How Can I Finance a Solar Energy System?
Sarah Lozanova – February 11, 2019
Are you considered installing a solar power system on your home? Do you have concerns about the affordability of a home solar energy system? This article is the second of a three-part series that explores the financial aspects of installing home solar.
In many cases, financing a solar system is a good idea financially, especially if you don’t have thousands stashed away to invest. Depending on the installation costs, the energy production, and the cost of grid electricity, many solar power systems are cash-flow positive from day one. This means that the savings from the solar system are greater than the loan payments. This is the ideal situation because it means you are saving money, increasing your property value with the solar system, and using clean energy. It’s a win-win all around.
However, if the term of the loan is short or you have very low electricity rates, you might pay more in monthly loan payments than your utility bill savings. But keep in mind that manufacturers design solar systems to last more than 25 years. So, you will continue to save money after you’ve paid off the loan.
When looking for solar financing, the same general rules apply as with any other type of loan.
- A low-interest rate means you will pay less in interest over the life of the loan.
- A shorter term means the monthly payments will be higher. But typically, a short-term loan will cost less over the life of the loan.
- Loans are either secured or unsecured. Secured loans use an asset you own as collateral.
- Consider all the fees associated with the loan, such as origination fees, and not just the interest rate.
Home Equity Loans
A home equity loan allows you to use the equity you have in your home as collateral for the loan. It typically has a fixed interest rate for a set term, and you receive the money in a lump sum. This arrangement functions similarly to having another mortgage on the home, but you may need to have your home appraised. Because the home is collateral for this loan, it is essential that you are able to make the payments.
The interest rate on home equity loans is typically pretty low. The payments are also fixed, so it is easier to budget. According to the IRS, the interest on a home equity loan is tax deductible if it is used “to buy, build, or substantially improve the taxpayer’s home that secures the loan.”
Solar Loans Through the Solar Installer
Many solar panel installers offer financing through a third party. These financing programs vary by the installer, but often offer both a fixed-rate and term loan. The home is not commonly used as collateral and the credit requirements vary by the program.
Property assessed clean energy (PACE) financing is available in many areas of the United States, and solar energy installations often qualify. This loan enables home and business owners to pay for the upfront cost of a solar system and pay the loan back over time through a voluntary assessment. The loan is associated with the property and not the individual. The loan period is commonly between 10 and 20 years.
Just like shopping around for a solar installer, it’s a good idea to shop around for a solar loan to find the best rates and terms. Finding the best solar loan can make all the difference in being able to afford a solar energy system and save money over time.
Paying For Solar – Tips For Financing a Residential System
Editor’s Note: This blog post is part of the SunShot Initiative’s series on solar and real estate.
After you’ve made the decision to go solar, the next step is figuring out how to pay for it. Assuming you don’t have the cash to buy your solar energy system upfront, like the vast majority of Americans, there are a variety of financing options to help you hitch onto the solar bandwagon and start increasing the value of your home.
A new type of loan is making solar energy accessible to even more people. Fannie Mae’s HomeStyle® Energy mortgage gives borrowers the ability to complete clean energy upgrades up to 15% of the as-completed appraised property value of the home. Borrowers are able to finance energy-efficient upgrades when purchasing or refinancing a home, eliminating the need for a subordinate lien, home equity line of credit, Property Assessed Clean Energy (PACE) loan, or unsecured loan. The mortgage requires homeowners to attain a home energy report in order to show the value gained through energy savings over time is greater than the installation price tag.
The HomeStyle Energy mortgage changes the solar loan landscape. It will encourage solar installation companies to revisit their loan practices, allowing for more competition within the industry and reducing soft costs—such as permitting and installation—for consumers. People buying homes or refinancing mortgages now can have the cost of a solar array wrapped into their mortgages without worrying about higher interest rates.
8 REASONS TO RECONSIDER HOME SOLAR.
1. Rebates: There is still currently a 30% federal tax rebate. Rebates will gradually drop beginning in 2020.
2. Control: Utility companies do not like giving up control of power generation and profits. States are enacting more regulation that is anti-solar. Utilities are adjusting rate schedules to penalize solar users. Those who get in early will save the most money and be grandfathered into existing policy. Take control of your energy needs and costs.
3. Rate Increases: PG&E just announced another series of rate increases before Diablo Canyon closes. Between December 2015 and December 2016, “a number” of approved rate increases resulted in residential rates increasing 21%. In 2017, a high usage surcharge was added, tiers were consolidated from 3 to 2, and we saw a tier price (adjustment) of +5%. – Business Times, Feb. 17, 2017, Riley McDermid
4. Low Panel Costs: Panel prices are on the rise for the first time since 1977. In 2015, prices were $0.57/watt. In June of 2017, prices hit a low of $0.40/watt. New import tariffs and taxes are expected to kick panel prices above $0.80/watt.
