By Mattie DeDoes
Since its inception, the field of solar energy generation has always been full of promise and potential. However, in decades past, household solar panels have often not been a financially viable option for lower and middle class homeowners. While funding assistance - through various public and private sources - has been around for some time, the high cost associated with solar systems has made them more of a luxury product than a cost-saving measure.
Fast-forward to the present. Now, even considering the ever-declining manufacturing costs of solar panels, making solar power into an attractive and affordable option for low- and middle-class residences remains a challenge. Financial obstacles must be surmounted in order for solar power to compete with traditional, “dirty” energy sources around the globe.
Well, good news is on the horizon. With the breadth of financing options that have become available, you no longer have to be “Oprah rich” to take advantage of the wealth of benefits that solar power has to offer. Recent long-term plans allow easier access to solar power for customers in a variety of financial situations.
A few of the most common options for both buying and leasing a solar array are discussed below.
Owning The System
Many homeowners would like to purchase and install solar panels on their home, but cannot afford the entire cost of the system upfront. For these customers, there are a great deal of private and public loan programs available. Solar energy loans are available through a multitude of sources, including banks, credit unions, utilities, manufacturers, and federal and local governments.
An NREL report highlights certain loan programs offered by government organizations like the U.S. Department of Energy, Environmental Protection Agency, and Department of Housing and Urban Development, as well as private lenders like Fannie Mae.
The available loans are categorized as either secured or unsecured. The distinctions between these two types are summarized below.
Secured Loans
- Require an asset as collateral (often the buyer’s home)
- Lender can, therefore, repossess the home
- Lower interest rates (often 3%-8% (link))
- Interest is tax-deductible
- All fees must be disclosed up front
Unsecured Loans
- No collateral required
- Higher interest rates
- Interest is not tax-deductible
- No requirement for disclosure of fees, may lead to hidden charges
In either case (secured or unsecured), the buyer owns the system, and therefore is able to take advantage of any SREC’s (Solar Renewable Energy Credits). This ownership aspect can be an important benefit, as SREC's often cannot be claimed in a PPA or lease agreement (discussed later on).
More details on secured and unsecured solar loans can be found at the Clean Energy States Alliance’s Homeowners Guide to Solar Financing and energysage.com.
Many markets, like New York State and Fort Collins, Colorado, provide the loan recipient with an option for incurring their monthly repayment charge on their utility bill, rather than having to interact with a third-party loan provider in order to repay their loans. These programs, known as On-Bill Recovery Loans, enable the customer to clearly see the monthly cost savings realized from the solar installation.
The state of Ohio offers many solar loan programs, as well as other financing options such as PACE (Property Assessed Clean Energy) financing. An updated list can be viewed on the DSIRE (Database of State Incentives for Renewables and Efficiency) website.
“Renting” the System
For many customers, the long-term commitment towards owning a solar panel may not be a viable option. However, there are ways for these people to take part and share in the future, as well as realizing financial advantages for themselves, by tapping into solar technology.
For customers like these, there are two main alternatives to purchasing and owning a solar energy system: leases and power purchase agreements (PPA’s). In these cases, the system is owned by a third party (not the homeowner), and different options are available for purchasing the power generated by the panels. With either a lease agreement or PPA, the customer does not own the system, which means that the benefits, such as rebates, tax credits, and the sale of SREC’s, belong to the third-party owner.
While leases and PPA’s are very similar in practice, there is an important distinction between the these two contracts. In a solar lease, the customer agrees to a fixed monthly lease payment for the right to use the system, similar to a rent payment, which is calculated based on an estimation of the system’s power output. With a PPA, the customers agrees to a direct purchase of the power produced at a certain price per kilowatt-hour.
Both solar leases and PPA’s allow for a variety of payment plans. The common “$0-down” option does not require any upfront payment. Once the system begins operating, the customer has a monthly payment, which will often increase between 1%-3% annually.
With a custom down payment plan, the customer does make a small down payment (often $1,000-$3,000), in exchange for lower monthly payments. In custom-down agreements, the third-party owners of the system will most often waive the monthly cost increase, increasing the customer’s cost savings in the long run.
Summary
With this myriad of available options for financing household solar power, an important development in the customer base for solar energy systems is taking place. Middle-class property owners are now able to reap the environmental and financial benefits of solar energy without paying the entire price of the system out-of-pocket. Flexible financing options, along with a decline in costs associated with the production of the panels, are helping to change household solar arrays from a luxury item to a practical investment.
This expansion of the overall market, resulting from creative options for finance and installation, is crucial in order for solar power to play a significant role in the future. In order to reduce electricity-related pollution in the United States and around the world, a key aspect of renewable energy implementation lies in our ability to make new technology available to more people.
Interested in learning more about YellowLite’s renewable energy solutions? Reach out to us today to learn more.
