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Don't Break the Bank: Financing Solar Energy

Most people would love to install solar panels on their home and truly “go green”, but they stop short because of money.  Many people think the only option to pay for solar power is to put cold-hard cash on the table at the time of installation.  While this may be the “best” option in terms of overall cost (by the way… so is paying cash for a home, but most people didn’t do this!), most of us don’t have the extra $20k to $60k sitting around burning a hole in our pocket.  For the lucky few who can afford this, great!  However, for the rest of us normal folks, we would still like to go green and have some other options.  Well, there is good news.  There are some creative ways of financing your desire to go green.

Let’s first talk about the traditional ways of financing solar and then we can get to the new and upcoming ways that are starting to come about with the recent increase in interest in alternative energies.  Let’s make this quick and simple.
1) Pay cash – This is great for saving money in the long run but is limited to the more affluent.
2) Home Equity Loan – Also a good option, but limited to those that have a good amount of equity in their home.  Be careful because if the loan kicks you over 80 or 90% Loan-To-Value, you may be paying a more interest than necessary.
3) Refinancing – There are several options as far as wrapping the cost of your solar installation into the mortgage of the home.  This is perhaps the cheapest on a monthly basis because you can amortize the loan over 15 or 30 years and thereby drop the monthly payments.  In doing it this way, you should have a net savings over your old mortgage plus your old utility bill.  Freddie Mac has programs that will finance up to 10% above your base loan as long as the total loan is below $240k .
4) Power Purchase Agreement (PPA) – If you can give up the attachment to owning your own solar panels there is a way to help the financial burden of installing solar power in your home.  PPA’s are a hot topic right now so keep an eye on this.  A PPA is a financing tool that allows a independent company to install solar panels on your house and then sell you back the electricity it generates.  They own the panels and the electricity they generate, but you get the benefit of going green and most likely a little drop in utility costs since they amortize this long term.  They typically request that you kick in about 33% (on average) of the cost of installation, but they take this into account when setting the fixed rate they charge you for electricity.  The more money you kick in, the cheaper the fixed rate.  The great thing is that your rate for your solar generated electricity is fixed over the agreement period, so as public utility costs go up you can sit back with a big grin on your face.
5) Lease – Another great candidate for creative financing is leasing your panels from an outside company.  There are companies that will take care of everything as far as costs and installation and you simply lease the panels from them by paying a monthly lease payment that is equivalent to paying your utility bill, but cheaper.  There are a couple of really nice features with this option: there is less money required down than the PPA option (typically 0 to 2% of installed cost), system maintenance is handled by the leasing company, and the homeowner gets 100% of excess production.

To summarize, the financial market is starting to view solar energy as a good investment and therefore many new programs are being developed to help the homeowner convert to green energy.  Solar companies are also figuring out ways to alleviate the costs to the homeowner by PPA’s and lease agreements.  In addition, more traditional sources of financing like banks are starting to figure out that financing solar can be a lucrative endeavor.  Couple all of this with government incentives and the push towards a “green energy economy” and you have yourself a great opportunity to finally fulfill on your dream of going solar.


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