If you’re not sure what options you have when it comes to solar panel financing, don’t fret! This article shares the eight main types to consider based on your budget and needs.
Power Purchase Agreement (PPA)
With a PPA, you will pay a regular, pre-determined monthly amount based on every kWh your system generates. Choosing between a PPA and a lease usually comes down to your location and the utility company you use.
3rd party lease
Leasing is one of the most popular solar panel financing methods, with over 70% of homeowners using it since the market for 3rd party leasing boomed in around 2005. It works by having the provider own and pay for the energy system, as well as install, maintain, repair and monitor it.
In exchange, keen homeowners pay them a designated monthly amount, and the government gives them a tax credit. This leasing fee will generally be much lower than the regular electricity price, though the fee you pay will be the same no matter how much energy the system produces (unlike with a PPA).
Energy Efficient Mortgage (EEM)
With an EEM, your energy efficiency will be credited through your home’s mortgage. You may be able to get an EEM via the government for solar panel financing. You must have your house given an energy rating by doing a professional audit before you can be approved for an EEM.
Home Equity Loan
As you might already know, a home equity loan uses your house’s equity as collateral, and as such, the loan amount will depend on your property’s value. What this means is that depending on the specific loan, you will be saving more money on electricity bills thanks to low interest rates – they are typically between 3-8%. Terms are usually between 6-20 years and your interest could be tax deductible.
Property Assessed Clean Energy (PACE)
Homeowners in certain states may be eligible for solar panel financing via the PACE program. This involves loaning money from your municipality and paying it back using higher taxes for the next 10-20 years. Just like with home equity loans, with PACE your energy savings are already exceeding the loan payments from the get-go.
Note: this does not reduce your home equity. Upon selling your property, your tax liability will simply be transferred over to the new homeowner.
This is quite a new solar panel financing option. Peer-to-peer lending allows lenders and borrowers to be paired up using crowdsourcing platforms. You don’t generally need to use your home as collateral, however interest rates will typically be higher than you would get from a home equity loan. This means you will most likely get lower long-term savings than if you used such a loan.
If your property is not suitable for solar panel financing because of its structure, lack of sunlight or due to ownership issues, you might want to consider sharing your energy with your local community. Each homeowner will pay an energy bill to the provider each month, in most cases.
Going off the success of online group discount platforms like Groupon, there are now options to get group discounts for your electricity. Simply team up with other local homeowners and save up to 20% off your energy bill!
You have an abundance of options when it comes to deciding which solar panel financing to use. There is no need to stress about paying large upfront costs for a system. Ensure you do your research to find the best fit for your budget, property and lifestyle.