So you’re thinking about getting a grid-tied solar system installed on your house, but aren’t sure the best way to pay for it. Of course the good old saving your money and not buying until you can pay for it outright is still a good course of action, but there are other options as well. The lure of no money down for leasing is tempting, but the economics show that owning your system offers much better payback over the life of the system. It also has been found that owning a grid-tied solar system can increase your property value, while having a leased system can complicate selling your house. The buyer must agree to take over the lease, or the seller must buy out the lease, adding a large expense as you try to sell the house.
Since having a grid-tied solar system can save you money each month on your utility bill, it may be financially beneficial to borrow the money upfront, and use your savings to pay for the solar.
Let’s run some numbers for a 20 year loan of $20,000 with an interest rate of 5%. If we figure the average cost today for an installed system is $3/watt, a $20,000 system can be a 6.6kW system. The output of this system can vary widely, depending on where you are in the world. Here in the USA, I’d guess an output range of between 600kWh a month to 900kWh a month (actual mileage will vary). Likewise, electric prices also vary widely, anywhere from $.07 per kWh to $.20 per kWh or more. Let’s split this down the middle and use 750kWh a month, and $.13 per kWh. This would equal $97 a month savings with the 6.6kW solar system. Additionally, this system would qualify for the federal 30% tax credit, which means within a year, you’d get $6,000 back, which can be used towards paying back the loan. This makes our total loan $14k, and brings our payment down to $92 a month. Remember, we are saving $97 a month on our electric bill, so that is a net savings of $5 a month while using a clean, green power. If you qualify for additional credits, rebates, or SRECs, or your solar availability / electric rates are higher than average, or your interest rate is lower, then your savings look even better. For example, if you have a local rebate of 25%, the total cost goes down to $10,500, and monthly payment drops to $69 a month, giving you a $28 a month savings!
There are a few options available for financing.
Home Equity Loan
If you qualify for a home equity loan, it may be a smart way to pay for your solar system. You may also get a tax deduction out of the deal. Interest rates and fees vary widely, so shop around. You will have to have a minimum FICO rating to qualify, and have equity in your home, so this option may not work for everyone.
PACE (Property Assessed Clean Energy)
PACE financing is made available to eligible Property Owners in order to provide attractive financing for property improvements that lower energy consumption, such as more efficient appliances or installing a solar system. Low interest loans are paid back through an assessment on their property tax bill, and interest rates may be tax exempt. PACE is managed by the municipality, so it is not available everywhere.
A couple of examples are below.
Almost 200 municipalities have passed PACE ordinances. Eligible homeowners can borrow up to $25,000 with 4.99% fixed APR with no closing fees.
Hero Financing Program
Over 300 communities in CA currently have a PACE program in place. It is available for Commercial and Residential property owners. With 5 – 20 year loans, interest rates will vary based on duration. It must be installed by a registered contractor or a property owner who has signed a Self-Install Agreement. The equipment must be on CA approved list, which CA requires for their rebate programs as well, so it is equipment you would have selected anyways.
Renewable Energy Bank Loan
Some banks have put together a loan program specifically for renewable energy projects. No equity is required, but you must have a good credit score. Higher price loans are available for higher credit scores.
Up to $40,000 can be borrowed depending on your credit score. Up to $15,000 of this can be a short term no interest/no payment loan of 18 months, allowing you to use your federal tax credit to pay off part of the loan when you get your tax return, and keeping your overall bill low. The flexible length of the loan lets you finance for 5 – 20 years, and the interest rate is as low as 4.95% (varies based on credit score and length of loan, currently up to 8.875%).
Larger installation companies offer financing with their installation. This does prevent you from using a smaller company, or installing yourself, but opens up another avenue for financing. Be aware of the fine print, some large, well known companies include a kicker after a number of years, so your interest rate increases over the life of the loan.
As you can see, paying for the system outright gives you the best payback option. But with the right financing program, paying off your system over time can still save you money each month while doing your part in reducing your carbon footprint.