Payment Options for Residential Solar
Most homeowners already know about the benefits of going solar. The great news is that it’s actually pretty easy to obtain the funds you need to pay for solar photovoltaic modules for your home, even with no money down. Here’s a look at some of the ins and outs of the payment options available.
To Buy or Not to Buy…
The first thing to consider is whether you want to buy or lease your solar system. A homeowner can do any of the following:
- buy their system upfront
- get an unsecured loan
- get a home equity loan
- borrow through the Property Assessed Clean Energy (PACE) program
- obtain a third-party owned system through a lease or power purchase agreement (PPA)
Several studies confirm that solar homes are valued higher, and that in California, each 1-killowatt (kW) could add $5,911 to a home’s value, so buying is often a smart choice. But there are unique reasons a homeowner might go with any of these payment options depending on the resources they have available to them, how much home equity they have available, their credit score and how involved they’d like to be with their solar system and the excess energy it affords.
Cold Hard Cash
The most obvious way to deal with upfront solar costs is to pay in cash (or ACH/card), which means immediate financial benefits, including the extended 26% federal tax credit and rebates that many states provide. It’s nice to get increased home value and no recurring monthly costs or interest. Any excess solar energy produced is yours, free and clear. This energy is usually sold back to the utility company but could be stored if the homeowner has access to battery storage.
Solar systems in the U.S. cost around $20,000 on average and $24,100 – $32,000 in California, according to Energy Sage. Most homeowners don’t have that kind of money available to spend or simply don’t want to spend that much money at one time when they could be putting that money to use in other ways. But, by eliminating an ongoing rent check to the power company, you’re wiping out a huge long-term cost in one fell swoop. So it could be worth taking the plunge if your situation allows.
Loans Attached to the Solar Panels
Homeowners can receive loans where the lien is put on the solar system itself. Energy Service Partners works closely with affordable lenders, like Loanpal, Sunlight Financial, Solar Mosaic, and Dividend Solar Finance. These and other financial institutions provide funds for homeowners who might not have enough cash or home equity available, or who would rather not take out a second mortgage on their home.
The interest rates available through these loans are tied to the homeowner’s credit score, with approval at scores as low as 600. Loans, attached to the property or the solar panels, allow the homeowner to receive the same tax credits they would get from paying in cash, as well as ownership of excess solar energy produced. In the case of nonpayment, the lender has rights to the solar system but not the home itself. A lien may be placed in some situations, but it can usually be removed temporarily if you need to refinance.
Loans Attached to the Property
A home equity loan is a popular payment option for homeowners looking to borrow on the equity they’ve grown in order to make home improvements, like the addition of solar panels. Home equity lenders offer extremely competitive interest rates, similar to the rates of first mortgages.
The main downside to borrowing on home equity is that the home equity lender is placing a second lien on your home. This gives them rights to your home along with the first mortgage lien if you fail to make payments.
Another payment option that California residents have is the property assessed clean energy (PACE) program. PACE is a unique program in which the loan is a debt tied to the property itself, rather than the homeowner, and the repayment option may transfer with property ownership. Interests rates are also generally very low with PACE as with a home equity loan. Through property assessments, secured by the property itself, the loan payments are made as an addition to the owners’ property tax bills. Nonpayment generally results in the same set of repercussions as the failure to pay any other portion of a property tax bill and the possibility of foreclosure.
Solar Leasing and PPA Programs
In a solar lease, a homeowner basically rents the solar equipment for a fixed monthly payment from a third-party provider who owns, installs, operates and maintains the solar system. In exchange, the homeowner receives ownership of all the electricity that the system produces.
A Solar Power Purchase Agreement (SPPA) is similar to a lease, except that rather than a fixed monthly payment, the homeowner agrees to receive solar energy at a set kilowatt per hour (kWh) price, which is almost always less than the current utility bill. They give up “ownership” of all solar energy produced and simply receive a lower utility bill than they normally would.
Solar leasing provides less hassle and doesn’t require any down payment. As with a loan, monthly payments are dependent on your credit score. However, with a lease, the homeowner doesn’t directly see a federal tax credit. Instead, the solar contractors receive the tax credit and will reduce the total costs to match the same amount they save through the tax credit.
At the end of the lease or PPA contract, the homeowner has the option to renew the lease, purchase the solar system, or have the equipment removed. If you’re considering paying for solar through a lease or PPA, we recommend checking out Sunrun. They offer flexible plans and services based on your individual needs, and they also offer loan options.
No Wants to Get Stuck with a Bad Deal
When considering financing options, no one wants to get stuck with a bad deal, but the worst deal of all is being stuck paying a never-ending power bill with nothing to show for it. Utility rates in California have increased by four percent over the last four years, and will continue to increase.
No matter which of the above payment options works best for you, it’s better than what you’re currently stuck with. When you start harvesting solar power, you replace your current utility bill with a reliable solar bill at an affordable fixed rate. (And on top of the cash savings, you help the environment. Do you have any other payments doing that?) You bought your home to avoid rent checks, so owning your power makes just as much sense.
As always, if you’re interested in becoming a dealer with ESP, schedule an interview and talk with us today!