Financing for homeowners

There are two approaches you can use to for going solar:

  1. Direct ownership, where you own your system outright;

  2. Third-party ownership, where another entity owns and operates the system;

Direct Ownership

SolarPanel+money-1_smallOwning the system outright means you see an immediate reduction on your electric bills. You also retain the rights to all of the project’s solar renewable energy certificates (SRECs) and other local incentives. As the system owner you can take advantage of the 30% federal tax credit if you purchase a system outright or finance it through a loan. In this arrangement you are also able to claim the Maryland Clean Energy Grant which is currently a flat $1000.

Direct ownership of a system in Maryland makes sense if you are able to pay for the system in cash and in many cases if you finance it through a loan. There are numerous loan products available ranging from 1 to 20 years in length. In most cases these loans are unsecured and there are no penalties for pre-payment. The most attractive loan can often be a home equity line of credit leveraging the value of your home to improve it with the installation of a clean energy system. The interest rates on home equity lines of credit are often very low and the interest paid on them is usually tax deductible.

Questions to ask about loan products

  • What is the term of the loan?
  • What is the interest rate and is it fixed for the entire term of the loan?
  • Are there penalties for pre-payment?
    • Why is this important? If pre-payments are allowed you can use the additional savings from your energy costs, your Federal tax credit and your Solar Renewable Energy Credit payments to pay down the loan more quickly.
  • Is the loan secured against my property or unsecured?
  • Will the combination of my loan payments + my remaining utility bill be higher, the same or lower than what I pay right now for electricity before solar?
  • Does the loan come with any warranty coverage for the installation? What does it cover and for how long?

Third-party Ownership

Another popular way to go solar in Maryland with little or no money upfront is through a lease or power purchase agreement. With third-party ownership, another entity (the installer or a 3rd party) owns and maintains the solar system installed on your roof. You then pay for the power that the solar panels produce, typically at a rate lower than what you are paying your utility. This arrangement is called a Power Purchase Agreement (PPA). A similar arrangement called a Solar Lease reduces what you pay the utility but by leasing the equipment used to produce that power rather than buying the energy that comes from it.

Questions to ask about leases and PPAs

  • What is the term of the agreement?
  • What is the cost of energy ($/kWh) for the agreement or the monthly payment?
  • What assumption does the proposal use for how much my utility electricity costs will go up over time?
    • Why is this important? The assumption used is usually based on 10 or 20 year historic information but can vary from provider to provider and even from proposal to proposal. The higher the assumed rate of increase the better the economics will look in the proposal.
  • Is there an escalator for my monthly payments? In other words, will my monthly payment go up during the life of the agreement? If so, by how much and how often?
    • Why is this important? If your payment goes up slowly over time, in order for you to make money from the solar system the cost of electricity from your utility has to go up at a higher rate than your solar payment.
  • How long are roof penetrations warranted?
    • Why is this important? An installation warranty describes how long an installer’s work is covered against problems encountered due to the act of installing components on the home (roof leaks for example). Does your agreement cover that for the entire term or for a period less than that?
  • Will system components be covered for the life of the term or just for the manufacturer’s warranty length? Are there additional costs applicable if equipment should fail after warranties expire?
    • Why is this important? Equipment warranties can range from 10 to 25 years. If you have a 20 year term on your agreement but the inverter (for example) is covered for 10 years what happens in year 11 if it fails? Do you incur additional charges?
  • Is there any additional insurance coverage provided by the company in the agreement?
  • What are my options if I decide to sell my house before the agreement ends?
  • What are my options when the agreement ends?

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