Although the benefits of solar are many, people aren’t typically used to paying for their energy upfront. However, there are several options to finance a solar energy system such as leasing, PPA, and green loans that can reduce initial costs and lower the entry barrier.
Options to Finance a Solar Energy System
A well-financed and correctly sized solar energy system is an investment that pays for itself. Here are a few ways to reduce the upfront costs of procurement and installation:
Extending a Home Loan
Extending a home loan can be a relatively inexpensive way to finance the purchase and installation of a residential solar energy system. By extending your home loan, you can potentially avoid incurring substantial fees that come with a new loan.
In addition, interest rates can be almost 50% lower than those of personal loans. However, if you extend your mortgage plan to facilitate the additional cost of the solar energy system, the added interest may be too high. For example, if your payment plan is spread out over a 25-year period, you may find yourself paying almost double the cost of the solar energy system due to long-term interest. In other words, this solution is usually most suitable for homeowners who can increase their monthly installments instead of extending the length of their mortgage payment plan.
Solar Leasing eliminates the upfront costs of installing a solar energy system by establishing monthly payment rates for the electricity it generates.
In other words, you agree to a fixed monthly rent or lease payment, which is calculated using the estimated amount of electricity the system will produce. In exchange you receive the right to use the solar energy system installed on your property. Although the lease includes interest, the monthly fee is often lower than a monthly energy bill. This type of financing is recommended for installing large solar energy systems and is often used with commercial PV projects.
Green Loans are unsecured personal loans usually offered for approved green products like home solar energy systems installed by a Clean Energy Council Accredited installer. Green loans often boast lower interest rates than similar unsecured loans. Because financial institutions generally consider finance for solar energy systems as credible, interest rates tend to be reasonable.
This option is suitable for solar energy systems of all sizes and is available to anybody who has a good enough credit score to secure a loan.
Power Purchase Arrangements (PPAs)
Power Purchase Arrangements (PPAs) allow you to purchase the power generated by the solar energy system installed on your rooftop at a set per-kWh price.
Over time, the cost of the system is covered by monthly payments for the power the system generates. Although tariffs charged are generally lower than standard electricity bills, PPAs usually contractually obligate you to purchase a set minimum amount of electricity every month.
PPAs may be suitable for home businesses that use considerable electricity, but are typically used by factories with a high level of energy consumption.