How does financing solar panels work? Smart To Pay Cash?

Different options to finance solar panels

It turns out that you don’t have to have a ton of money to get solar PV. In fact, you can start with zero money up front. Likewise, you don’t even have to use your own roof space for installation.

If you’re looking to install solar panels but without taking a loan, you don’t need ten thousand dollars. You can start small with as little as five to six hundred dollars, and build your system up over time. This gives you the peace of mind of equity and the comfort of your own produced electricity, but how can this be done?

Let’s discuss the three different ownership structures.

Solar panel finance options.

They are namely, number one – direct ownership, number two, third party ownership and number three, community ownership.

In direct ownership you own the solar panels. In third party ownership, you don’t own the panels but you can use the electricity from them. In community ownership the solar installation is owned by a pool of people which you can be a part of and benefits are shared.

We will also reveal how you can be part of community ownership schemes, so let’s discuss the direct ownership first with the low budget option. Suppose you only have 500 dollars and you want to benefit from solar electricity. In that case you can make use of a micro inverter system. You will simply need a solar panel, a micro inverter and a solar panel stand which you can place in your back garden, or on a flat roof, and you can get free electricity.

This system will not be visually obtrusive and won’t be integrated into the building structure. You don’t need planning permission for installation. Make sure, though, that the electrical connections are done by a certified electrician who is aware of regulations in your area, such as for ‘islanding’.

You can get a panel of 400 watts for less than 350 dollars. A micro inverter similarly can cost between 70 to 200 dollars. Stands can be purchased for as low as 20 to 25 dollars. This small unit alone can produce more than two units of electricity per day. Another benefit of this system is that you can build up this system and add more panels over time.

There are micro inverters that can allow up to four panels to be connected and you can also purchase more micro inverters and panels, and add them in parallel without any problem.

Second option in direct ownership is probably the one that will give you the most monetary benefit over the life of the panels. You can install a system of three to five kilowatts and in most cases this will take care of all your electricity requirements. Although such systems, particularly with the battery backup, could cost over twelve thousand dollars, it is an investment of a lifetime.

If you are paying a friend, you don’t accrue any interest and you start benefiting from day one. Another aspect to consider is the fact that solar panels can also bump up the resale value of your property by five percent or more. Even if you are installing to sell the property, it is not a bad idea as the properties with solar installation not only gets sold quicker but also pay higher.

Solar loans for homeowners

Video & transcript by kind permission on Synergy Files

The final direct ownership option is getting a loan from a bank. In many countries this is quite easy to secure and interest rates are pretty low. The terms for these loans are very relaxed. For example, in the UK the terms are as follows:

You must be a UK homeowner
You need to have a suitable, unshaded roof
You must be aged between 18 to 70
You must have an annual household income of over 15 000 pounds
You must not be on a debt management plan
You must spend over 35 pounds per month on electricity

These loans can be of two types – secured and unsecured. You pay a lower interest on a secured loan, where your house serves as a collateral. For unsecured loans, where there is no collateral, interest rates are higher because of high risk to the lender. Nonetheless, both secured and unsecured loan options are available with zero down payment, so you don’t have to pay anything upfront.

Residential solar financing

It is not only banks that you can secure a loan from. There are also private lending companies and some of them sell solar equipment too, so you will have to work out what is the total cost of the system and borrowing that you will ultimately pay. You will also have to compare all your financial options before making a decision. Let’s now talk about third party ownership models.

In this case, you can allow a third party installer to use your roof space and install panels. This option works for properties with flat roofs, or if the roof is pitched it has to be South facing. There are three different ways in which you can benefit from this model. It somewhat depends upon where you live.

For regions that are offering high feed-in tariffs, the installer may offer you free electricity generated from the panels, but they will get all the feed interest for the electricity generated for themselves. With both solar panel prices and the feed-in tariffs dropping this option has become very rare.

Solar panel loans for domestic use
How to finance solar panels on your house

The other two products in the third-party ownership model are more common. They are namely solar leasing and PPA. In solar leasing the customer or the property owner leases the solar system for a duration of time and benefits from the electricity the system produces.

In the PPA option the customer uses and pays for the electricity generated by the panels. The rates that you pay per unit are normally lower than what the local electricity supplier has to offer. The installation party will be responsible for the maintenance and upkeep of the system, and there would be no upfront cost for the customer or the property owner.

Contrary to the popular belief third-party ownership schemes are very popular. In fact, 83 percent of residential solar systems installed over the last four years in New Jersey are third party owned.

Finally, let’s talk about the community ownership model. In the UK alone there have been at least 5 000 community groups undertaking energy initiative in the last five years. Community solar can be developed in many areas from installing on a community center church, abandoned industrial state, or nearby abandoned quarries, to the development of community-owned solar parks.

Interest-free solar panel loans

You don’t have to own the installation space to produce and benefit from solar energy, although the theme of this model is to have the installation in your locality so that the benefits are enjoyed by the local community rather than investors and companies outside the local area.

In the US, through the virtual net metering system, which is offered across 38 states, you can invest and benefit from community solar projects that are further afield. Virtual net metering or VNM is a system that distributes energy credits for those subscribed to a community solar project such as a solar farm.

To check which community solar projects you can invest in you can use the energy sage website. It’s good to be aware of the options in your locality regarding renewable energy. Projects from solar PV, to solar heat and even micro hydro-turbines. The great news is that solar panel installation is not a matter of finance or space restriction any more.

What does a solar system cost in the US?

It varies across the States but an average figure is between $3 to $5 per watt. The solar panels account for about 25% of the cost, and labor about 30%. The most expensive State is California.

Why are solar panels so expensive?

Two reasons solar panels are so expensive are the raw materials used and the manufacturing process. Solar cells are made from silicon crystals grown in a slow process and then doped before encapsulating. The tempered glass that covers and protects the encapsulated solar cells also adds to the cost.

Are solar panels becoming cheaper?

Solar panels have come down in price by 80% since 2010. Current trends suggest that they will further reduce over the coming decade but not at the same rate.

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