There is a popularsaying in the in investing world, follow the money. If youfollow the money lately you would find that some of it at least isflowing towards solar.This year alone we have seen PG&E create a $60 Million tax equityfund for SolarCity and then a $100 Million tax equity fund to financesolar installations through SunRun. In addition, SunRun just announcedanother $55 Million investment by Sequoia Capital. Sequoia is a venture capital firm that providesfunding for seed stage, early stage, and growth stage companies. In the past they have backed current market leaders includingGoogle, Linkedin, PayPal, YouTube, Cisco, and Oracle. Theseinvestments 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 solartax equity fund is comprised of well-heeled individuals or companies who pay high taxes are interested in the tax credits and in exchange forreceiving them they invest money which is used to finance theinstallation of solar projects. Companies like SunRun and SolarCity whooffer solar leases and Solar Power Purchase Agreements (SPPAs) act as the middle men, sellingthose tax credits to help finance the solar projects, and also settingup 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 billwill only increase about 2 to 3 percent a year for the next 15 to 18years compared to about 6% if they were to stay with their utility.Solar leases and SPPAs typically come with full service as well whichmeans maintenance, monitoring, repairs, insurance and amoney-back performance guarantee.
However, in our opinion, if you are able and willing to finance thesolar 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 freeelectricity;
- 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 periodsignificantly;
- Interest payments that you make on your home equity loan are taxdeductible;
- Your electricity rate is locked in and will not increase.
If you are interested in going solar and still unsure of how tofinance it, fill out our freeevaluation form and we will put you in touch with solar installerswho can provide you with quotes for leasing and purchasing the system.