Best Ways to Finance Your Solar Panels

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The field of solar energy is booming, with a 60% increase in solar power generation in the United States annually during the last decade. More people add solar panels and equipment to homes, office buildings and different energy generation stations nationwide. The future looks bright for solar energy. If you want to be part of this growing field, now is an excellent time to consider adding solar equipment to your home.

Unfortunately, although solar energy itself is free, the equipment to harness the power of the sun is not free. There’s a cost for the hardware and setup, and it can be prohibitive for some homeowners. Leasing solar panels is one option, but there are cheap ways to pay for solar panels, too. And the good news is that the cost of solar energy equipment has dropped 60% over the past decade, too, making it more affordable now than ever.

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If renewable energy is one of your dreams and a lower utility bill, it’s crucial to explore the many options you have for solar panel financing.

The Parts of a Solar Energy System

It may sound strange to need financing for solar energy. After all, no one has found a way to tax the sun’s rays yet. However, solar power requires system components that you must purchase or lease. The expenses can add up quickly.

You can build an off-grid solar system or a ‘grid-tie’ system. Off-grid systems aren’t connected to the local energy grid and provide power to the installation site only. Grid-tie means that your house remains connected to the utility system. Most people choose grid-tie because it’s convenient and provides the assurance that you’ll always have power. If you produce excess power from your solar energy installation, you can even sell it back to the utility company.

The parts you’ll need for a grid-tie solar system include:

  • Solar Panels: Solar panels collect energy from the sun and convert it into direct current.
  • Power Inverter: American power is on alternating current, or A/C. Direct current from your solar panels must be changed into A/C for it to power any appliances in your home or to be sold back to the power company. A power inverter does the job of converting D/C to A/C power.
  • PV Disconnect: A PV Disconnect turns off the power when you want to work on the system.
  • Breaker Box: You can use the same breaker box in your home that’s connected to the utility system grid.
  • Net Meter: This connects to the grid to monitor how much power you take or give to the network system.

System costs vary according to the size and complexity of the entire system. You should also consider the costs of installing the panels and any maintenance that might be needed over time.

Solar panels are rated according to how much energy they can absorb. Look at your current utility bills for an estimate of how many kilowatt hours your family uses in an average month. That will tell you how much energy you’ll need each month.
Next, look for the peak solar hours each day for your area. You can find this on the National Laboratory website.

Divide the number of kilowatt hours per month by 30 to get an average per day. Take your answer, and divide that by the peak solar hours. This answer will tell you how many kilowatts of panels you need, on average.

For example, if you use 1200 kilowatts per month of electricity, that works out to 40 kilowatts per day. If you live in an area where the peak solar hours is approximately 4, then you need 10 kilowatts worth of solar panels in total. This number will help you figure out how many panels you might need.

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Types of Solar Panels

There are two types of solar panels: crystalline panels and thin-film panels. Crystalline panels last about 40 years and are the big, blue-tinted panels common in the solar power industry. These panels require an elaborate racking system for installation which can add to the costs, but they’re durable and proven in the industry. Racking, or mounting the panels, can be done on the rooftops of houses or the ground if you have space or it.

Keep in mind that the average household will need about 25 panels, so you’ll need enough space and a sturdy enough roof for the panels. It’s also important to have a roof that’s not shaded by trees or adjacent buildings. Sunlight must strike the panels directly for it to be absorbed and transformed into energy.

Thin-film panels are a new invention that use thin cling-film to create solar panels. It unrolls and sticks to a solid surface to build solar panels. It only lasts about 25 years, so you won’t get as much from your investment compared to crystalline panels. It also doesn’t generate as much power as crystalline, so you need more surface area for thin film to make up for the difference. Because it’s easier to install, some people prefer thin film.

What Are the Financing Options for Solar Panels?

There’s a big push for solar energy now as both the sole provider of energy to homes and offices and a supplement power source generated by coal and nuclear-powered plants. Let’s take a look at the many ways to finance solar panels for your home.

Solar Panel Financing: Purchases and Loans

A solar-photovoltaic (PV) system requires a significant upfront investment. The price depends on the size of the area to be fitted with solar panels and the system you purchase. Batteries add to the cost, but they also add to the usefulness of solar PV systems since energy from the sun can be stored and used at night and on cloudy days.

To finance the cost of solar systems, you can tap into your savings or home equity. There are also loans available to homeowners who wish to add solar systems. These loans are good if you want to purchase your solar system outright. Once you buy such a system, you can reap the benefits immediately.

Loans are available from banks, credit unions and private groups. Before signing up for a loan, consider that the money you hope to save from solar energy should outweigh your loan payments. In other words, if a loan payment is $500 a month until the loan is satisfied, you’ll want to achieve $500 a month or more in savings on energy costs.

Typically, homeowners can save 40 to 70 percent of their electric costs over the lifetime of the system. Energy costs always fluctuate, especially if you heat your home or water using gas or oil fuel. Energy from the sun used to heat homes and water systems will never cost anything more than your initial investment into the solar system, so you could end up saving money if you plan to remain in your newly solar-outfitted home for a while to come.

