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How to pay for your rooftop solar investment

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You have a contractor, you have found your solar panels and your inverter, you understand the taxes, you have the project price, and you are ready to take care of your solar plant for the long haul. How is it for a Solar 101?

The next question is: where will the money come from to pay for all this?

For most of the things we buy, it’s a simple answer: cash and no cash. However, the direct cost of a solar power system is quite high, so buying is a lot like buying a car. And because solar panels pay dividends, a better analogy might be to invest in a financial product.

The key is that your solar power plant will generate a product – electricity – that has a value that can be easily determined. And because of the highly quantifiable nature of electricity, many banks and other financial parties have an interest in being a part of your solar energy project. Even so, money is king.

Long live the money

Everyone loves a cash payment, and if you’re willing to pay your contractor the day you call them, it will likely help you get the best price for your solar power project.

A small deposit to start the process (and which covers engineering, application, and permit fees) is fair. Then there is a big payment which includes a deposit, or even full payment, for the material and at least some of the labor. The final payment – in the order of 10% – is often made after the project connects to the grid and starts generating electricity.

Paying no interest and getting a bargain price often means that using cash provides the fastest ROI for your solar power project.

Home Equity Line of Credit (HELOC)

A HELOC with a respectable interest rate could be an attractive financial option. Of course, it depends on the opportunity cost of spending your own money on the solar power asset, versus investing it elsewhere.

For example, if you’d rather put money into your 401K or your children’s education fund, it might be a good idea to get a low-interest HELOC from your bank.

In general, banks look favorably on solar energy projects that are put on the houses on which they hold the mortgage. This is because solar installations generally reduce a homeowner’s monthly expenses, while making the home more valuable.

Classic bank loan

As residential solar power surpasses 400,000 installations per year, banks are increasingly looking to collect fees associated with taking out loans – on average – of $ 21,000. As homeowners add props to their projects, bank loan officers can even get a little more charming.

The banks take a positive view of solar energy projects that are put on the houses on which they hold the mortgage.

Image: Sullivan Solar

You can visit banks in your area to see if any of them want to own your project, or search nationwide for banks that have a department specifically created for solar energy. Your state may already have one or more programs to boost solar energy funding. Massachusetts is a good example, with its Mass Solar Loan program.

There is at least one nuance to understand when considering a bank loan. Currently, homeowners get a 26% tax credit when they purchase a solar power project. If you pay the average price of $ 21,000, that means you are entitled to a tax credit of $ 5,460.

Banks usually require borrowers to deposit a down payment on this type of loan. So let that 26% / $ 5,460 be your anchor number, and if you can find a better deal, go for it.

Keep in mind that the type of loan you choose can affect your tax burden for years to come. A home equity line of credit is similar to a mortgage in that it is generally tax deductible. General bank loans are generally not tax deductible.

And we are by no means tax experts, so consult your tax professional before making a decision, and remember to consider any additional incentives when having these conversations.

Quick financing

Many residential solar energy buyers choose instant loans from companies specializing in solar financing. These groups will include energy storage and car chargers without paperwork and on-site approvals. They offer a combination of terms of 20 years or more, no down payment, low interest rates and a guaranteed discount on your electric bill.

Typically, these finance companies will save the 4-8 weeks that bank financing could take.

The biggest downside to these quick credit products is the “dealer’s commission”. These fees are a percentage added to the price of your project by the finance company. Make sure you compare your project’s total ROI and factor in all fees and interest rates for all types of products.

Credit: EnergySage

EnergySage’s Semi-Annual Intel Solar Market Report provides a breakdown of what entrepreneurs from finance companies are suggesting to potential solar buyers.

Many entrepreneurs offer different financial products depending on your needs and what different companies offer.

Third party property

Who would want to own my tiny rooftop? Well, Sunrun could. Sunrun’s “little small rooftop” installations add to a larger-than-utility solar power plant every few months.

Sunnova has also discovered that small rooftops add up, and they are currently the second largest rooftop rental company in the country, behind Sunrun. To sweeten the deal, Sunnova offers battery backup, 25 year warranties, no down payment, guaranteed savings and other perks depending on where you live.

In this author’s opinion, the biggest benefit of going with a third party owned system or quick finance company is simple – it gets the solar on your roof immediately so you can be a part of the movement.

And while a solar lease doesn’t offer a compelling ROI like a system you bought yourself, there’s no down payment. You, the landlord, get 10-30% off your electric bill, and the rental company assumes all risks and responsibilities. If there is any weather damage, faulty components, and operation and maintenance, it is not your problem to solve (even if it is your problem to solve, and sometimes it can be unpleasant).

In our next post in our Solar 101 series, we’ll talk about what California homeowners should pay attention to – and protect themselves – when buying solar power.

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