Categories: Residential

Financing Your Solar Purchase

In previous posts I covered the basics of PG&E billing and how aspects of your home such as roof material, size, and sun exposure impact solar installations. This article will focus on the way homeowners across California are paying for their solar systems.

First, let us take a look at some recent news in Arizona about Solar Financing.

Solar Financing in the News – Arizona Bill to Disclose Solar Lease Costs

Arizona is considering a bill that will force solar leasing companies to disclose more about long-term costs and implications of leasing solar. Here are some of the key points:

Total price with interest over the life of the contract
Potential tax ramifications
Disclose restrictions and potential hindrances that impact the ability of a property owner to sell his or her property
Depreciation schedule

The article raises a great question – what is the cost of financing a residential solar project? What are the best approaches?

In today’s post, we’ll take a closer look at an actual homeowner’s experience and share the numbers he evaluated to make his decision.

Lets get started…

The Example

Jeff, a retired Physics teacher, wanted solar for his home in Monterey County. Here is an image of his home and the criteria that impacted his options for solar:

Usage is 600 kWh per month or $120 per month
Roof is sloped 18 degrees with composition shingle roof material
Azimuth of ideal solar location, or the direction of that particular section of the roof faces, is southwest at 195 degrees
100 Amp Main Electrical Service with available space
Wanted financing and had great credit with equity in the home

Based on the home and electricity usage, Jeff has a great site for solar!

Payment Options for Going Solar

There are several ways to pay for solar. Ways to finance solar tend to be broken up into whom owns the equipment.

Ownership – Homeowner Owns Equipment and Receives Tax Credit:

Cash – Homeowner has money saved up and does not need help paying the upfront cost of solar. This is common, costs for solar are often lower than people think.
Financed Purchase – Homeowner gets a loan and pays for the solar project. Financed purchases come in many shapes and sizes: home equity lines of credit, secured loans, unsecured loans, and even loans through your local tax assessor can be used (California First and HERO).

3^rdParty Ownership – Solar Financing Company Owns Equipment, receives Tax Credit, and depreciation of solar equipment:

Power Purchase Agreements (PPAs) – Homeowners agree to give access to a solar financing company to install solar on the roof. The solar financing company installs a system and sells you electricity generated from the equipment installed. You are currently in a PPA with PG&E to buy electricity.
Lease – Homeowner makes a monthly payment for use of the equipment. Power generated from the equipment is the homeowners to use.

Jeff’s Choices to Evaluate

Jeff found Solar City searching for solar information online and scheduled an appointment to learn more. Solar City proposed two different plans, My Power and Solar PPA. I provide a summary of key points below.

Jeff also heard about Allterra Solar from his neighbor who had Allterra install a solar system and a Tesla EV charging station. His neighbor highly recommended Allterra for their professionalism and approach. Allterra Solar’s proposal is also evaluated below.

Solar City’s My Power – Overview

My Power is a financed purchase program with a 30-year term. Payments are based on the solar system’s electricity production. Homeowners can use the tax credit to pay down the loan and reduce monthly payments.

Given Jeff’s home, usage, and credit score he was presented the following My Power option to purchase solar from National leader Solar City:

Monthly payment plan with a 30-year term and no money upfront
Monthly Payments of $71 per month are based on system production and buying solar electricity at $0.12 per kWh.
Electricity rate from solar escalates annually at 2.9%.
Total System Cost is $24,225 for 4.75 kW of unknown equipment
After $7,268 Tax Credit the Net System cost is $16,958.

Solar City’s Power Purchase Program (PPA) – Overview

PPA is a 3^rdParty owned approach. A finance company owns the equipment and sells you electricity under contract for a 20-year term. The electricity rate you pay for solar typically escalates annually. The solar financing company owns the system and receives the tax credit.

Given Jeff’s home, usage, and credit score he was presented the following PPA option to go solar:

Monthly payment plan with a 20-year term and no money upfront.
Monthly Payments are for purchasing electricity at $0.15 per kWh and escalate annually at 2.9%.
End of PPA term homeowner has a choice to renew PPA, upgrade PPA, or a free removal of the equipment.
Total System Cost unknown. Equipment used unknown.

