Published On: 01/19/2023

Best Practices for Solar Financing

As the U.S. transitions toward a greener economy, many households and businesses have considered or will consider going solar. There are many advantages — to both one’s wallet and the planet — of installing a photovoltaic (PV) system. Financing options accelerate the transition to clean energy and make solar accessible to the wider public.

Residential solar panel installations are on the rise due government incentives, decreasing costs and increased consumer demand. The Solar Energy Industry Association reported solar is expected to see a 21% annual growth forecast rate for 2023 – 2027. Pew Research found 39% of American homeowners had given solar serious thoughts in 2022, before the passage of the Inflation Reduction Act.

Solar installation financing is now available in all states, including $0 down options for residential projects. Through financing, solar can now help households and business owners save on electricity bills, as well as contribute to the decarbonization of our power grids.

As cash payments are often inaccessible to the average consumer, financing options can broaden your market through solar loans and solar leasing/Power Purchase Agreements (PPA). The most common way to finance a residential solar installation is through a solar loan. This is a personal loan that typically varies in length from 4 to 12 years. While less common, there are also 15 years and 20 years options.

As with all loans, when comparing options, we recommend considering all the fees involved rather than only the interest rate. It is also important to make sure that the loan amount is net of the Investment Tax Credit (ITC) — which is equal to 30% of the total cost of the system.

To understand the real value of a loan, it is good practice to look at the cashflow over the duration of the loan and answer the following questions:

  • Does the cashflow have all positive values: Are bill savings greater than the loan premiums throughout the life of the loan or only for part of it?
  • What is the total amount of savings at the end of 25 years (low estimate lifetime of a PV system)?
  • How do they compare with the potential savings obtained through a cash purchase?

With the Enact digital platform, you can model your project with any loan currently available on the market and have it instantly generate a 25-year cash flow. It will also calculate the monthly and annual loan premiums, and compare overall savings with different loan options, as well as with a cash purchase. Variables — such as down payment amount, combo finance terms, interest tax deduction — can also be chosen prior to generating a solar proposal.

When financing a commercial project, a Power Purchase agreement (PPA) may be the best option — this type of financing is less common for residential projects. Under a PPA, the solar installation business will install the solar system onto a building for a client and the client will purchase energy at a predetermined price per kilowatt hour. The determined price per kWh can be fixed or increased annually.

PPAs are different from a solar loan in which the homeowner or property owner does not purchase the PV system, but only the energy produced from the system. The solar developer is responsible for the operation and maintenance of the solar system.

PPAs can last from 10 to 25 years, but can sometimes be extended by both parties after the initial agreement is completed. At the end of the agreement, the developer can remove the solar system from the property or can sell it to the client.

With Enact, installers and developers can generate proposals with a PPA already available in our database, or create a custom PPA solution, which will include variables such as contractor fees (fixed or percentage), kWh price and escalator, length of the agreement.

The bottom line is that financing is a great tool for solar installation businesses and developers. With a little bit of work, you can expand your horizons and start more residential and commercial projects. Enact Systems can help with that — Installers can use our digital platform to generate proposals, manage contracts, monitor projects and more. You can schedule a free demo with one of our energy experts and expand your horizons.

Written by Marco Casalegno, Technical Services Manager

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Edited by David Bartle, Content Marketing
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