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Solar Financing 101
Posted by Mark Bentley on May 28, 2015
Q: What do a new deck, a new pool, or a new rooftop solar system have in common? A: Nothing.
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Well, that’s not completely true. All three represent major improvements to your home. All three will increase the value of your property. But only one of them starts paying you back the day after its installed.

Yep. Solar’s different. So when we talk about financing rooftop solar panels, we have to approach the financing with the same kind of fresh thinking that led you to consider a solar installation in the first place.

There are four typical financial models for solar: Cash, loans, leasing, and PPAs.

The first two you’re already familiar with, and they work pretty much the same way for new decks and pools as they do for solar. The third one is not usually associated with homeownership, and the fourth one is unheard of outside of the renewable energy market. So let’s start with that. one

A Solar PPA is similar to a lease, in that you don’t own the equipment. Instead, that gear is installed, operated, maintained, and owned by the “seller” or “developer,” which is generally a specialized financing company. The seller then becomes a mini power company, which sells electricity to “the buyer” — you — at a set rate. What makes this approach appealing is that a) the rate will almost always be lower than what the utility company charges and b) that rate is predetermined. So even if the utility company raises rates dramatically (and they do — consumers paid 32% more per kWh in 2014 than they did in 2005), you’ll keep paying the rate agreed upon at the start of the contract.

You effectively have a hedge against soaring energy costs.

Escalation rates are generally built in to the contract, which will last between five and twenty years. Most PPAs fall under the Federal Energy Regulatory Commission (FERC).

Your new solar panel will cut your costs, and might even eliminate them under ideal circumstances. Since few homes can be 100% solar, most people will still pay the market rate to the power company for whatever electricity that is not provided by the panels. But there’s a twist: With this kind of setup, when your panels are producing more power than your home needs, the excess is sold back to the power company. This is called “net metering,” and in effect, your electric meter runs backwards during these times. You’ve just switched roles with the power company. Now you’re the seller, and they are the buyer. Trust us when we tell you how great it feels to see credits on your electric bill.

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It gets better. During peak hours — hot, sunny days requiring heavy air conditioning use — when electricity is the most expensive, the solar panels will also be working at peak efficiency. This means you’ll be selling back at the best time possible

There are many advantages to a PPA:

The upfront costs are dramatically reduced, and in some cases, eliminated entirely.
The installation, maintenance and monitoring of the system is taken care of by the seller.
You only pay for the power you use; any excess is sold back to the utilities by the seller.
Retirees or anyone else who doesn’t file itemized tax returns will benefit greatly from a PPA vs a loan. (See below)

There are downsides to PPAs as well. Most notably, if you sell your home, that is considered an early termination. And while the contract will cover exactly what is entailed, it’s a bit like breaking an auto lease early, meaning fees will be involved. On the other hand, the solar panels will have increased the value of your home and should offset any early termination fees.

Leasing is a close relative of a PPA. You still don’t own the gear, but you own the amperage that comes out of it. There is no negotiated price. It’s yours. And if your state permits net metering, you can still sell back your excess amperage to the power company. You’ll still get that warm feeling watching the meter run backwards. Try that with a new deck.

Loans are much simpler than PPAs or leases, but having the right partner in your corner certainly helps. That’s part of Geostellar’s magic. The same technology that allowed you to see exactly how efficient your roof would be for solar, helps us find you the best loan for your new array. Geostellar works with many financial companies, and can help you find the best terms for your specific situation. For instance, those in sunnier climates will probably opt for a shorter loan term, while those in northern and/or less sunny regions might want to stretch the term out. Either way, we help you secure the most agreeable rate possible, and we ensure that your financial deal includes any available tax credits, local incentives and Solar Renewable Energy Credits (SRECs).

These loans are similar to home-improvement financing, with similar structure, conditions, and terms. Depending on your home state and financial situation, it is sometimes possible to deduct the interest and HUD insurance fees. In some cases, borrowers can re-amortize these loans within the first two years, to lower the monthly payments. Most do not require any up-front costs, and many states waive any increase in personal property tax due to the value of the panels.

These incentives bring up one of the big differences between a PPA and a consumer loan: With a loan, you keep the credits. Right now, the Federal Residential Renewable Energy Tax Credit is 30%. With a PPA, that rebate goes to the seller.

Cash is simple, and powerful. No APR to worry about, no finance company. You get the benefits right away, and all those credits, rebates and deductions are yours. If you are thinking about selling your new solar-equipped home in a short period of time, this might be your best choice, as the installation will instantly add value to your home. And the idea of selling back electricity to the power company is a definite attraction to homebuyers. It’s more appealing that fresh-baked cookies during the open house. But there’s no harm in doing both…

Which model is right for you? Geostellar is here to help you make that call. We’ve already helped homeowners like you around the country take the logical, green, and financially-sound step into solar. Remember, we do it all: We tell you if your home is a good choice for solar, how much it will cost, how much you’ll save, what are the best products, and we pick the installers. We’re not going to abandon you when it comes to financing!

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