Allterra Solar’s Financed Purchase Proposal – Overview

Financed purchase is a direct ownership approach. The homeowner secures a loan and hires Allterra Solar to design, engineer, and build a custom solar system. Homeowner produces his/her own power, buys less from PG&E, and gets protection from electricity rate increases and long-term price trends. Homeowner receives 30% tax credit to reduce project costs.

Given Jeff’s home, usage, and credit score he was presented the following Loan option to go solar:

Monthly payment plan with a 15-year term and no money upfront.
Monthly Payments are fixed at $121. The loan is a simple unsecured loan with no prepayment penalties.
End of 15-year term homeowner owns the equipment and gets all the power it produces. Solar modules have a 30 to 40 year engineered usable life.
Total System Cost is $19,700 for 4.48 kW of US Made Equipment with manufacturer warranty coverage on solar modules and energy production.
After $5,910 Tax Credit, the Net System cost is $13,790.

The Numbers – What $0 Down Financed Solar Approach Won

To compare proposals I had to make an assumption:

30% Tax Credit is used to pay down the loan and reduce loan payments in both the My Power and Allterra Financed Purchase approaches. The PPA approach Solar City keeps the 30% tax credit.

Let’s see how the Locals in your community stack up to the largest solar installer in North America, Solar City just moved into Mexico last week:

Figure 1 – Cumulative Payments Over Time

Conclusion

Allterra’s shorter term, fixed interest rates, and lower installation cost made Allterra Solar’s purchase proposal better in terms of total money spent over time.

Jeff elected to use financing and purchase US made solar panels from Allterra Solar. Jeff evaluated a few local loan programs but ended up using a home equity line of credit (HELOC) for the project with an interest rate of 4%. Equity lines of credit remain one of better ways to finance solar.

Jeff felt production guarantees and warranty coverage from Solar City was not worth the increase in cost. Solar is reliable and cost effective, no reason to pay extra for assurances when manufacturers have warranty and production coverage too.

Here are some highlights of Jeff’s choice:

Low fixed payments based on a home equity line of credit at 4%.
Jeff will own a system comprised of 16 Solar World modules with Enphase micro inverters, quality American made equipment with great warranty coverage.
Best Rated Design and Installation solar company in Monterey Bay working on your home instead teams of solar installers installing multiple jobs in a day. Allterra was voted Best Solar Company for 5 years in a row in Santa Cruz County.
Savings on electricity costs will pay for project costs in around 8 years.

Key Differences – PPAs and Ownership

How can the nation’s largest solar installer be more expensive than a certified small green local business in Monterey Bay?

Easy, Allterra sells solar and focuses on homeowner need. Solar City focuses on money and investor returns…

There are some subtle and not so subtle differences between owning solar and buying just the power. Here are 2 advantages of ownership I want to make sure everyone is aware of.

Equity: Going solar increases the value of your home only when it is purchased. No studies have been completed proving solar PPAs and leases increase a home’s value. Only ownership does. If you are selling your home, buy a quality solar system, the family buying your home will thank you
Manufacturer Warranty: Only solar equipment owners qualify for manufacturer warranty. Buying good equipment often comes with great warranty coverage. Many homeowners are not aware you can own and have assurances too. Take SunPower, their warranty coverage with buying solar is amazing (https://www.prnewswire.com/news-releases/sunpower-announces-industrys-first-25-year-combined-power-and-product-warranty-169135366.html)

Other differences are related to money. Financing costs add up over time and large publicly traded solar companies will sell financing to benefit shareholders, not stakeholders.

When stakeholders go out and secure financing to buy solar they can make sure terms are fair and transparent.

When you lease solar or sign up for a PPA there is a good chance the financing terms are not fair and transparent… read the fine print and ask questions.

Thanks again for reading…. Email me questions or stop by our office in Santa Cruz or our solar example home in Seaside (my house).

Keep in mind, all of this is easier to explain in person, call us… we would love to help you figure out the best way to go solar.

Cheers,

Nate
COO

Ryan