5. Rising Labor Costs: As the renewables industry grows, so does demand for skilled workers. Solar energy labor costs will continue to rise over the next few years.
6. Financing: Programs like $0 down financing, low-interest loans, HELOC, and leases are still easy to acquire. Qualifying credit scores are 675 and up, making financing possible for most homeowners.
7. Savings: Homeowners who installed solar electric just four years ago have already seen a 100% return on investment. Waiting for “something to happen” will cost you thousands/year in lost savings.
8. Trust, Experience, and Value. We use every tool in the toolbox to deliver value in everything that we do, so that your system costs less to install, and saves you more. Since 1975, we have installed over 5,200 solar energy systems across the central coast, saving homeowners $45 million and counting.
How To Understand EV Fuel Efficiency
I know what MPG is. But what the heck is MPGe? Ask anyone what kind of gas mileage their car gets (MPG), and they will probably know right off the top of their head. We’re obsessed with the gas mileage of our cars, in large part because of the high cost of gasoline. Gas mileage performance ranks as a top decision when deciding to buy a new car.
But how do we determine the fuel costs (MPGe) of an electric vehicle? How do we really know the cost comparison to drive an electric vehicle 100 miles, vs. driving a gasoline vehicle 100 miles? What does MPGe mean? How are the stickers calculating annual fuel cost? How do the manufacturers calculate my five-year fuel savings over a new gasoline vehicle?
The first thing I should point out is that the window sticker of an EV makes several assumptions. First, that energy rates are 12¢ per kWh, that gasoline costs $4.00 per gallon, and that a new fuel efficient gasoline vehicle gets 22 miles per gallon. I’ll explain the window sticker using these assumptions, and then compare that to real-life values.
The electric vehicle MPGe, or Miles Per Gallon equivalent, represents the number of miles the vehicle can travel using the same energy content as gasoline. My EV window sticker states an MPGe of 99. This is also the maximum distance this vehicle can travel on a full charge.
Electric vehicles use kWh (the measure of energy from electricity), not MPG to state their energy use. My EV window sticker says it uses 34kWh per 100 miles driven. We’ll need to convert the amount of energy in a gallon of gasoline into kWh of energy. I will skip all of the formulas, most of which I don’t understand anyway, and just report that the MPGe metric introduced in 2010 by the EPA is based on their formula in which 33.7 kWh of electricity is equivalent to one gallon of gasoline, rounded up to 34kWh.
The window sticker compares the EV to a gasoline vehicle that gets 22 MPG. For this vehicle to travel 100 miles, it will use 4.5 gallons of gas. If a gallon of gas is equal to 34kWh of energy, and our gasoline vehicle can drive 100 miles using 4.5 gallons of gas, then our gasoline vehicle uses 85 kWh per 100 miles driven. At $4.00 per gallon, our gasoline vehicle costs $18 per 100 miles driven.
- Electric vehicle gets 100 miles per 34 kWh
- Gasoline vehicle gets 100 miles per 85kWh
Our gasoline vehicle uses 2.5 times more kWh of energy to travel the same distance as the EV. But, the cost of the fuel that creates the kWh of energy is quite different, and as those costs change, so will the cost of operating each vehicle.
- Electric energy costs 12¢ per kWh (34kWh x .12 = $4.08 per 100 miles)
- At 15,000 miles per year, annual fuel cost is $612
- 5 year fuel costs = $3,060
- Gasoline vehicle gets 100 miles per 85kWh
- Gasoline costs $4.00 per gallon (4.5 gallons x $4.00 per gallon = $18.00 per 100 mi)
- At 15,000 miles per year, annual fuel cost is $2,700
- 5 year fuel costs = $13,500
Our gasoline vehicle costs over four times more for fuel, $13,500, or $10,440 more over five years ($13,500 – $3,060 = $ 10,440).
But gas is not $4.00 per gallon, energy rates are not always 12¢ per kWh, and a new, fuel-efficient gasoline vehicle get more than 22 MPG.
Here’s what happens when we adjust those costs for real life costs.
The fueleconomy.gov website puts the average MPG for a new gasoline fuel-efficient vehicle at 40 MPG. If we are comparing the best fuel efficient EV to a gasoline vehicle, we should compare it to a new fuel-efficient gasoline vehicle. 40 MPG = 0.025 gallons of gas per mile, or 2.5 gallons per 100 miles driven.
A six-month running average cost of gasoline in California is $2.69 per gallon. Our gasoline vehicle costs us $ 6.73 per 100 miles ($2.69 per gallon x 2.5 gallons per 100 mi = $6.73).
