The financial, environmental, and community benefits of clean energy systems are clear. Still, they represent a significant upfront investment, so it’s good to understand all of your financing options. There’s no need to be discouraged if you decide that you cannot afford the upfront investment--rather than buying a clean energy system, you may be able to lease one at no upfront cost to you and still save a significant amount on your energy bills. We’ll cover the financing options that are available if you wish to own your system first, and then we’ll discuss leasing. There are still other ways to benefit from clean energy systems without owning or leasing them, and we’ll discuss those as well.
Remember that rebates and incentives can help ease the burden of upfront costs if you want to own your own clean energy system. But if you choose not to own your system you may still buy power at below-market rates from a leasing company, and those same rebates and incentives will be used to reduce the price you pay for energy. Regardless of whether you own your own system or lease one, you will benefit by saving money on your energy bills!
Residential and commercial property owners can apply for equity loans to cover the cost of their clean energy system, using their property as collateral.
Terms for these types of loans are generally 7 years, though they can be as long as 20 years. Currently, interest rates on equity loans range from 3.5% - 7.5%.
Monthly energy savings are often greater than the loan’s monthly payment. If that is the case, you’ll start saving money immediately because the amount you save on energy will exceed the amount of your monthly loan payment.
Interest on the equity loan may be tax deductible, which means that you may be also able to save additional money on your income taxes. Check with your tax advisor.
Once the equity loan is paid off, all of your energy savings go directly into your pocket over the remaining life of your system. (For example, if you finance the purchase of a system that has a 20 year useful life with a 7 year loan, you’ll enjoy 13 years of energy production after the loan has been fully paid!).
Lenders generally require property owners to have a 70% “loan to value” ratio in their properties before they’ll approve an equity loan. For example, if an individual owns a home with an appraised value equal to $300,000, and the outstanding balance on their mortgage is $150,000, their “loan to value ratio” is 50%. An equity lender would allow that home owner to borrow another 20% of the equity in their home (50% + 20% = the 70% home equity limit). This means the homeowner could borrow up to $60,000 (20%) more against the equity in their home. In other words, whether you currently qualify for an equity loan will depend on how much equity you have in your property. (If you don’t have sufficient equity in your property see “LEASING,” below.)
These are loans that offer below market interest rates to the borrower to buy and install a specific clean energy system. Some loans even carry a 0% interest rate.
These loans are available in several states for technologies like solar photovoltaic, solar heating, wind, combined heat and power (CHP) systems, and potentially other technologies.
Loans may only be available for a limited time, so its important to check frequently or consult with a local professional.
These loans are made available by through crowd-sourcing web sites that match people interested in buying a clean energy system with people who, because of their commitment to clean energy and or the environment, are interested in financing them.
Generally, peer-to-peer loans are structured as personal loans, so you don’t have to use your property as collateral.
Because peer-to-peer loans are personal loans and are not secured by the equity in borrowers’ properties, interest rates on peer-to-peer loans are higher. Higher interest rates will reduce your return on investment (ROI), and lengthen the payback period for your investment.
Some web sites that offer peer-to-peer loans include www.prosper.com and www.lendingclub.com
These loans are financed by certain municipalities--cities, towns, and counties. The amount required to repay the PACE loan is added to your real estate tax bills and paid over time with each tax payment.
PACE loans can have terms of 15 to 20 years.
In most instances, the value of the energy produced by the PACE-financed system will exceed the amount added to the property owner’s tax bill.
No credit check is required.
If you sell your property, the repayment obligation is automatically transferred to the new owner--you don’t need to pay off your PACE loan if you decide to sell your home.
Legislation allowing municipalities to offer PACE loans has been passed in 27 states, but the rate at which new communities are offering PACE loans has slowed because Fannie Mae (the Federal National Mortgage Association) and Freddie Mac (the Federal Home Loan Mortgage Corporation) have refused to back mortgages for properties that have outstanding PACE loans on them. Bipartisan federal legislation has been filed (The PACE Assessment Protection Act of 2011 (HR 2599)) that would require federal regulators and mortgage lenders to treat PACE assessments like other municipal assesments and underwrite mortgages with PACE. If you wish to learn more about PACE financing and the effort to address the concerns of federal regulators and mortgage lenders go to www.pacenow.org.
There are many other loan programs available through utility companies and non-profit organizations. They are specifically designed to encourage purchase of a clean energy system and may be suitable for some property owners
Example: PSE&G Solar Loan program allows borrowers in New Jersey to finance their solar PV system with the Solar Renewable Energy Credits
(SRECs) their systems earn.SRECs are available in states, like New Jersey, where utilities are required to produce a portion of the electricity they deliver with renewable energy. The utility companies obtain some of the renewable energy from property owners who own solar PV systems, and who are feeding some of electricity produced by their PV systems back into the grid. These PV system owners are compensated by the utilities in the form of RECs.
PSE&G receives all of a borrower’s SRECs for the entire time the loan is outstanding.
Leasing is renting: a way to receive the benefits of using the system, while the risks, benefits and responsibilities of owning the system remain with the leasing company.
Leasing options are generally available for solar photovoltaic systems and, in some cases, solar heating systems.
The leasing company will install solar panels on the roof of your home or business, maintain them, and remove them at the end of the lease, generally 20 years after they are installed.
Because the leasing company owns the system they--and not you--will be eligible for any tax credits or other incentives offered by your federal, state, or local government. Still, the tax credits, rebates and other incentives the leasing company receives will reduce your lease payments, so you’ll receive benefit from them indirectly.
In exchange for allowing the leasing company to install solar panels on your roof, the leasing company will enter in an agreement with you--a “Power Purchase Agreement”--that will allow you to by energy at below-market rates. Moreover, those below market rates are fixed for long periods of time, and are escalated at predetermined times set in the contract. The rates you pay will not fluctuate the way that your utility rates do. Power Purchase Agreements are generally in place for 10-20 years.
Energy costs can be up to 20% lower than what you were paying your utility company.
Some leasing companies may require a small down-payment, while many offer a 0-down option.
Costs can be fixed over the terms of the lease or may increase 2% - 3 % per year. (For comparison purposes, electricity prices have risen about 7.5% per year).
If you sell your property most leasing companies will allow you to assign the lease to the new owner, or to purchase the solar system by paying the remaining lease payments so that you can offer the solar system to a new buyer as part of the sale of your home.
Need help deciding between borrowing (owning) and leasing? See a quick comparison of the two options. Convinced leasing is best for you? See our table comparing available lease options for Solar PV.
If you are interested in promoting clean energy, but are not ready to buy or lease a system yourself, you can pool your resources together with other individual contributions to fund a local clean energy installation. This is how it works: a property owner agrees to have the clean energy system installed on their property, and all of the individuals in the pool contribute what they can towards the purchase price. All of the members in the pool then receive income from the clean energy that the system produces. The amount of income they receive from the system depends on how much they contribute towards its purchase price. Individuals who contribute to the pool don’t directly consume the energy that the system produces, but they do support the production of energy from clean and renewable sources, and they receive a financial benefit as well.
Examples: www.tangerinesolar.com or www.solsolution.com
Unable to purchase your own clean energy system, lease one, or invest in one? You can still do your part to support clean energy! Community change organizations bring people together to finance clean energy indirectly by encouraging them to purchase products and services from companies that, in turn, invest in clean energy once a specified amount of purchases have been made. Community change organizations allow you to direct the amounts you ordinarily spend on the goods and services you need to companies that share your goals and values.
Examples: www.sochange.com
Use EnergySage’s Financing Options tool to see what works best for you!
