How to Finance a Residential Solar Energy System
Here’s a question for you: when was the last time you paid cash for a home or new car? If you’re like 99% of us, then the answer is “never.” Some purchases simply require too large of a capital outlay for most people to complete without some sort of financing arrangement.
Banks, credit unions, and other lenders usually fill this role, and in most cases it works out to the benefit of all parties involved. The buyer gets shelter and transportation, the builder gets a sale, and the financier pockets an ROI over time through the interest it charges for the use of its money.
Until recently, few businesses or homeowners were able to enjoy the convenience of financing when it came to solar energy. Their only option was a large initial outlay of capital, which either was beyond their means or meant diverting resources from other areas.
Times are changing, however. Solar financing arrangements are becoming increasingly common across the country. In fact, 14 states, including Maryland, currently allow such agreements, and many others are following suit. The potential benefits are enormous. Soon millions of American homes and businesses may be reaping the rewards of harvesting power from the sun, due to the financing revolution.
How Solar Financing Works
Financing a solar installation can take many forms, including:
- Conventional credit arrangements, in which a lender pays for the hardware and labor costs of building the system, and the property owner simply makes payments over a period of time until the loan is paid off. These arrangements function just like normal home mortgages and car loans do.
- Solar power purchase agreements (SPPAs), in which a home or business owner agrees to have solar panels installed on his or her property, typically on the rooftop. Another party puts the equipment in place, and the property owner purchases the power generated by the installation. The rates for the energy are established at the beginning of the agreement. They either stay the same for the life of the arrangement or gradually increase as time goes on.
- Home equity loans, which to this point have been the most common method used to pay for solar equipment. While most lenders have been reluctant to approve financing for such projects, this is rapidly changing. Many financiers now recognize how solar panels enhance a home’s value, and are becoming much more open to offering equity loans with this purpose in mind.
The biggest roadblocks to expanding these types of arrangements are antiquated laws and financing regulations on the books in many states, which make obtaining financing for solar installations problematic for property owners. However, as more legislatures begin to reform their statutes, this problem will disappear, to the benefits of consumers, businesses, and the environment.
Ryan McNeill is the President of Renewable Energy Corporation, a solar panel installation company based in Maryland. Ryan has collaborated with the American Solar Energy Society, Sustainablog, Energy ViewPoints and other solar industry experts.