Off-peak EV electric rates are as low as 12¢ per kWh. Medium demand is 24¢ per kWh, and peak demand is a staggering 44.5¢ per kWh. When you charge your vehicle depends on what you pay. Just a few hours of charging at medium demand rate or peak rate can put your kWh costs at 22¢ or more per kWh, costing $7.48 per 100 miles driven (34kWh x 22¢ = $7.48 per 100 miles driven). All of a sudden, our cost per mile driven for each vehicle is drastically different.
- Electric energy costs 22¢ per kWh (34kWh x .22 = $7.48 per 100 miles)
- At 15,000 miles per year, annual fuel cost is $1,122
- 5 year fuel costs = $5,610
- Gasoline vehicle gets 100 miles per 2.5 gallons
- Gasoline costs $2.69 per gallon (2.5 gallons x = $2.69 = $6.72 per 100 miles)
- At 15,000 miles per year, annual fuel cost is $1,008
- 5 year fuel costs = $5,040
Based on adjusted costs for energy, our gasoline vehicle is now less expensive per mile for fuel. With gas at $2.69 per gallon, our actual 5 year fuel savings is not a savings at all ($5,610-$5,040 = $570). You could actually PAY $570 MORE to fuel you EV.
Utility rates are constantly changing. Charging at the wrong time can be very expensive. The cost of gasoline could also easily rise above $5.00/gallon at anytime. Gas prices are certainly more volatile than electric utility prices, so it is most likely that a gasoline vehicle will cost you much more to drive per mile than an EV under most circumstances. I don’t hold any hope in the price of gasoline staying at $2.69 per gallon in California for very long, nor do I hold out any hope of electric rates holding at 12¢ per kWh, so I would be very cautious when calculating five-year fuel costs, and make sure to account for annual energy price increases of 6% per year when determining your actual MPGe.
This is, of course, why we recommend adding a solar energy system. With a solar electric system installed at your home, you have added another layer of cost savings that can be sized to produce the energy your home will need as well as to charge your EV. With a solar electric system, you are locking in your energy rates at today’s cost of solar for the life of the solar energy system. You are no longer at the complete mercy of grid utility rates and fluctuations. Now you can make accurate projections of your annual fuel costs for an EV.
Go into the decision to buy an electric vehicle with these factors in mind. Of course, we have not discussed the environmental impacts of an EV vs. gasoline vehicle, or the cost of repair and maintenance. These factors should also be considered. But at least now you understand the true cost per mile driven of electric vehicles over a gasoline vehicle. Happy shopping.
Solarponics offers several energy efficiency options other than solar panels. What would you say is the best investment at this time?
On the Central Coast we have a variety of options for our home energy fuel source. Propane cost have been rising aggressively so if you are one of the households held captive by propane then I would encourage you to consider Solar Water Heating. Solar Water Heating can offset up to 70% of your propane costs for heating your water. These systems pay for themselves in as few as 5 years.
Another new option Solarponics is offering is LED light installation and dimmer switch installations. This upgrades your homes lighting and can show savings of 84% compared to your homes incandescent bulbs. This upgrade to your home is both cost effective and can pay for itself in 5-7 years.
Solarponics’ goal is to stay current with all of your homes energy upgrades as well as find ways to offer you the best investment in these unsure times. If you have any questions about these products or any other energy saving products that Solarponics is now featuring please contact our energy analysts at (805) 466-5595 or drop by our learning center at 4700 El Camino Real, Atascadero, CA 93422.
In response to the Aliso Canyon gas leak in southern California, SoCalGas is now offering a 75% rebate on solar water heating systems for SoCalGas customers with a natural gas water heater. That’s a $ 9,700 system for $1,633 after rebate and federal tax credit. If you install solar water heating along WITH SOLAR ELECTRIC, Solarponics will cover the last 25%. That’s a $9,700 system, FOR FREE!
Call today for a free quote. Limited time rebate. Deadline to apply is 10-31.
* Restrictions may apply. Valid for current SoCalGas customer with a natural gas water heater. Valid on installs completed between 05-01-60 and 12-31-16. Applications must be received by 10-31-16. Homeowner is responsible for payment in full on a solar water heating system when purchased separately. Once installed, the homeowner applies for and receives the 75% SoCalGas Rebate via a check mailed from SoCalGas. If solar water heating is contracted with a solar electric install at same location, Solarponics covers the entire cost of the solar water heating system. The homeowner has no solar water heating payment. Special considerations may apply and may have an additional fee. Solar electric and solar water heating rebate combo must be installed at the same location at the same time. Call today for your FREE QUOTE. (805) 466-5595. SoCalGas is a registered trademark of Sempra Energy. ©2016.