Solar Financing

Financing Solar Projects

Hawaii Pacific Solar Maui

There are many ways to help finance the installation of a solar or renewable
energy system for your business or home. Buying, leasing and Power Purchasing
Agreements (PPA) are the three most popular choices. See below for useful
information to help you weigh your options.

BUY

When you purchase a renewable energy system from an approved contractor or manufacturer you pay for it up front or finance your purchase through a bank loan. You own the entire solar energy system, which most manufacturers guarantee up to 25 years. You may be able to finance the purchase by taking a home equity loan or securing a line of credit. Be sure to speak with your tax advisor about possible tax deductions and other implications before your purchase.

Benefits:

  • Lower monthly electricity bills
  • Greater return on investment
  • Increased home value
  • Minimum 10-year warranty
  • Possible 30 percent federal investment tax credit and other deductions

Additional Costs:

  • Expensive components such as the inverter may need to be replaced after warranty
  • Extended service agreement for maintenance, repairs and insurance

Risks:

  • You are responsible for maintenance costs
  • A performance monitoring system may be necessary as an add-on service to maximize energy production

LEASE

Leasing allows you to “rent” the renewable energy system for a set period of time. Generally, you pay a fixed monthly rate no matter how much energy the system produces each month. Agreements are long term, and specific fees may rise over time. Be sure to understand any changes in your monthly rate over the lifetime of the solar lease agreement, and ask about purchase options. Prepaid leases may also help reduce your monthly payments.

Benefits:

  • Lower monthly electricity bills
  • No large, upfront financial investment
  • Typically no costs for system operations, monitoring and maintenance
  • Fixed monthly rate regardless of how much electricity produced
  • Usually break even or save money in the first year
  • Generally provide performance guarantees

Additional Costs:

  • The monthly price of your lease may escalate over time
  • Under the new DER program for HECO companies you may end up paying twice for “banked power”: once under the lease payment and again for power exported to the grid and returned to customer when needed

Risks:

  • If lease provider goes out of business it may cease to provide contracted operations and maintenance
  • Check for purchase (buyout) options in your contract

POWER PURCHASE AGREEMENT

Similar to leasing, a third party owns and maintains the renewable energy system on your behalf. You agree to pay for the electricity generated at a rate per kilowatt-hour (kWh) specified in your agreement. Agreements are long term, and specific fees may rise over time. Be sure to understand any fluctuations in the price per kWh rate over the lifetime of the PPA contract and ask about purchase options

Benefits:

  • Lower monthly electricity bills
  • No large, upfront financial investment
  • Typically no costs for system operations, monitoring and maintenance
  • Fixed rate per kilowatt-hour (kWh) produced
  • Usually break even or save money in the first year
  • Generally provide performance guarantees

Additional Costs:

  • Rates per kWh or energy usually escalate over time
  • Under the new DER program for HECO companies you may end up paying twice for “banked power”: once under the lease payment and again for power exported to the grid and returned to customer when needed, say at night or rainy days.

Risks:

  • If third party goes out of business it may cease to provide contracted operations and maintenance
  • PPAs usually include long-term commitments of over 25 years
  • Check for purchase (buyout) options in your contract

WHAT HAPPENS IF I MOVE?

If you have a lease agreement or PPA, you will need to work with the service provider to transfer the lease or PPA obligation to the new homeowner. In some cases, you may be able to buy out the remainder of the contract at fair market value.

Some leases may require a system purchase upon ownership change, so be sure to examine your lease thoroughly.

STATE AND FEDERAL TAX INCENTIVES

Tax incentive can reduce the cost of a solar photovoltaic system.

State of Hawaii Incentives

Business Tax Credit for Solar
The Hawaii Energy Tax Credits allow individuals or corporations to claim an income tax credit of 35% of the cost of equipment and installation of a solar thermal or photovoltaic (PV) system. A new provision was added to the tax credits in June 2009 allowing the tax credit to be refundable under certain conditions.  For solar energy systems, a taxpayer can reduce the eligible credit amount of 35% by 30% or to 24.5% to qualify for an in lieu tax refund.  If a tax credit amount exceeds the amount of income taxes to be paid by the taxpayer, the excess credit will be refunded to the taxpayer. Consult with your tax advisor as to how this credit may pertain to your specific project.

Residential Tax Credit for Solar
Hawaii tax credits and refunds are available for residential installation. Call Hawaii Pacific Solar for an analysis of your electric bill and how tax incentives can benefit you.

Federal Tax Incentives

Business Energy Investment Tax Credit
The American Recovery and Reinvestment Act of 2009 allows taxpayers to take the federal business energy investment tax credit (ITC) of 30% of the cost of equipment and installation of solar photovoltaic (PV) system. This tax credit is available to both individual and businesses. Check with your tax professional on the specifics of your project regarding this incentive.

Business Depreciation
Under the federal Modified Accelerated Cost-Recovery System (MACRS), businesses may recover investments in certain property through depreciation deductions. The 5-year schedule for most types of solar, geothermal and wind property has been in place since 1986.

Make sure to check with your tax professional/advisor to understand how these financing alternatives and tax incentives can benefit you.

 

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