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Solar loans work the same way as a home improvement loan, with the common interest and repayment options. Some states offer specific solar loan programs to help homeowners more easily obtain credit for solar projects. Pennsylvania offers a generous solar loan program, and New York State residents can borrow $13,000 to $25,000 with a 5, 10 or 15-year payment period for home-based solar installation projects. Other states may have similar programs, so be sure to check their websites for information.

There are many advantages to buying your equipment outright. You’ll own it and won’t have to worry about payments later on. You’ll also receive any tax credits and other benefits associated with it. The drawback includes the cost. The initial cash outlay may be steep. Weighing potential savings in energy costs over the 40-year life of crystalline panels or the 25-year life of thin film is an important part of the equation.

Leasing Solar Equipment

You can also lease solar equipment. Solar leasing companies will rent equipment to you in exchange for the tax credits and benefits they receive. Typically, solar leasing companies ask for a 20-year contract. They own the equipment installed on your property and maintain it or repair it if it breaks. You are responsible for allowing them access to their equipment and for any other terms or conditions of the contract.

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Leases usually require no money down, but you’re locked into the conditions of the agreement for 20 years. Like leasing a car, you’ll pay a fixed amount each month to lease the equipment. The amount of the contract is calculated based on the estimated amount of electricity your system will provide. You’ll save money on your electric bill and do your part to reduce the use of fossil fuels by incorporating solar panels into your property.

Leasing is only available in about 25 states, so check with your state government for more information.

Power Purchase Agreements (PPA)

Similar to leasing, power purchase agreements allow you to place solar equipment on your property, reduce electric bills and do your part to reduce the world’s reliance on fossil fuels.

PPAs are either no money down or a small percent or fixed fee down payment. After the initial payment with a PPA, however, there is no monthly leasing fee. Instead, you agree to pay a fixed kilowatt-per-hour fee for the electricity generated from your solar panels. You pay the PPA company that amount each month and the solar energy produced by your panel offsets some or all of your electricity needs.

Energy Efficient Mortgage

An energy efficient mortgage offers homeowners a break in the costs of their mortgage after proving that they have installed energy-saving devices. Solar equipment is included in this definition. An energy efficient mortgage requires someone from the lending company to validate the energy savings attributes of a home. While energy efficient mortgages are typically given for new homes, it may be worthwhile to explore whether an existing home if fitted with solar equipment would qualify for a new mortgage or refinancing with an energy efficient mortgage.

FHA-approved lenders offer EEM loans. These loans are offered as 30 or 15-year fixed rate mortgages or as adjustable rate mortgages from approved FHA lenders. A 3.5% cash investment in your home is required before the loan is granted. The total amount of the loan is equal to the estimated value of your home plus the projected costs of energy-saving improvements.

PACE Programs

PACE stands for “property assessed clean energy.” PACE programs finance renewable and clean energy programs. Property owners who wish to install solar power equipment can repay the costs of the loan to install it over a 10 to 20-year period with PACE programs. These programs reduce large upfront cash payments that may be required to implement a big home improvement project, such as switching to solar energy.

PACE is tied to the property, rather than to an individual, so the loans go with the property if you sell it. Failure to repay a PACE loan is treated similarly to failing to pay your property taxes.

To learn more, visit the government’s PACE program page.

Peer-to-Peer Lending

Peer-to-peer lending helps homeowners avoid the high transaction costs of dealing with banks or other lending institutions. It offers a way for entities to finance solar projects on a one-to-one basis. Borrowers are matched directly with investors, and repayments are made directly to the investors rather than working through financial institutions.

Peer lending operates in a gray area of loans that may be a bit risky. The laws haven’t caught up to it yet, so you are taking a bit more of a risk with it than if you went to your friendly neighborhood banker. Still, it can be a good choice for those who do not wish to take out a bank loan or who cannot for some reason go to a traditional lender.

Shared Solar

Shared Solar, also called Community Renewable Solar Energy, is a way for community groups to fund solar projects. Several customers can share the benefits of one local, pooled solar energy resource.

It’s simple: a group of people from a community contributes money towards a solar project. Then, panels and equipment are installed. The power generated from the shared solar is then dispersed among the members, essentially sharing out the benefits of the capital they put into the project.

Shared solar projects are usually created on jointly-owned property. They are ideal for community developments, condominiums, or spaces with a shared common area.

Currently, there are 25 states with at least one solar community project online and working. Twelve states, including Washington D.C., offer financial incentives for community solar projects.

Ready to Go Solar?

Before starting your solar power installation project, check with local zoning laws to make sure it’s legal in your area to put up solar racks. You should also work with an experienced, licensed electrician to install your system, especially if it’s a grid-tie system. Solar energy is, after all, transformed into electricity, and you don’t want to shock or electrocute yourself when you check on the system.

When you’re ready to get started, consider Bright Eye Solar. We serve the Mid-Atlantic — New York, New Jersey, Pennsylvania, Maryland and Delaware — with expert solar power system installation. Contact us or get a quote today!

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