Solar Financing Options: Have You Done Your Calculations Right?

According to a recent report by the Office of Energy Efficiency and Renewable Energy under the US Department of Energy, the United States has installed 11.2 gigawatts-AC (GWac) of solar PV systems in the first three quarters of 2022. That’s an impressive number and it highlights how fast the country is moving towards a solar transition. 

The report also stated that the median distributed solar panel cost in New York, California, Massachusetts, and Arizona is $4.25/watts-DC (Wdc) for systems in the range of 2.5 to 10 kilowatts (kW). Therefore, for a 10 kW system, the solar panel installation cost is around $42500. This does not factor in any federal or state incentives and tax credits. With the incentives and credits, the estimated cost of a 5 kW system will be around $14000, while the price of a 10 kW system would be reduced to around $28,000. 

It is clear that investing in a solar system can lead to immediate savings on your ever-increasing monthly electricity bills. However, the query that you might have is about the available solar financing options and which ones to consider. 

Well, several options exist, ranging from paying out of pocket to investing nothing upfront. In this article, our Solarblocks finance guru will dive deep into the nitty-gritty of solar panel financing so you can make a data-driven, informed decision.  

Solar Financing: Options to Look For 

1.  Cash Purchase

‍Much like any home improvement work, cash purchase is one of the most accessible solar financing options. It is the easiest and quickest way to acquire a residential solar system. The moment you purchase a solar system, you start saving on your electricity bills. Moreover, if you compare it with other available solar panel financing options such as mutual funds, equities, real estate, or gold, the return on investment is the highest and most reliable. 

Of course, parting with cash can be daunting, but there are several advantages to this. Solar panel installers often offer cash discounts in addition to the tax credits and incentives currently available to homeowners investing in solar systems. 

Lastly, you should decide whether to stay in the current house for a long period before opting for a cash purchase. Solar systems typically last for 25 to 30 years. Considering this will enable you to gain long-term benefits from the solar financing choice.

Pros of cash purchase :‍

• Pay the minimum initial solar panel installation cost after the discount. This reduces the payback period.

• No EMI burden while you are already paying the monthly electricity bill.

• Immediate ownership of the system.

• Minimum paperwork.

• Incentives from the federal and local government.

• Control in technology selection (panels, inverters, batteries). 

• Increases the property value.

• Provides all warranty benefits to the homeowner.

Cons of cash purchase :

• High initial solar panel price.

• On selling the house, you may lose long-term benefits.

2.  Solar Panel Loan

The second option for solar financing is to take a loan. You can take a loan/mortgage from any financial institution like a bank or the solar company itself. However, before proceeding, it is recommended to check the interest rates and any loan processing charges, pre-payment charges, etc.

Accessing finance with softer solar panel loan rates and other relaxed credit terms like the loan period for the solar system will depend on the credit history and credit score of the homeowner. A good credit score will reduce interest rates and credit terms. 

However, this solar panel financing option also comes with certain disadvantages. Though a large portion of the cost (70% to 80%) comes from the finance, you may need to pay an upfront amount. You might have to pay an EMI every month along with the electric bill. Yes, the cost of electricity will come down and you can save on the monthly bills, but all the savings will go into EMI payment!

Pros of solar panel loan :

• Less or no initial investment.

• Complete ownership of the system.

• Federal, state, and local tax credits and incentives.

• Easily fixable cost of solar electricity in the future.

• Payment for a portion now to save for the future. 

• 100% savings after the payback period (after the loan is paid).

• All warranty benefits for the homeowner.

Cons of solar panel loan :

• Burden of a monthly EMI.

• Risk of hidden costs.

• Less flexibility in choosing the system components (panel, inverter).

• Risk of losing credit score if any economic downturn.

3.  Leasing or PPA

As a customer, you do not have to make any investment upon taking a solar lease. The solar power developer will come, assess your roof and overall electricity consumption, and offer to sell you electricity on a long-term basis. Now, the electricity tariffs offered by a solar company will be less than the utility tariff. Thereby, the cost of electricity will come down.

Everything looks easy right? But wait, there are major downsides to it too.

Firstly, in the case of this solar financing option, you do not own the solar system. This means someone else’s equipment is occupying your roof. A solar system is a long-term asset that requires you to develop a strong relationship with the solar company. A solar lease might create legal hassles in case anything goes wrong. You may want to sell the property, the management of the solar company can change, or even go bankrupt. Typical solar leases are agreed for a period of 25 to 30 years. All this can pose serious troubles. You will also need legal help to sign the power purchase agreement or lease agreement.

Secondly, leasing involves heavy paperwork. This is why you should carefully assess the solar company, its experience, quality of work, service backup, and electricity generation performance before signing a lease. Remember, this will demand more time and effort.

Thirdly, solar leases come with definite exit barriers. No person can be 100% sure about their stay in one place for a long time. It may be due to circumstances like jobs, personal events, economic conditions, health, or safety. But once a solar company invests in your home, it will always ensure the safety of its money. This is why a Power Purchase Agreement (PPA) or a Lease Agreement has clauses that specify the benefits and responsibilities for both parties. And this poses a problem mostly when the homeowner tries to sell their home. They fail to get immediate credible buyers.

Fourthly, the homeowner is not eligible for any federal or state tax credits or any other incentives after taking a solar lease. As the investment is done by the solar company, they will have the right to claim all the incentives and tax benefits.

Lastly, under this solar financing option, the company gets complete ownership of the solar system. They will have the “right to access” the area of your home where the system is installed, to perform panel cleaning, take care of panel breakage, handle inverter issues, cable issues, etc. Thus, you have to mentally prepare to lose some privacy.

Pros of a solar lease :

• No initial investment/or cash payment.

• No EMI burden.

Cons of a solar lease :

‍• More legal paperwork and legal costs.

• Exit barriers.

• No tax credits and incentives.

• Monthly payment for solar electricity. 

• Fire and electricity safety risks.

Summary

Investing in solar needs careful consideration and a little number-crunching. If done correctly, you can see unending benefits with the correct type of solar panel financing. Compared to other options like mutual funds, real estate, or equity, solar investment is recession-proof with assured income. An experienced company like Solarblocks can handhold you at the initial stage to make an informed decision about the right solar financing options that suit both your short-term and long-term requirements. 

Write to us at info@solarblocks.us or call us at 347 226 0695.

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