THE GROWING BOOM IN RESIDENTIAL SOLAR POWER HAS BEEN FUELED BY NEW, MORE ACCESSIBLE SOLAR FINANCING PLANS FOR SOLAR ENERGY, INCLUDING NO AND LOW MONEY DOWN OPTIONS LIKE POWER PURCHASE AGREEMENTS AND SOLAR LEASING.

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Here’s the 101 on Solar Financing

Solar Power Purchase Agreements (or “PPAs”)

A power purchase agreement is a type of financing were someone else owns the solar system on your roof, and you simply pay for the power it produces. Historically this was only done on large commercial systems, but it’s becoming a very popular option for residential solar lately too. Since this approach still involves you paying a monthly charge for electricity, the economics are incredibly simple to evaluate: if the solar energy is going to be cheaper than your electric bill (which it generally is) then it’s a no brainer. The simplicity and low commitment factor of this approach has made power purchase agreements very popular among homeowners.

Solar Leases

A solar lease is much like a car lease. Someone else owns the equipment, and you pay a monthly fee.  A solar lease differs from a solar power purchase agreement in that you are paying for the equipment not just paying for the energy that the equipment produces. Also, a residential solar PPA will often have a fixed monthly cost for the life of the agreement while the lease will usually increase over time. However, all in all, they are very similar. Again, a solar lease is very compelling because it’s easy to evaluate. If your monthly lease costs are going to be cheaper than your electricity costs, it’s a no-brainer.

Feed-In-Tariff

A feed-in tariff requires utilities to pay rates set by the government for renewable power over a certain period of time. The law requires utility companies to negotiate a long-term contract with the homeowner. Contracts usually last 15-20 years. Although they’ve been used for several years in countries like Germany and Spain, feed-in tariffs are newer in the United States however are  now available in a growing number of locations.

SRECS

SREC is a Solar Renewable Energy Certificate (or credit). Your solar system produces a certain number of these credits every year, depending on its size and other factors. Utilities can then purchase the SRECs you produce to offset their non-renewable energy production and SREC markets exist in states where utilities are required to do that.

In these states, SRECs are valued at a certain amount of money and homeowers can sell their SRECs on the open market . In this way, solar can not only save money for homeowners in SREC states, it can generate income for them.

PACE

Stands for Property Assessed Clean Energy. Basically, it’s a way to finance solar systems or energy efficiency retrofits, where the city offers you a loan, and you pay it back through your property tax bills over 15 to 20 years.

The program doesn’t require shelling out any cash upfront or reducing equity in your home.Another benefit is that property tax financing solves the problem of “what happens when I sell my home?”  The simple answer is that the solar power system and whatever tax liability you have both go to the new owner of your home.

Home Equity Loan

Some homeowners pay upfront for their solar using a home equity line of credit and even personal unsecured loans from a local credit union or their personal bank.

This can make sense if you have fantastic credit and are OK with this type of financing option. Most people prefer to do “off balance sheet” lease or PPA financing for solar as there is no hit on their credit history or Debt-to-Income ratios!