A Solar Loan - What’s Not to Like?
Keeping up with the Joneses is beginning to mean getting some solar energy for your house, because if you haven’t noticed, the Joneses are going solar.
Solar (photovoltaic or “PV”) installations enjoyed another banner year in 2014, forecasted to rise 36% over 2013 - and this is over ’13’s historic 41% increase over 2012. A new solar installation is completed every 3 minutes now in the U.S., and it’s apparent that solar energy is now bursting into the mainstream. Solar energy is not new, so why the rush now?
The surge in residential solar installations has a lot to do with cost, and hopefully a lot to do with an increasing public awareness of the environment and the ability to have a personal impact by utilizing renewable energy. Though for most, cost is probably paramount. And on this front, solar has been making enormous strides. For homeowners, solar has proven to save money on monthly electricity bills, and solar systems’ costs have decreased aggressively. A fantastic one-two punch of benefits for homeowners.
The Progress of Solar Financing
Historically, the high cost of purchasing a home PV system was prohibitive for most people, and regardless of benefit, just not worth the cost. This market situation begat the solar lease, which creatively offered “solar as a service” instead of as a product: homeowners received solar electricity without buying the system. With no upfront costs and maintenance covered, a lease was a low barrier, low worries entry into solar, and in solar-friendly states ignited the PV explosion on residential rooftops.
But as PV development costs decreased, the overall cost of purchasing a system came tumbling down. This market condition begat the solar loan, where ownership became much more affordable, and with more advantages for most when compared to a solar lease.
Much has been written comparing solar leases to loans, which exist as the two primary ways to finance a system. Our own blog has excellent, in-depth articles on the basic economics & differences, but here’s a snapshot: leasing a system is somewhat similar to leasing a car. You can easily find a lease for $0 down, and then you pay a monthly amount to the solar company for the life of the lease (normally 15-20 years). The company owns the system, and takes care of installation, performance monitoring, and maintenance. By design, your system will cover the majority of your energy needs without producing over that amount, and (for grid-tied systems) the grid would still supply any supplemental energy when needed. So you would still pay your utility company for energy they provide, although now at a reduced amount due to your solar energy. Combined, your lease payment and new electricity bill would be lower than your electric bill was before.
Importantly though as in any lease, you do not own the system - your solar company does, so upon lease expiration, you’d have no equity in the system and a decision must be made to either remove the system, buy it (at a to-be-determined price), or sign a new lease. Also note that your lease payment terms may rise by about 3% annually.
A Good Time to Buy
The solar loan, in turn, has very important differences and advantages when compared to a lease. There now exist $0 down low-interest loans, over a 5-20 year period, and you pay (first advantage here) a fixed monthly amount for the life of the loan, while possibly (second advantage) deducting the interest. The solar company will still design and install the system, monitor performance (you can as well online), but historically any maintenance was your responsibility as the owner. However, even that has changed for the better as we’ll explain shortly.
The sum of your monthly loan payment and the remaining energy bill will also total to be less than what you were paying previously for just your electricity.
The next difference - and it’s the big one - you now own the system. The first benefit of owning is that as system owner, you qualify for incentives plus a federal tax credit of
30% off the purchase price of the system on your next federal tax bill (until the end of 2016). In a lease, the solar company - not the homeowner - is eligible for these incentives.
Yet another advantage is a solar system has been shown to significantly increase home resale values if you own the system. In dollar terms, a standard size home system could mean up to a $25,000 - $30,000 increase in home value. And if you sell your home, it may be a cleaner transaction for both parties if the system is owned and not leased.
In fact, purchasing a system now totals out to costing about 50% less than leasing over the long term. The payback period is potentially as low as 3 years, with an average of only 6 years or less. In round numbers, one study shows that depending on where you live, with leasing you’re about $10,000 better off at the end of the term, and if you purchase you will be about $30,000 - $35,000 better off.
Lastly, Americans prefer to own the system vs. lease, and in this case that ultimately comes with significantly more money in their pockets. According to a GTM Research report, leasing rates peaked in 2014, with the trend now toward direct ownership. And we can see why.
Maintenance? What Maintenance?
Regarding maintenance, about the only thing you can proactively do is wash off the panels once in awhile. The other major component, the DC to AC inverters, usually have a shorter lifespan than the panels, but even those are now coming with warranties of 15-20 years, which equal panel warranties. If a panel itself starts underperforming, then replacement might be necessary.
But note this is rare - there are no moving parts to a solar panel, its mechanics are based on chemical reactions. The technology is mature, and in fact, the first crystalline silicon PV panel, kept in an AT&T museum, is now over 60 years old - and still works. So you should have plenty of years left in your panels once they’re paid for, and even after warranty. That is a lot of free energy.
However, “maintenance free” always has a nice ring to it, especially when it’s on your roof and you’re talking decades of service. So here’s where Mosaic’s loan goes a step further for the homeowner: Mosaic partnered with Enphase Energy to develop the first low-interest, fixed-rate, $0 money down, solar loan that includes operations and maintenance service.
You have all the benefits of ownership without the hassles of ownership. This one pretty much covers you from the sun’s rays to your smartphone charger, and just like being totally on the grid before, your solar system operates silently and essentially out of sight and mind.
The Whole Picture
So let’s see if we have this straight: we can convert to clean, sustainable energy for our home, help the environment, purchase the system with a no money down, low-interest loan which will pay for itself in 3-6 years, get a 30% tax credit of the purchase price, own the system without having to maintain it, increase our home’s resale value, and then essentially get free energy for potentially 10-20 years or more after repaying the loan… we get all this and actually pay less money each and every month compared to what we’re already spending now? And save even more each year as electricity rates rise? It’s just hard to see much wrong with this.
Our planet runs on 4 TW (Terawatts, or 1 billion kilowatts) of generation capacity. The total power needs of humans on Earth is 16 TW, expected to increase to 20 TW as soon as 2020. On any given moment, 120,000 TW of sunshine falls on the solid part of Earth. Capturing solar energy has been around for years, but you may just be noticing it around the neighborhood. Increasingly, a solar loan is the reason why.
Photo: Premier Gardens, CA, w/2kW rooftop systems. Credit: SMUD
Graph: Source: Mosaic