Residential solar has multiplied over the past decade and a half, with over 2.5 million homes installing solar. One of the driving forces behind this growth is the increased availability of solar financing options. Because of the projected 3% yearly increase in electricity costs (expected to be more in California and Hawaii), solar is one of the best investments a homeowner can make.
Every homeowner has different needs. We realize this, at Alchemy Solar, our goal is to make sure every homeowner gets the right solar system and financing option. Let's dive into the differences between a Solar Lease, Prepaid Power Purchase Agreement, and Purchase to determine what is best for you.
Cash, Finance, Monthly Lease/PPA (Power Purchase Agreement), or Prepaid PPA: What is best?
For some people, day one savings is the most crucial objective. In contrast, others want to maximize their ability to utilize the Federal ITC (Solar Tax Credit).
Solar Lease or Power Purchase Agreement: Get solar panels for Little to $0 Down
Solar leasing, or how it is also known, a Power Purchase Agreement, has been the most common solar financing option. More and more homeowners have added solar to their homes. The biggest reason so many homeowners have gone with a solar lease is that they can get solar installed at their home for as little as $0 down.
The solar electricity they will be paying for is usually less than the cost of electricity from the utility. As utility rates increase annually, a solar lease gives homeowners a lower, predictable electricity payment that limits the anxiety of opening the monthly electricity bill.
While reducing and fixing a home's electricity bill is the main driver for people to select a solar lease, homeowners also appreciate the maintenance-free monitoring, warranty, and performance. That means the homeowner does not have to worry about the solar system working correctly for the life agreement.
The company that owns the system will fix and monitor the system at no cost to the homeowner. If the solar system ever goes down, the homeowner is compensated for the underproduction.
Solar leases also have additional cost-saving benefits. Homeowners who lease a system do not need to increase their insurance to cover the system cost. They also avoid worrying about the negative impact on their debt-to-income ratio that can come along with taking out a loan to finance a solar panel installation.
At the end of the 25 leases, customers usually have three options:
Purchase the system at fair market value (projected to be a low cost).
Extend the monthly payments to retain the service and monitoring.
Have the solar partner come out and take the system off the roof at no charge.
This flexibility helps homeowners have options as the solar system starts to diminish in efficiency over twenty-five years.
An essential factor when looking at solar is making sure that you partner with a reputable provider. Alchemy Solar, we work with Sunrun, the nation's largest solar provider and one of the innovators in the solar lease and power purchase agreement space. Not only is Sunrun extremely financially stable and designed to provide the best service for the full length of the agreement it is also an innovator in the solar and home battery space.
The Sunrun Brightbox product allows homeowners to add solar and battery storage at no upfront cost while still enjoying the financial benefits and battery backup capabilities that solar batteries like the Tesla Powerwall 2 and LG Chem RESU 10H can provide.
One concern that homeowners sometimes have when looking at monthly $0 down solar options is selling their home. With Sunrun, they guarantee that that system can be transferred over to the new homeowner. Sunrun has a dedicated team to simplify the transfer process, helping increase the value that adding solar to a home generates.
Prepaid Power Purchase Agreement (PPA): Maximizing ROI
When people think about the best ROI on a solar project, most assume that owning the system will maximize the investment. In reality, that might not be the case. A Power Purchase Agreement where a customer pays for 240 months of electricity up from may provide the lowest kilowatt price for a homeowner.
The Prepaid PPA amount is calculated by taking the cost of the solar system producing power, with the solar federal tax credit amount removed, to provide the homeowner with a price per kilowatt of electricity. By purchasing the discounted solar electricity upfront, the PPA provider can reduce the cost per kWh to its lowest possible cost (think of it like shopping in bulk at Costco).
In addition to the low kWh cost and removing the hassle of applying for the ITC, the Prepaid PPA also comes with the peace of mind coverage that a lease provides. That means that the system is covered for monitoring, maintenance, warranty, and performance guarantee for the agreement's life.
Because the homeowner does not have to spend a single extra penny on replacing broken components, cover electric costs if the system ever under produces, or insure the solar system, the all-in cost for the PrePaid Lease can provide a better ROI for homeowners.
The PPA options also provide additional savings on homeowners insurance. Because a third party owns the solar panel system, its cost does not need to be included in the home's homeowner insurance. This can be a savings of $5-10 a month, something that over 25 years conservatively can lead to an additional $1,500 of savings.
Purchasing A Home Solar System with Cash
For many people, their home is their most important investment. As a result, they want to make sure they own outright anything that is attached to it. Solar ownership provides some distinct advantages that go beyond the emotional connection to owning something.
With a purchased solar system, the homeowner can take advantage of the federal solar tax credit. The federal solar tax credit of ITC allows the homeowner to take a dollar-for-dollar credit on the solar cost off of their federal taxes. In 2021 that is a 26% reduction in the system cost!
Purchasing a solar panel and battery system can also allow the homeowner to qualify for additional incentives. In California, for example, homeowners who add a battery can qualify for a Self-Generation Incentive Program or SGIP. The SGIP program is a battery rebate that helps reduce the cost of adding a battery to a solar system.
When a homeowner purchases a solar system, they can cover 100% of their electricity bill. This means that they never again have to worry about utility rate increases or monthly solar lease payment. Solar ownership has also been shown to increase a home's value the most of any solar option.
When purchasing a solar system with cash, homeowners do not have to worry about interest rates or financing fees. This helps to increase the return on investment for the solar system. Because the solar system is paid in full, they also do not have to worry about any extra steps when selling the home.
Purchasing A Home Solar System with Solar Financing
In the past, owning a solar system meant the homeowner had to pay for the entire solar system upfront or find independent financing. As the solar industry has matured and the economics of solar have proven to make so much sense. As solar has proven to be an extremely stable investment, solar financing programs have become more readily available. That means that homeowners can now get a fixed solar loan with a competitive interest rate and no money down to own their solar system.
Many of these financing options allow the homeowner to keep the tax credit, making financing a solar system a more attractive solar option!
When looking at solar financing, it is important to find a solar financing company that provides the right length of the loan, has competitive interest rates, and low financing fees. Depending on the market, Alchemy Solar only works with the leading solar financing company like Loanpal, Mosaic Financial, and Dividend Financial. Solar financing can be an excellent fit for those homeowners looking to reduce monthly electricity payments and want to own the system over time.
Like cash purchases, it is essential to find an installer who is financially stable and will be able to stand by the warranty they provide.
Solar financing comes in different forms. The important thing is finding the right fit for you. At Alchemy Solar, we are dedicated to finding the best solution for your specific needs.
If you are interested in learning more about the best solar financing option, contact Alchemy Solar today for a free consultation.