Ways to Finance Solar Panels
A power purchase agreement (PPA) is a contract between two parties, one who generates electricity for the purpose (the seller) and one who is looking to purchase electricity (the buyer). The PPA defines all of the commercial terms for the sale of electricity between the two parties, including when the project will begin commercial operation, schedule for delivery of electricity, penalties for under delivery, payment terms, and termination. A PPA is the principal agreement that defines the revenue and credit quality of a generating project and is thus a key instrument of project finance. There are many forms of PPA in use today and they vary according to the needs of buyer, seller, and financing counter-parties.
The loan route allows the business owner to retain ownership of the system, but use a new or existing mortgage, line of credit, or other loan for the outstanding balance after incentives are accounted for.
PACE enables businesses to defer the upfront costs that are the most common barrier to solar installation. The PACE loans are paid with property taxes over a course of roughly 20 years while energy costs are simultaneously lower, providing the PACE consumer with net gains. Also, because the solar panels and the PACE loan is attached to the property, the consumer can sell the property leaving the debt to be paid through the property tax assessed on the subsequent owners.
As always, cash is king. You will hands-down see the best payback period, Internal Rate of Return (IRR) and Return on Investment (ROI) on your solar project, when you purchase the system with cash. You receive all the same benefits of ownership as you do when you finance your solar power system, but without any interest rates, charges, or financing fees. If you have money sitting mutual funds, or other investments, you will want to evaluate the IRR you are receiving on those other investments - in most cases, solar is the better investment.
If cash is available, we recommend you look at going solar as an investment much like any other part of your portfolio including real estate, stocks, bonds, etc. With 15% to above 20% returns, an investment in solar is a great balance against your other investments whose performance is heavily tied to the overall economy. Solar will provide excellent returns regardless of an economic recession or boon. Having said that, the following factors will influence which financing options makes the most sense for you.
The advantage for equipment leasing are:
- Terms range from 5-10 yrs.
- Depending on how you structure the terms of the equipment lease, the property owner can receive the 30% Federal income tax credit and state and federal depreciation.
*Please consult your accountant for more defined information.