How to Finance a Solar Roof

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Going solar reduces a household’s energy costs, as most people know. Yet how much money must be spent in the first place for this home improvement, and how does a homeowner handle the up-front costs?

Let’s explore the basics of financing residential solar power, including the latest U.S. price data.

What Are the Financing Options for a New Solar Roof?

Some homeowners pull it off through home equity loans, secured with the home as collateral. Going solar by way of a home equity loan means the homeowner obtains a fixed and relatively low interest rate. The interest on a secured loan can be deducted from an annual tax bill, too.

There are also home equity lines of credit (HELOCs), with variable interest rates and ten-year payment plans.

Installers have connections with lenders and can offer financial plans, although their rates are often higher than those offered by a credit union or bank.

If the solar power is bought during the purchase of a new house or a refinancing, Fannie Mae‘s HomeStyle Energy Mortgage essentially lets a homeowner fold the financing into a new mortgage, at a very appealing interest rate.

By buying a system outright, a homeowner can receive a hefty federal tax credit, save significanltly on monthly utility charges, and earn Solar Renewable Energy Certificates that can be sold to utilities. These certificates can add up to a few hundred dollars annually, and help in the financing of a solar system.

The Price Tag and the Payoff

Homeowners in the United States are now paying between $2.87 and $3.85 per watt — a refreshingly reasonable $3.16 per watt, on average — to install new systems.

Before tax credits, the average outlay for a full system currently adds up to about $17,000. Bigger systems are pricier as they involve more panels and more work hours. And the higher the panels’ efficiency, the more expensive the system will be. But buying a bigger or more efficient system will translate into higher savings on electricity bills in return for that initial investment.

As they can reduce a household’s electricity bill by 70% or more, most solar roof systems, whether modest or large in scale, will pay for themselves within seven to ten years, while adding extra overall value and curb appeal to the home.

Green Incentives for Buyers

When the federal tax incentive is factored in, the homeowner will have installed the system at a third off the price. Thus, a resident of a state with that current average of $3.16 per watt could get a 5kW system for $11,060 after tax credits, or a 6kW system for $13,300.

Higher after-credit costs appear in Washington state and the northeast. In Washington, a 6kW system would run in the $15,000 – $20,000 range, according to new research produced by EnergySage. In Connecticut or Massachusetts, it will typically range from about $14,000 to $18,500.

Note that the federal tax deduction only works for taxpayers who wind up owing the government at tax time. Yet any credit that cannot be claimed one year may be carried over into future years.

Note also that you’ll have permit fees to pay if you’re buying a system. On the other side of the coin, the state, municipality, or energy company may offer rebates and other carrots for the homeowner to add to the federal tax break.

How Installation Costs Vary

Solar panel installers purchase the panels in bulk, and that helps keeps costs reasonable for the homeowner. Still, installation estimates will vary. Different companies select different distributors and panel types. By taking a little time up front to obtain several quotes, the typical homeowner can save substantially, and also ensure a solid warranty comes with the investment.

Costs for work hours also vary, as will your fees to get the system connected to the grid. Installation must follow the National Electrical Code, and several work hours typically go into preparing for and securing permission from the local authorities having jurisdiction (known by the installers as “AHJ”).

Another factor that can increase the cost of your solar energy system is the installation company’s penchant for putting money into advertising. Usually it’ll be the big company that pours the most money into marketing.

The house itself will, of course, have its own factors that affect total costs. All other things equal, the easiest and least costly scenario is the home with the south-facing roof that slopes at a 30-degree angle.

What About Leasing Solar Photovoltaic Panels?

In some areas, lease arrangements are available. A lease offers financial convenience. It spares the homeowner the need to finance the up-front costs of residential solar power.

Solar leases have helped many a homeowner shift to a renewable electricity source, and ensure a stable monthly electric bill for years to come.

In a lease arrangement, the solar lease company will handle all aspects of the planning and installation — and keep all local and federal credits. The homeowner will therefore miss out on the rewards that come with buying.

And a leasing company is not going to regard the aesthetics of a home the way its occupants do. People who are interested in the leasing option should examine the precise final placement plans, and know the number of panels the company is going to place on the roof, before signing the contract.

Through escalator clauses, the monthly payment in many solar lease contracts goes up 3% each year. Given that many lessors are working with a twenty-year contract, this is another aspect of leasing that severely limits the home occupant’s savings, and maximizes profit for the leasing company. Then again, the homeowner may have the option to buy the panels later, at a discounted price.

Should the homeowner decide to sell the home at some point during the course of the contract, the company will typically ask the homeowner to buy out the solar lease. This means facing what amounts to an early payment penalty. Alternatively, the home buyer will need to assume the terms of the solar lease.

Does the Maintenance Plan in a Lease Add Value?

Leasing companies offer both installation and maintenance. This sounds better than it is, because the warranty on a solar system covers any problems that might occur with the system components.

Wind and melting snow naturally remove debris from solar panels, so cleaning does not fall to the leasing company. And in the unlikely event that an act of nature damages a set of residential solar panels, the homeowner’s insurance plan may cover any necessary fixes. That brings up a reason why — whether you buy or lease — it matters that you tell your insurer that you’re making this improvement to the home. A roof-mounted solar system can be protected through many homeowners’ policies at no extra charge.

In short, a solar leasing company’s maintenance plan doesn’t make it more worthwhile.

Overall, solar panels are worth buying. Given the array of financing options available, and the reasonable cost of this investment today, owning a PV system is possible for many homeowners. At The Solar Digest, we’ll be keeping up with current solar pricing and options — and keeping you posted.


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