Solar is a good investment so many financial institutions are interested in financing solar projects. There are many different options which we will present here.
Whether you are a homeowner, or the manager of an industrial complex, buying solar panels can be a heavy investment. Sometimes, you just don't have the cash in hand, or sometimes you have other opportunities.
Solar or green investments are often viewed by investors as an ethical product rather than a financial one.
At Autonomy we see energy products and services like any other financial product like stocks or bonds.
If we were to compare it to traditional financial products, investing in solar is like investing in a high return bond. It generates regular and certain returns. Solar investment is so similar to bonds that in the United States Dividend Finance has create a new security based on a pool of solar returns which was graded "AA" by Kroll Bond Rating Agency and received the "green bond" denomination. If you want a technical read about the economics of solar investment we highly recommend reading zthis report by EY. If you don't want to read it we can summarize it in one quote "solar looks poised to become one of the major investment themes of the next 10 to 20 years".
Usually safe bonds generate about 3% a year. So why do Australians invest more in bonds than in solar? Well that's because the risk from investing in solar comes from the difficulty to find reliable solar companies and products. For instance, if you buy cheap solar panels they can break more easily and the amount of energy they produce could decrease over time. So the ideal return on investment (ROI) is very high, but the likelyhood to reach that ideal ROI is pretty low.
Benefits of Solar Investments
The benefit of solar is that it can be very low risk. You can assess and control the level of risk at the initial design of the energy plan. The level of risk decreases if the initial design of the energy financial plan is meticulous. At the investment stage risks can be mitigated with high quality products and warranties.
Diversify your portfolio
Solar is like any other investment, if you have a high risk portfolio it is often a good idea to introduce some lower-risk investments. Finance is a rollercoaster and when there is a dip it is nice to have some regular income to keep your head of the water.
Introduce Sustainable financial assets
Green financial products are very fancy these days. Increasingly complex green products are appearing in wealth managers' offices. Green bonds have been very popular in the past 15 years and the recent craze about the Beyond Meat stock is a good indicator of this trend. Investing is solar is an opportunity to bypass all the usual intermediaries required to make ethical investments.
Solar Financing options in Australia
Solar is a good financial products so there are many options when it comes to financing. The main ways to kickstart investment are: solar loans, power purchase agreements (PPAs), and solar leases. On top of these products we can often add government schemes which aim to encourage renewable investments.
What are solar loans
Solar loans are like any other loan. Property owners borrow money from a lender and pay the principal and interests back in monthly installments over a fixed term.
If you are looking at taking a loan, you should look at the interest rate and the duration of the loan. If you think you can pay back to loan quickly you will be able to lower the interest rate. You might also be able to secure the loan with your existing assets. The solar panels themselves can be used to partially secure the loan. A secured loan offers more guarantees to the lender he who is then more inclined to offer lower rates.
Solar loan rates are often lower than other loans because solar panels generate predictable and recurrent financial values.
The Benefit of solar loans over other products is that you are the owner of your solar panels. When everything goes well, you maximize your return on investment and no third-party takes a cut from your income.
Where to get Solar loans
Autonomy Power does not offer financing, nor do we have partners who give us preferential commissions. We guide our customers to find the best financing options on a case by case bases. For businesses one major source of energy efficiency loans is the Clean Energy Efficiency Corp. They have already provided millions in loans at a discounted rate. However, it is not the only source of high quality loan for businesses. Solar panel manufactures offer loans, credit usinions, national lending institutions, retailers and more are different options that Autonomy is happy to entangle for you
If you are in Victoria, you are in luck. After 1 June 2019 the Solar Homes Program grants households in Victoria a no interest loan. This is an interest-free loan over four years which will benefit owner-occupiers in Victoria at no upfront cost.
Households in Victoria which are eligible to the program can virtually have free solar. The only condition is that they have a solar return on investment inferior to 4 years. Even if it is longer than 4 years the costs are extremely low. One more reason to invest in high quality solar installations.
Solar Leases and Power Purchase Agreements (PPAs)
A power purchase agreement in a contract in which a property owner allows a energy specialist to install solar panels on its roof for free or for a small upfront cost. In exchange the property owner accepts to buy the energy produced at a cheaper rate than what he usually pays to the retailers.
The PPA is usually a long term contract (over 10 years). Other than the low upfront cost, the benefit to the property owner is that the third party takes all the responsibility for the maintenance and performance fo the system. If something goes wrong with your panels, you still get to pay your energy at the PPA rate.
At the end of the contract you may have the option to buy the solar panels from the third party. The terms of the PPA can change a lot depending on your situation and who you are dealing with. You have to be very careful when reviewing a PPA for your business. Sometimes the third party might be able to cover your entire energy bill, but often you will have two energy bills. In Australia you might also have to pay for energy your panels produce but that you aren't using. Finally PPAs can be transferred, so even if you are leasing you might be able to transfer the contract to the next tenant, or if you own your property sell it to the next owner.
The solar lease is a kind of hybrid scheme between a power purchase agreement and a solar loan. A business owner can agree to have solar panels installed and operated by a third party in exchange of a flat rate. Then the property owner can use all the electricity the system produces.
The flat rate usually increases from year to year. Depending on the terms of the contract you will certainly be able to sell the energy you don't use. Unfortunately, as with the PPA if the solar system doesn't meet all your energy needs, you will still have to buy electricity from your retailer at the normal rate. If you are a high energy user and have to pay a premium because of high consumption during peak demand periods, the retailer's rates might become lower than what you are currently paying.
What is the difference between Solar Leases and Power Purchase Agreements (PPAs)?
The main difference between PPAs and solar leases is the rate structure. In a solar lease businesses pay a flat rate every year for all the energy produced. In a PPA, businesses pay electricity at a given rate.
There are also some accounting differences depending on how your contract is structured. You can read more about these differences in this article from our friends at Solar Choice.