5 Ways to Finance Home Solar PV Systems in Australia
While it is absolutely true that solar power offers the edge of long-term cost savings on conventional grid power bills, however, the initial solar investment is a significant hurdle for many new solar users. Fortunately, this problem has a great solution – solar financing.
A decent-sized and high-quality home solar power system, such as a 6.6kW system, can easily surpass $6,000 in cost. That’s a substantial amount of money to come up with.
However, solar financing differs from other forms of debt. If approached thoughtfully, a suitable-sized solar system that is well financed can save you more money each month than the amount you spend on investing it.
Nevertheless, it’s crucial to explore various options, not only for the solar panel system itself but also for securing the most favorable financing terms. The primary determinant of whether solar will result in monthly savings or become an additional expense lies primarily in the financing deal you can obtain.
Be cautious when you see financing schemes with “No Interest” or “Buy Now, Pay Later (BNPL).” All forms of financing come with costs, including 0% Buy Now Pay Later options. In such cases, approximately 15-25% of the total price you pay goes directly to the BNPL provider instead of the solar installer.
For instance, let’s consider an $8,000 solar purchase with 0% financing. In this scenario, the solar provider might only receive $6,000, while the remaining amount gets allocated to the BNPL provider.
Based on various consumer experiences, systems offered with Buy Now Pay Later plans often come with either lower quality components or a higher retail price than self-funded systems of similar specifications.
Solar installers who sell such solar financing schemes present something that may appear superior, even though it may not be the case. So, plan your financing independently and avoid the allure of easy sign-ups and “no interest” deals.
Here are five standard ways for solar financing:
1. Green Loans
Green loans are personal loans provided by financial institutions that prioritize environmental and community support. They offer low-interest rates and are ideal for financing solar panels, energy-efficient windows, and air conditioning. These loans have flexible repayment periods of 1 to 7 years and come with minimal setup fees, low ongoing fees, and no early repayment penalties. However, it’s important to be mindful of potential fees associated with loan setups, such as establishment fees, monthly fees, and early repayment fees, which can increase the overall cost.
Green loans are suitable for individuals who do not have bad credit.
Pro Tip: To avoid monthly expenses, discuss with your finance provider the possibility of aligning the loan term with estimated solar savings.
If you are in a debt-free situation and have available cash, investing in a solar power system can be a highly profitable option. Solar systems provide tax-free returns that surpass current interest rates offered by banks or government bonds. For those who consume a significant amount of electricity during the day, a 6.6kW system, costing $6,500, typically recoups its cost within approximately five years, resulting in a 12% annual return. If you are not at home during the day, the returns may not be as impressive but still exceed bank interest rates.
The cash option is best for individuals who have sufficient savings, especially cashed-up and debt-free retirees seeking higher returns on their nest egg without significant risk.
1. PPAs (Power Purchase Agreements)
PPAs allow solar consumers to install a solar system without upfront costs and paying the solar company for the generated electricity. For instance, they might charge 20c per kilowatt-hour compared to the typical 30c grid electricity rate. While it may seem like an obvious choice, there is one drawback. With a Power Purchase Agreement (PPA), you are obligated to purchase a minimum amount of electricity from the retailer, regardless of your actual usage. This means you could end up paying for unnecessary energy.
PPAs are commonly used in commercial properties and factories with high daytime electricity consumption, where most of the solar electricity is consumed on-site. However, for non-commercial purposes, PPAs are generally not recommended.
2. Personal Loan
A finance company can assist individuals who are unable to borrow more on their home mortgage or prefer the motivation of a higher interest rate to pay off the loan faster. If minimum repayments are a concern, a personal loan may be a more cost-effective option despite the higher interest rates. Similar to green loans, certain lenders consider factors like loan purpose and home ownership status, potentially offering more favorable interest rates. With loan pre-approval from a finance company, you can negotiate as a cash buyer and secure the best solar system for your investment.
If you decide to sell your property, the loan remains unaffected as it is personally guaranteed rather than tied to your house.
3. Solar Leasing/Renting
With solar leasing, the system is owned by the leasing company until the full payment is made over the lease term. Unlike leasing a car, it is not easily transferable to another property. In the event of selling your house, the outstanding loan balance must be settled as the contract cannot be transferred to the new homeowner. When considering a solar lease, compare the cash price of the system to the total amount paid over the lease term. The difference represents the interest paid for immediate access to solar energy.
Be cautious of low monthly payments that are theoretically offset by energy savings from solar panels.
The Bottom Line
Solar financing provides a solution for the high upfront cost of solar systems. It is essential to be cautious of financing schemes with hidden expenses and consider the most favorable terms. Each financing method has benefits and considerations, so explore and choose wisely based on individual circumstances.
At Ultimate Solar Energy, we make your decision-making process so simple. We design customized solutions based on your requirements, using only the most premium products.
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