leasing company owns the solar panel system and receives the solar incentives that come with owning the system. However, you will still get the benefits of the system such as the electricity that the system generates and the overall lower electricity rates for a certain period of time. This time period is often around 20 years.
A solar lease is when you agree to a fixed monthly payment, which is calculated by an estimate of how much electricity the system will generate. A PPA is when you agree to pay a set per-kWh price, which essentially means you are only paying for the energy that is generated monthly by the solar panel system.
Key considerations when choosing between a solar loan and solar lease
Owning vs renting
The main difference between a solar loan and a solar lease is that through a solar loan, you are looking to own the solar panel system. Through a solar lease, you are looking at renting your solar system.
A solar loan does not necessarily require a down payment, whereas a solar lease may require a down payment or an upfront cost.
In the case of solar lease financing, a solar lease company owns the solar panel system and is in charge of the maintenance of the system. However, with a solar loan, since you own the system, you are in charge of maintenance.
If you purchase a solar system through a solar loan, you will get eligibility for tax credits and other financial incentives. However, if you are renting a solar system through solar leases, the solar leasing company will benefit from the financial incentives.
What is the best decision for you?
The best financing option for you will depend on your preferences and financial goals. Regardless of what financing option you choose, your decision to go solar will save you money and positively impact the planet. Contact us, and we will help decide which option is best for you and your property.
Solar Financing Companies
The following is a list of companies that provide solar financing to businesses and households.
- Dividend Solar: Dividend Solar is a national provider of renewable energy and energy-efficient financing solutions to property owners. Dividend Solar offers EmpowerLoans and PACE financing options.
- GreenBiz Financial: GreenBiz Financial offers loan products for any type of solar and other energy-efficient home improvements with the most attractive rates.
- LightStream: LightStream offers funding for solar power systems. The LightStream loans are cost-efficient, offered at a competitive rate, and are environmentally friendly.
- HomeLoan: HomeLoan Investment is a full-service financial institution that provides fast loan processing at competitive fixed rates to home improvements.
- Mosaic: Mosaic is one of the largest solar loan providers in the US. The company provides solar loans on systems and batteries.
- Sunlight Financial: Sunlight Financial is a solar financing company that provides loans for solar systems and home improvements.
- Rec Solar: Rec Solar is a solar solutions company that offers financing options for solar systems. These financing solutions include PPAs, leases, cash or loan options.
- SolarFive: SolarFive specializes in residential and commercial solar systems with monitoring. The company provides loans, leases, and PPA options.
To find out more about how you can finance your very own solar system, sign up with enlighten-energy and we will help you!
Solar incentives are government-based programs that can help you switch to solar. These programs usually come in the form of giving you money to go solar. These incentives essentially help you finance your very own solar systems. Solar incentives come in different types of forms. Incentives can be in the form of one-time tax credits or cash payments, or continued payments over the life of your system.
The main solar incentives that can help you with your solar financing are:
- The Federal Investment Tax Credit (ITC)
- State Specific Policies
- Performance-Based Incentives
To learn more about these incentives, click here to navigate to our cost-benefit section.