To avoid rising energy costs and benefit from increased renewable energy incentives and tax breaks, more homeowners may be considering home solar systems. Growth in residential solar in the U.S. has boomed in the last year. While overall growth in solar installations, including commercial and utility-scale projects, declined year-over-year, Residential solar projects up ‘amazing’ 40%, according to the Solar Energy Industries Association, will be just under 6 GW. The increase comes from a record 700,000 U.S. homeowners installing solar in 2022.
There are many complex issues in the solar market, including some contentious political issues. Debate continues over foreign sourcing of solar modules and tariffs on imports from China — President Biden recently vetoed a bill that would have reimposed tariffs and could drive up costs across the solar supply chain. Net metering, the main way homeowners can pay off the electricity they generate through the grid, was hit hard last year in California, the largest U.S. solar market, and overall growth in residential projects is expected to slow this year. Lending conditions are tighter across credit markets today due to the Federal Reserve raising interest rates, pushing up lending rates for solar projects.
For most homeowners interested in upgrading their home energy with solar, financing may be necessary, or at least worth considering. After accounting for the 30% federal solar tax credit, the national average cost of a 10-kilowatt solar panel installation in 2023 is about $20,000, according to EnergySage, a marketplace that connects consumers with energy companies. Loans are booming as a way to finance solar, and higher retail utility bills continue to keep lending rates justified even as low and, in some cases, zero interest rates fade away. The loan component will account for a record 70% of the residential solar market by 2022, according to energy consultancy Wood Mackenzie. It won’t be a repeat of the past by 2023, but will still account for a significant portion of the solar market.
Starting with the basics is the best way for homeowners to start getting their hands dirty with solar financial decisions. Here are some key things to consider before deciding to move forward with a residential project.
Research Solar Costs by State
“Before you look into how you’re going to pay for it, it’s easy to figure out what you might want to buy and how much it might cost,” said Joel Rosenberg, a special projects team member with Rewiring America, which powers homes, businesses and communities.
he suggested using energy sage Find competitive solar quotes. This will give homeowners a better idea based on real-life factors such as system size—beyond the national average. It’s important to understand that before they start thinking about how to pay, he said.
Find local energy financing programs
Once homeowners are ready to delve into financing options, their state energy office and local utility may be good places to start, as both may offer solar financing programs.
“They may not be directly involved, but often they can point to things that might be worth looking into,” said Madeline Fleisher, an Ohio environmental and energy attorney who runs a clean energy website.
For example, Ohio has a national plan Offers reduced interest rates on solar loans to certain lenders.
Get solar loan quotes from multiple lenders
EnergySage chief executive Vikram Aggarwal said consumers should seek quotes from three to five sources, being sure to pay careful attention to the terms and conditions.
Potential lenders could include the homeowner’s local bank, credit union, national bank, or a specialized institution known as a green bank that focuses on lending for environmentally friendly projects.
Green banks may offer a stronger product, Fleisher said. A simple Google search for “green bank” and your state may yield options.To find potential lenders, homeowners can also consult wider industry resources such as Green Bank Network or Green Capital Alliance.
Carefully consider offers from solar installation companies
solar installers such as Rirun and novaLoans are also provided.
Most installers offer loans with terms of 15, 20 or 25 years, while banks may offer shorter-term loans at lower interest rates and lower fees, Aggarwal said. Interest rates can vary widely depending on factors such as the loan amount, term and the borrower’s creditworthiness. According to a recent survey, typical loan amounts are $1,000 to $100,000, with an annual interest rate of about 6% to 36% for those with good credit analyze In Nerdwallet.
“Installers are good at installing solar, but they may not be experts in finance or banking,” said Jason MacDuff, president of greenpenny, a virtual carbon-neutral bank focused on financing sustainable projects.
Any homeowner considering a loan through an installer should make sure to speak directly with the financier, he said. He said homeowners should try to fully understand the financial arrangements they were making. For example, is it a fixed or floating rate? What is the upfront financing cost? What is the estimated monthly payment?
It’s also worth noting that installers don’t always mention fees, so if paying cash or financing, be sure to ask about installation costs, Aggarwal says. Upfront fees are unlikely, but worth asking and confirming in the loan documents, just to be sure, he said.
Carefully review solar debt fees, terms and conditions
Consumers should always ask about the fees associated with a loan offered, in addition to the interest rate, as the fees can run into the thousands of dollars.
Homeowners should also familiarize themselves with other available terms, conditions and options. For example, some loans allow the borrower to amortize the loan once to reduce the amount. As an example, if a homeowner takes out a $10,000 loan and then gets a $3,000 tax credit, that money can be used to pay the lender and reduce the loan to $7,000. Generally speaking, if the option is available, it can be used once within the first 12 to 18 months of taking out the loan, Aggarwal said.
Home equity loans and HELOCs can be a good option for homeowners with sufficient equity in their home. According to Bankrate, these options are also available to homeowners whose credit does not allow them to qualify for a personal loan at a prime rate.
Beware of Loan Risks That Can Lead to Home Foreclosure
The last thing a homeowner should do is let a green finance loan lead to foreclosure. This has been a concern for the Federal Trade Commission and the Consumer Financial Protection Bureau, the government’s consumer watchdog. Property-Assessed Clean Energy (PACE) loans, secured by a property tax lien on the borrower’s home, have been used for the past decade to finance renewable energy home retrofits, such as solar, and were especially popular a few years ago.
The CFPB is concerned that lenders are poorly run, and those loans are causing borrowers to default on their mortgages and deteriorating their credit worthiness. A new CFPB proposal aims to protect homeowners from “unscrupulous companies” offering “unaffordable loans and inflated promises of savings on energy bills,” according to a recent statement from CFPB Director Rohit Chopra.
The solar financial market is dominated by a small number of players
While there are many lending options in the residential solar market, the data shows that total lending is dominated by five players who will finance 71% of the entire residential market in 2022, according to Wood Mackenzie. This is similar to the lending market in 2021. Good Leap (with 26 percent of the residential solar market) was No. 1 overall.
Together, Sunrun and Sunnova account for 79 percent of the third-party owned home solar market. This brings up another key decision for homeowners: Should they finance and own the system themselves, or lease out the rights to the solar power?
Solar leasing promises to be more popular, but there are downsides
Rental options exist and may appeal to some homeowners as a way to avoid the upfront costs of equipment and installation. Another benefit is that the homeowner is not responsible for maintenance. Renting out to homeowners is expected to become more popular this year, According to Wood Mackenzie, because leasing companies can get additional credit under the Inflation Reduction Act. These “adders” beyond the core 30% tax credit make the economics more attractive to companies that lease solar systems to homeowners.
But there are also downsides for homeowners.
For homeowners, rental costs are generally higher, and they don’t qualify for the 30 percent tax credit, Aggarwal said. Aggarwal added that leasing also presents some challenges when homeowners decide to sell their home, so it’s important to weigh the pros and cons carefully.
If considering this route, it’s important for homeowners to understand the ins and outs of the leasing process, MacDuff said. For example, they should know how lease payments compare to their existing utility payments and how repairs will be made if something goes wrong.
Solar Prices Continue to Fall, So Rushing Is Not the Right Decision
The expanded and increased tax credit due to the Reduce Inflation Act has made the cost of solar installation more attractive to consumers, Rosenberg said. However, if still out of reach financially, even with a loan, check back from time to time, as prices continue to fall and homeowners have 10 years to get their IRA rewards.
“You can get an offer in 2023 and 2026, which could be two-thirds of the cost, and you still get the tax credit,” he said.