Finance for solar power

A lot of times when I mention finance for solar power, people quickly brush away the subject, as if it is a terrible idea. Or, that they don’t need it, how could I dare ask such a thing? (My reaction is that, we finance all kinds of other things such as cars, and most people would rarely do it otherwise).

I think I know why this is… my guess is that solar power has often had some pretty bad finance options. The ‘no interest ever’ type deals, which make a system 30% more expensive, or loans that attract some credit card type interest rates.

So, maybe solar finance is tainted.

But in fact, there’s really good solar finance available.

(Oh, a preface… I am not a financial advisor, or a marriage counsellor. This is opinion, not advice).

First of all, think about what solar gives you as a return. If you invest $6000 in a system and save $1500 per year, it has – in simplistic terms – a 4 year pay back period. You pay for it, and the accumulated savings after 4 years give you your money back,.

That’s like getting a 25% return on your investment. Not bad. Especially when you consider that the life of the product is probably 15-25 years.

So, the longer you own it, the better off you are.

(I also understand it’s not quite the same as getting 25% from an investment as you can’t liquidate your solar system. It’s an investment that you keep, unlike a term deposit you can get back, or shares you can sell).

So,keeping it simple… if you could get a 4 year payback on your system, which is like a 25% return, but you didn’t have the funds available as available cash, would you borrow money at 7% to earn that 25% return?

The rational person would say yes.

In fact, there’s money for solar at rates as low as 5%, as unsecured loans.

The reason is that typically, solar is purchased by homeowners. And, the loans don’t use your house as collateral, but you probably have a decent enough credit rating to access these offers.

These solar loan products have a few advantages:

They don’t use your assets as collateral
They have loan terms from 3 to 7 years
You can make extra repayments, or pay it all back without penalties.
So, while you may have other options, such as using equity on a home loan, that can also be a trap… if you don’t make extra repayments, it can add up over the years.

As a solar installer, we don’t mind how you pay for it. There is no financial gain for us one way or the other if you pay for it outright or use finance, except that if finance helps you get solar when you were otherwise stuck, then I like it.

How we work is… we give you a price for solar as an outright purchase, and we tell you what it could save you (based on info you give us). We can then give you some indications of the cost of finance (per week, per quarter, whatever) and you can see if that suits you. What most people are looking for is to see if the purchase is a cashflow-positive activity… that the savings exceed the loan payments (in almost all cases, it is).

Then, if you want to pursue the finance option, we connect you to some people.

Here’s an example… a recent customer bought an 11.2kW system for $8,900. That will save them around $2200 per year at least, and as much as $2,900 depending on their pattern of use, and the feed in tariff they get from their retailer (only 40% of the power will be used, the rest exported). That system could cost them as little as $540 per quarter over 5 years. So, it’s cashflow neutral at worst, or $740 a year cashflow positive at best. But, after 5 years they own it, and it hasn’t been a burden. Then, they get to enjoy all the savings.