There is a popular saying in the in investing world, follow the money. If you follow the money lately you would find that some of it at least is flowing towards solar. This year alone we have seen PG&E create a $60 Million tax equity fund for SolarCity and then a $100 Million tax equity fund to finance solar installations through SunRun. In addition, SunRun just announced another $55 Million investment by Sequoia Capital. Sequoia is a venture capital firm that provides funding for seed stage, early stage, and growth stage companies. In the past they have backed current market leaders including Google, Linkedin, PayPal, YouTube, Cisco, and Oracle. These investments indicate to me that those in the know think that solar is at the least a solid long-term investment.
So what is tax equity financing and how does it work? As you probably know the federal government is offering renewable-energy tax credits for people who install solar power systems. A solar tax equity fund is comprised of well-heeled individuals or companies who pay high taxes are interested in the tax credits and in exchange for receiving them they invest money which is used to finance the installation of solar projects. Companies like SunRun and SolarCity who offer solar leases and Solar Power Purchase Agreements (SPPAs) act as the middle men, selling those tax credits to help finance the solar projects, and also setting up long-term agreements with customers who buy the resulting power.
For a SunRun or SolarCity customer it is a pretty good deal. They are only required to put a minimal amount down and their electricity bill will only increase about 2 to 3 percent a year for the next 15 to 18 years compared to about 6% if they were to stay with their utility. Solar leases and SPPAs typically come with full service as well which means maintenance, monitoring, repairs, insurance and a money-back performance guarantee.
However, in our opinion, if you are able and willing to finance the solar power system through a home equity loan your long-term payout will be much greater for these reasons:
- After you have paid off the system, you will be producing free electricity;
- Sometime in the near future, states (like Oregon) may start to offer Feed-in Tariffs (FiTs) or other production incentives. If you are leasing a system you would not be able to take advantage of these programs, which could be extremely lucrative and reduce your payback period significantly;
- Interest payments that you make on your home equity loan are tax deductible;
- Your electricity rate is locked in and will not increase.
If you are interested in going solar and still unsure of how to finance it, fill out our free evaluation form and we will put you in touch with solar installers who can provide you with quotes for both leasing and purchasing the system.