Top 5 ways to bankroll your solar PV system

(1) Cash. This is how P. Diddy rolls. If you can swing it, paying cash for your solar PV system is the best way to go, especially in times (like these) when credit is tight. Added bonus: you may get to share rank with America’s brightest stars, like Brad Pitt, Tom Hanks, Scarlett Johansson and Don Cheadle. Just check out BP’s Solar Neighbor celebrity participant list.

(2) Energy Efficient Mortgages (EEMs). For the rest of us mere mortals, the prospect of dishing out $30,000 in cash for an array of panels is a bit more daunting. EEMs can provide a helpful financing option. As outlined by the Energy Star website,

An Energy Efficient Mortgage (EEM) is a mortgage that credits a home’s energy efficiency in the mortgage itself. EEMs give borrowers the opportunity to finance cost-effective, energy-saving measures as part of a single mortgage and stretch debt-to-income qualifying ratios on loans thereby allowing borrowers to qualify for a larger loan amount and a better, more energy-efficient home.

To get an EEM a borrower typically has to have a home energy rater conduct a home energy rating before financing is approved. This rating verifies for the lender that the home is energy-efficient.

EEMs are typically used to purchase a new home that is already energy efficient such as an ENERGY STAR qualified home. The term EEM is commonly used to refer to all types of energy mortgages including Energy Improvement Mortgages (EIMs), which are used to purchase existing homes that will have energy efficiency improvements made to them. EIMs allow borrowers to include the cost of energy-efficiency improvements to an existing home in the mortgage without increasing the down payment.

(3) Power Purchase Agreements (PPAs). These arrangements provide a pretty cool financing solution, and by some estimates have been expected to account for three-quarters of all commercial and industrial solar sales in the U.S. Here’s Margaret breaking it down for us in a previous GetSolar post,

as opposed to leasing, wherein you pay a third party financier over time in order to gain ownership of the PV system, in PPAs the ownership remains with the financier. The owner of the building where the solar is installed now pays the financier a fixed monthly rate for electricity. The building owner benefits by having predictable, stable energy costs for the contracted term, and the financier benefits by receiving all the tasty tax credits attendant upon owning a commercial solar electric system.

(4) Leasing. This option works kind of like a car lease. Except that, instead paying in exchange for the use of the car, when leasing a solar PV system you make monthly payments in exchange for the elctricity it produces — eventually toward outright ownership, if desired. I presented it more clearly a few months ago:

It works like this: you put some money down, typically around $2,000, and agree to a 10-year agreement. The company installs PV panels on your roof and promises to pay for any maintenance, as needed, including the eventual replacement of the inverter. You pay them a monthly rate for the electricity that’s produced by the panels. If it works correctly, everyone wins: the company receives enough money to earn a worth-while rate of return. And you pay a monthly fee that’s lower than what you’d been paying to your utility before the panels were installed.

Note, however that if you lease a system, you won’t benefit from any of the available solar incentives, like the 30-percent federal tax credit.

(5) Collective bargaining. Like in any other market, there’s strength in numbers when it comes to purchasing solar. If Sue is going to buy 500 PV panels, and Jim is only going to buy 22, Sue will invariably get a better per-panel price. Collective bargaining for residential solar systems — quaintly dubbed “solar community purchasing” — has recently become popular in California, where there’s a high density of individuals interested in buying. An online group, 1BOG, along with GoSolarMarin, are leading the charge. While such arrangements yield undenaible benefits to consumers, they don’t come without their drawbacks, as Margaret explains:

But a good deal doesn’t make everyone happy. Unfortunately, a side effect of group purchases of this kind is that it makes it very difficult for the competition. It is not feasible for most installers to simply drop their installation price by 15-20%: their profit margins are nowhere near big enough to allow for that.