The differences between finance options for solar
Do you have multiple companies sitting with you and telling you which option is best for financing solar? If you have been looking into solar, then yes you do. But what option is best for you? That's what I am here for to hopefully clear it up and shed some light on the topic.
Lease Vs. PPA
Leases and PPA are very similar but with some big differences. Both have the same concept but you pay for them differently. Remember, these might vary between companies but in general, this is how they are structured. So on most utilities, you are on a tiered structure so the more power you use the more that your electricity rate increase. So on Southern California Edison, Tier 1 is .15¢, tier 2 .19¢, Tier 3 .26¢ and Tier 4 is .30¢. Each of those tiers have an kwh allowances so once you use too much you move up to the next tier.
PPA - Power Purchase Agreement. This means you are paying for the power that the panels produce at a fixed rate. Your payment isn't steady and will vary month to month depending on how much your panels produce. So that rate could vary from .14¢ up to .20¢ with a 2.9% annual increase. Benefit of this is there are no tiers with solar so all the power you produce is all the same price. Remember, out here in Southern California your panels will typically over produce 10-15% for the first few years. So if someone sells you a system at a 100% offset of your current electricity usage, you will be paying for 110%, respectively. You will still typically save because you're not getting into those higher tiers.
If you don't get into those higher tiers now, you have to be careful that you won't be paying more for solar once you make the switch. Most PPA will be on a 20 year contract and will give you a warranty for that same time frame. The solar company owns the panels so you are essentially borrowing them and there will be no lien on the home. Most have a 5 year buyout. That means for the first 5 years you are borrowing them but after those 5 years you have the option to pay cash for the system. Typically it's at fair market value.
Leases - Same concept at PPa except you have a fixed payment. So take you highs and lows then average it out and that's your payment. So if your high is $200 and low is $100, your average is $150/month. This is good for people who like steady payments and can predict for the next 20 years what their payment will be. Since PPA payment varies based on how much they produce, you can't determine how much the bill will be till you receive it.
Downside to lease is you can't buy it out after 5 years. You have to wait the whole 20 years and then you have the option to take them down or you can buy them at fair market value. Value will most likely be $0 due to depreciation and old technology but we will see. You will most likely have a 20 year warranty with a lease as well.
PACE Program - This could be HERO, California First, Ygrene, E3 etc. These programs are great for those looking to own and need write offs every year. This is a purchase option from day one. They take your loan amount, which is based off your home equity, and apply it over the next 5, 10, 15 or 20 years to your property tax. This is awesome for you because since it is on your property tax, you can write off your payment on your taxes. You have the option to write off the whole payment or just the interest but you'll have to talk to your CPA to determine which is best for your situation. You also have the option to qualify for the Federal Tax Credit for 30% of the gross system cost of your system.
These programs work best for people with have the tax liability to benefit from this. Always talk to your CPA before jumping into one of these programs. Never take the word of a solar consultant.
Loans - This could be through a finance company , bank or straight cash deal. These ones you own from day 1 and you have the opportunity to qualify for the Federal Tax Credit for 30% of your system cost. Some companies will offer warranties as well as roof warranties. Always find out what the company offers as far as warranties. A lot won't offer them since you own the system, they just out it on your and say it's your responsibility to take care of the system. With leases and ppa, since the company owns them it's in their best interest to take care of them. It will be easier to sell your home once it's paid off because that next person moving in doesn't have to take over on payments. Plus, the value of your home will likely go up.
So these are your main options of financing when going solar. Owning is always best, especially if you sell your home but sometimes it just doesn't make sense. Some people don't qualify for the Tax Credit so it will not benefit them to buy the system. That's where the Lease and PPA options will work for you since the company will get the Tax Credit. Consider a PPA and after 5 years you can buy the system. You won't get the Tax Credit but the value of the system might have dropped 30% and there is your credit without having to apply for it. Many different options but that's great for you since you have a choice to make on how you want to get your system. No longer are the days of straight cash deals or only leases. You have options now, use them. Always do your research and don't let anyone tell you what's best for you, only you know what's best.
If you have any questions on any of these, you can always reach out to me through my email ( josmer@calstatesolar.com ) and I will be more than happy to go over it with you. We can even set up Skype session to make it easier.
Thanks for reading this. You can find me on web and feel free to reach out to me anytime with any questions concerning solar and I'll do my best to help you.