How to choose the best pricing option for you

Solar PV financing options provide you with a lot of flexibility to meet your specific goals. Should you buy the system outright (either with savings or a loan) or should you use a lease or PPA? To further complicate matters, leases and PPAs can require no money down, have a small down payment, or be fully pre-paid. Which option to choose can be a little daunting, but the good news is, no matter which option you choose, you will save money, protect yourself from rising energy prices, and add value to your property, all while reducing your environmental impact.

The main things to consider are:

• How much money are you willing to pay upfront?
• What is your investment goal? Are you looking to make a small investment with a fabulous return? Or, a bigger investment with a really good return? To help you think this through, think about the difference between a $10 investment with a 50% return and a $5 payout vs. a $1,000 investment with a 20% return and a $200 payout. In the first example, the % return is large but the payout is low. In the second, the % return is good, but the payout is significantly greater. Either way, a solar PV system investment, unlike other investments, is practically risk free.
• How long will you be at this property? Some financing options involve extra steps if you sell your property. It's not a big deal, but you'll need to understand what those steps are and whether or not you want to be bothered with them.
• What rebates and incentives are available in your area? Depending on the purchase option, these benefits are assigned to either the homeowner or the financing entity and will impact your returns.

Purchasing a solar photovoltaic (PV) system outright is the best option for you if:

• You are willing to come up with the full purchase price upfront (either from savings or by borrowing).
• You are looking to minimize your federal income taxes with any available tax credits
• You want free energy generated by the system for 25+ years.
• You want to maximize the return on your solar PV investment, especially if you plan on staying at this property over the system's life
• You want to significantly increase the value of your property
• You want to avoid the additional steps involved in selling your property that are associated with leases and PPAs
• You want to receive the benefit of all rebates, tax credits and incentives, which can reduce the purchase price by up to 50%.
• You want to generate revenue through any Solar Renewable Energy Certificate programs offered by your state.
• You are willing to assume responsibility for maintenance and repairs (these costs are generally very limited).

A pre-paid solar lease or pre-paid solar power purchase agreement (PPA) mimics an outright purchase. It is the best option for you if:

• You want to reduce your upfront investment (30% - 60% less than an outright purchase)
• You still want a strong return on investment (as high as 30% for residential systems and 40% or more for commercial systems)
• You want all the benefits of owning solar panels (tax credits, incentives, SRECs, etc.) which reduces the purchase price by up to 50% (your prepayment removes all the risk for the lease / PPA company so they are often willing to assign these benefits back to you).
• You don't want the responsibility for maintenance and repairs, even though these costs are limited (the leasing / PPA company owns the system)
• You want to generate revenue through any Solar Renewable Energy Certificate programs offered by your state.
• You are likely to sell your property in the next few years. The prepayment eliminates the usual steps associated with a lease / PPA at the time of a sale.
• You like having the option to get new panels at the lease term's end

A $0-down solar lease or solar power purchase agreement (PPA) is the best option for you if:

• You want to eliminate your up-front investment in the solar power system
• Your primary objective is to live sustainably and reduce your carbon footprint
• you want to save 10% to over 50% on your electricity rates (savings will grow at a pre-determined rate each year)
• You don't want the responsibility for maintenance and repairs, even though these costs are limited (the leasing / PPA company owns the system)
• You like having the option to get new panels at the lease term's end

A small down-payment solar lease or solar PPA is the best option for you if:

• You want to minimize your up-front investment in the solar power system
• Your primary objective is to live sustainably and reduce your carbon footprint
• you want to save 10% to over 50% on your electricity rates (savings will remain fixed over the lease term)
• You don't want the responsibility for maintenance and repairs, even though these costs are limited (the leasing / PPA company owns the system)
• You are willing to take any additional steps necessary to either purchase the system and include it in the sale or find a credit worthy buyer willing to assume the lease / PPA contract.
• You like having the option to get new panels at the lease term's end

Do you still have questions? Or need help with deciding which option to choose? Send us a note at info@energysage.com

Analyzing Competing Quotes and Competing Pricing Options

Competition will drive better pricing for your solar system, so EnergySage recommends you obtain price quotes from at least three different companies. Most companies also provide multiple pricing options based on different financing schemes, adding another level of complexity to your evaluation. You will not only need to decide which company to buy from, but also whether or not you should buy the solar system outright; borrow to purchase it; or sign a $0 down, small down payment, or pre-paid lease; or sign a $0 down, small down payment, or pre-paid PPA. With so many moving parts, how do you decide which option best meets your specific needs?

