Solar financing – how it works and your options

Solar energy is an excellent investment for your home or business, offering a cleaner and more sustainable power source. However, the initial installation cost can sometimes be a hurdle. If you’re facing this challenge, you’re not alone, and that’s where solar financing options come into play.

This article aims to break down how solar financing works, the options you have, and how 1KOMMA5° can assist you.

How Financing Works

Financing is a way to spread out the initial cost of your solar installation over a set period, making it more manageable for your budget. Here’s how solar-specific financing typically works:

1. System Evaluation: Firstly, an assessment is done to determine the right size and type of solar system for your needs, usually including the panels, inverter, and possibly a battery for energy storage.
2. Loan Estimate: Based on the system evaluation, you receive a loan estimate that outlines how much you’ll need to borrow. This often includes the system cost minus any government rebates or incentives like the STC solar rebate.
3. Apply for Solar Loan: With your loan estimate in hand, you apply for a solar loan through a bank, a green solar-specific loan company like Plenti or Humm.
4. Approval and Terms: Once approved, you’ll be presented with the loan terms, including the interest rate, the repayment period, and monthly instalment amounts. These terms are often more favourable for solar projects compared to general loans due to their environmental benefits.
5. Installation and Payment: After loan approval, the installation proceeds. The loan amount is usually disbursed directly to the solar provider, like 1KOMMA5°, to cover the installation costs.
6. Repayment and Savings: Monthly repayments begin as stipulated in your loan terms. Ideally, the energy savings and possible feed-in tariff income you gain from your new solar system can offset or even exceed these monthly repayments, making the system cost-neutral or profitable over time.

Understanding the specific details of solar financing allows you to make well-informed decisions. Remember to include anticipated energy savings and available government rebates in your calculations to get a clearer picture of your loan amount and future repayments.

Financing Options

Solar financing options are varied, each with its own set of advantages and limitations. Here’s a deeper look at what’s available:

• Bank Loans: Bank loans are a traditional route many people consider. While they may offer competitive interest rates, they are often less flexible in their terms and may require collateral. They may also have a longer approval process that can delay your solar installation.
• Specialty Solar/Green Loan Providers: These are loans specially designed for environmentally-friendly projects like solar installations from lenders like Plenti and Humm. They understand the industry well and offer quick approvals and competitive interest rates. They might also provide more flexible terms tailored to solar energy projects, like options for no upfront payments or deferred initial payments.

By knowing what each type of financing offers, you can select the one that aligns best with your financial situation and your goals for solar energy.

Understanding the Numbers

For many, the financial aspect of going solar can feel overwhelming. However, when you break down the numbers, you’ll find that financing a solar system can be a smart move. Here’s a simplified guide to understanding the maths behind solar financing.

Step 1: Determine Your Solar System Cost Your first step is to get a quote for your solar system, which will include the cost of the panels, inverter, installation, and any additional components like batteries. Let’s say this comes to $10,000.	Step 2: Factor in the STC Rebate Australia’s STC rebate can significantly lower this cost. Imagine you qualify for an STC rebate of $3,000. This brings down the initial cost to $7,000.
Step 3: Calculate the Loan Amount With the STC rebate applied, your loan amount becomes the reduced figure of $7,000. This is the amount you’ll need to borrow to finance your solar system.	Step 4: Understand Interest Rates and Monthly Payments Let’s assume you secure a loan with a 7% annual interest rate and a 5-year term. Using a loan calculator, your monthly repayments come out to approximately $139/month.
Step 5: Offsetting Costs with Energy Savings Your solar system will generate savings on your electricity bill. If your average monthly savings amount to $130, this effectively brings down your out-of-pocket monthly loan payment to just $9.	Step 6: The Power of Feed-in Tariffs Some states offer feed-in tariffs for excess energy your solar system feeds back into the grid. If you earn, say, $20 per month from feed-in tariffs, you’re now looking at a net monthly gain of $11 (whilst paying off the loan).
Step 7: The Long-term View Over the 5-year loan term, you’d pay back $8,317, including interest. However, if you save $130 per month on energy costs and earn $20 of feed in costs, that’s a total saving of $9,000 over the same period. At the end of the five years you’ve earned $683 and now your system is paid off – meaning monthly energy savings and feed in tariffs going straight into your pocket.

By dissecting the financials in this manner, you’ll see how solar financing is not just doable but also potentially beneficial in the long term.

Eligibility Criteria for Solar Financing

To qualify for solar financing, you’ll generally need to meet the following criteria:

• Steady Income: Employment, self-funded retirement, or an aged pension usually suffice.
• Credit Check: A good credit score not only facilitates approval but can also earn you better interest rates.
• Property Ownership: Owning the installation site can be a requirement and may lead to better loan terms.
• Additional Documentation: Utility bills or other paperwork may be needed to confirm energy usage and projected savings.

Meeting these criteria puts you in a good position to secure financing for your solar system.

Financing vs Paying Cash Upfront

One of the big decisions you’ll face is whether to finance your solar system or pay cash upfront. Both options have their merits:

Financing

• Immediate Benefits: Start saving on your energy bills straight away without the need for a large upfront payment.
• Flexible Payments: Match your loan repayments with your monthly energy savings, often making it budget-neutral.
• Capital Retained: Keep your savings or investment funds intact for other needs or opportunities.

Paying Cash

• No Interest: Avoid paying interest over the term of a loan, which can add to the total cost.
• Immediate Ownership: Own the system outright from day one, giving you complete control.
• Simpler Process: Skip the application and approval stages that come with securing a loan.

Your choice will depend on your financial situation, liquidity, and long-term financial goals. Financing offers a way to enjoy the benefits of solar energy immediately, while paying cash can be cost-effective in the long run.

NETCC Financing Requirements

The most reputable solar providers, such as 1KOMMA5°, are members of NETCC and are a New Energy Tech Approved Seller. As part of this the finance provided as part of a solar installation must follow the following guidelines:

1. Finance is offered through a credit provider that is licensed under the National Consumer Credit Protection Act (2009) (Cth)
   (“NCCPA”) and regulated by the National Credit Code (“NCC”) or has had its deferred payment contract and its internal policies and procedures approved by the Code Administration.
2. The term of the finance is no longer than the expected life of the product or system.
3. Clear and accurate information has been received including the name of the credit provider to whom you will be contracted for the arrangement, a clear statement that the deferred payment arrangement is a voluntary finance option, the proposed total cost under the deferred payment arrangement compared with the cost of that same New Energy Tech product, system or service if you were to purchase it outright on that day.
4. Clear and accurate disclosures required under the NCC are provided, including in relation to fees and charges (regardless of whether the arrangement is regulated under the NCC) and whether at the conclusion of the deferred payment arrangement: you own any elements of the New Energy Tech, or you have any entitlement to any ongoing services or pricing, and/or you have the option to purchase any elements of the new Energy Tech and if so relevant details, including any associated costs.
5. A statement that questions and complaints about the deferred payment arrangement should be directed to the credit provider with whom you will be contracted.

How 1KOMMA5° Can Help

At 1KOMMA5°, we’re committed to making your journey to solar energy as smooth and financially viable as possible. We understand that everyone’s financial situation is unique, which is why we partner with a variety of solar-specific finance providers who meet NETCC guidelines and offer competitive interest rates. This approach allows us to present you with multiple financing options, tailored to suit your individual needs and objectives.

In addition to finding you the best financing solution, we also take the hassle out of applying for government incentives. We manage the STC rebate process for you, so you can be sure you’re getting all the financial benefits available to make your solar system more affordable.