As discussed in section 4, your decision depends on your personal goals and objectives. Understanding what you are hoping to accomplish through your solar PV purchase will guide your evaluation. We've also outlined five key metrics below that will help to alleviate some confusion and provide an “apples-to-apples” analysis.

• System Price - in $/kW If you're purchasing a house, $ / Square Feet is a handy metric for comparing different properties. The equivalent metric for a solar PV system is $ / kW. Since competing solar installers will probably suggest different system sizes, knowing the $ / kW will help you to determine who is offering the lowest price.

For the most part, residential systems are currently priced under $5/Watt (before rebates, tax credits, and other incentives). Solar panels made in the U.S. or Europe will be slightly more expensive than those made in China or the Far East. Also, systems using micro-inverters will be more expensive than those using string inverters.

• Return on Investment or Internal Rate of Return Solar photovoltaic system can be great investments. Computing the investment return helps you understand how much your solar system will generate in “earnings.” It also helps to determine whether borrowing money to finance the upfront investment in the system makes sense. If the rate of return exceeds the cost to borrow money, a loan is good move. A loan may only cost 5%-7% annually whereas in some states, a solar photovoltaic system will generate between 10% -30% return.
  
  Return is also a great metric for determining how your investment in a solar system stacks up against alternative uses of your money such as investing in the bond or stock market. Generally, the returns of a solar energy system are extremely attractive and less risky compared to more traditional investments. This metric allows you to make those assessments.
• Cost of electricity per kWh: The cost of electricity / kWh tells you the effective rate you will pay for the electricity generated by your system. It's an average rate calculated over the ownership period or the lease or PPA term. It takes into account the upfront investment, monthly payments and any annual rate increases. The lower the number, the better it is.
• Total savings over the system life: This metric tells you how much money you will save over the ownership period or lease / PPA term. It's best to look at your total savings net of your upfront investment. Generally, as you put more money down, your savings will be disproportionately higher.
• Equipment quality and performance: While this technically is not metric, it's still an important consideration. Make sure that you understand the installed equipment's quality and performance levels. Also, check the warranties. Panels should carry a 25 year performance warranty or more, while inverters should carry a warranty between 10-25 years.

Metrics	$0-Down	Pre-Paid with SRECs	Pre-Paid without SRECs	Custom down-payment
1.  Cost per Kilowatt (kW) of installed system
2.  Return on Investment (IRR - Internal Rate of Return)
3.  Production Ratio (Guaranteed or Projected)
4.  Electricity Cost (per kWh) produced by the solar system
5.  Total Savings over life of System – Total & Net of Upfront Investment

Assumptions:

The assumptions used to calculate these metrics are critical. You'll need to understand the assumptions used to be able to compare your quotes. The list below outlines some key assumptions installers make that impact the benefits and savings you will receive. EnergySage's Solar Quote Evaluation Tool is helpful here because it allows you to modifying the underlying assumptions for each competing quote, providing an apples-to-apples comparison:

• Annual Solar Lease or PPA Price Escalation: Annual price increases in solar lease payments or PPA rates can significantly impact the cost of electricity / kW metric, dramatically reducing the savings from your solar installation.
• Assumed inflation rate in grid provided electricity prices: Your savings are a function of the grid generated price over the system's life or the lease / PPA term. Energy prices are volatile so it's hard to say whose predictions will be on the money. The important thing for your evaluation, however, is to make sure that you're using the same prediction numbers in all the quotes you are analyzing.
• Production Ratio: Solar installers estimate how much electricity the solar system will produce, taking into account the direction and pitch of the installed solar panels, the impact of shading, the inverters' efficiency, etc. Some solar installers' estimates are very conservative, while others' are overly aggressive. Understand what numbers each installer is using to determine these values and make the necessary adjustments to equalize the your quotes.
• Solar Renewable Energy Certificate (SRECs) price projections: The SRECs' value can have a significant impact on your system's expected returns. Again, you need to understand what numbers each installer used to determine these values and make the necessary adjustments so they are apples-to-apples.

Metrics	$0-Down	Pre-Paid with SRECs	Pre-Paid without SRECs	Custom down-payment
1.  Annual Solar Lease / PPA price escalation
2.  Assumed inflation in grid provided electricity prices
3.   SREC price projections / assumptions
4.  % of electricity met by Solar System
5.  System hardware:  Total System Size, brand of panels, type of inverter, performance monitoring

If you need additional information or have questions we can help you with, please feel free to send us a note to info@energysage.com