Episode 7: Solar Financing with Andrew Gilligan (Sol Systems) and Eli Hinckley (Sullivan & Worcester)


We've all squinted at those solar panels around our neighborhoods, but how exactly do homes get them in the first place? Andrew Gilligan and Eli Hinckley join us to talk about residential solar financing - how people afford solar panels, the different types of financial incentives behind them, and where the solar market as a whole is headed. Safe to say, the future of solar looks bright. 

Learn more about green energy solutions here! 


  • What are residential solar panels?

  • What is the current state of solar energy?

  • How does one actually obtain solar panels? How are they financed?

Residential Solar Panels

  • How do solar systems work? (http://us.sunpower.com/home-solar/residential-solar-system-economics/)

    • A photovoltaic (PV) solar system is comprised of solar panels, racks for putting the panels on your roof, electrical wiring, and an inverter. From sunrise to sunset, the solar panels generate electricity (DC) which is sent to an inverter. The inverter converts the DC electricity into alternating current (AC), which is type of electricity required for household use. The AC power is delivered directly to your home’s main electrical service panel for use by you and your family.

  • Solar homes appreciated 17%, and sold 20% faster on average than the non-solar homes, according to a recent study by the (NREL) National Renewable Energy Laboratory. In fact, a study in California estimates that purchasing solar can increase the resale value of your home by more than $5,000 per kilowatt added. The average residential system size is 3.1KW. Your return will vary based on state and size of your installation.

Current State of Solar

  • Expect the 27 gigawatts of solar energy cumulatively installed in the US at the end of 2015 to reach nearly 100 GW by the end of 2020. This can power about five million homes (http://fortune.com/2015/09/09/solar-panel-record-america/).

    • Way more than was thought we’d be installing. The best projections 14 years ago were that we would install one gigawatt per year by 2010. When 2010 came around, we beat that mark by 17 times over. Last year, we beat it by 58 times over. This year, we're on track to beat it 68 times over. (Al Gore’s Ted Talk)

  • Moreover, the roughly 210,000 Americans currently employed in solar is expected to double to 420,000 in the same time period - all this while spurring roughly $140 billion in economic activity. (http://www.seia.org/policy/finance-tax/solar-investment-tax-credit. )

  • Utility-scale market is bigger. In the second quarter of 2015, there were 729 megawatts worth of solar panels installed in solar farms for utilities. At the same time there were 473 megawatts of solar panels installed on home roofs. 

    • One thousand megawatts is about the size of a large coal or natural gas plant. But the amount of U.S. residential solar panels has been growing more rapidly, and has been expanding across more states than ever before. 

  • The amount of home solar roofs grew 70% year-over-year for the most recent quarter (I think second quarter of 2015), and went from four states with vibrant residential solar markets in 2013, to ten states today.

  • Rooftop solar (not just residential) has the potential to provide 40% of our energy needs.

  • The concept of “Grid Parity”

    • When the cost of producing power from solar photovoltaic (PV) panels will be equal to or less than buying from the grid. 

      • Al Gore had a nice analogy in his Ted Talk. He says it’s like the difference between 32 degrees and 33 degrees, ice and liquid water. Grid parity is the difference between markets being frozen up and liquid flows of capital into new investment. 

    • When this point is reached, solar sales are expected to accelerate. The answer of where this point is varies from place to place and by installation. 

      • For example, electricity from utility-scale solar systems (typically large arrays where panels slowly change tilt and orientation to face the sun all day) usually costs less than electricity produced from solar panels fixed on someone’s home. Also, residential electric rates, on average about 12 cents per kilowatt-hour in in the U.S., are much higher than wholesale electric rates – the price utilities pay to power generators – which are usually less than 4 cents per kilowatt-hour.

      • At the same time, different states have more or less sun – solar power in Florida is typically more economic than in Alaska, for instance. 

      • Today the average cost of energy from solar PV in U.S. is reported to be 12.2 cents per kWh, which is about the same as the average retail rate. This number can be misleading, however, because it represents the average price of utility-scale solar across the U.S., not necessarily the cost borne to produce electricity from solar panels on our homes. 

    • So how do we know how close residential solar is to grid parity where you live? Ultimately, that depends on two things: how much you pay for the electricity you buy from the local grid, and how much can you get paid for the electricity you can produce from PV.

Types of Ownership (http://energyinformative.org/best-way-to-finance-solar-panels/). 

  1. Third Party Ownership (2 types)

    • Solar Lease

      • The solar provider pays for and is the rightful owner of the system; they install it and are responsible for maintenance, repairs, etc. You pay solar provider a monthly fee regardless of how much electricity the solar panels produce. It’s enticing because typically this monthly fee is less than what the utility company is charging.

      • Introduced by Solar City in 2006

    • Power Purchase Agreement

      • Basically same thing as a lease except rather than paying same amount each month regardless of how much the solar panels produce, you pay per kWh. 

  2. Direct Ownership

  •  Could finance a number of ways. 

    • One is a home equity loan. 

    • Another is an energy efficient mortgage. Federal government offers this. It credits a home energy’s efficiency in the mortgage itself (more on EEMs here: http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/eem/eemhog96). 

    • Property Assessed Clean Energy (PACE) program. Borrow money from a municipality and pay it back in the form of higher property taxes. Not offered by every municipality. 

  • -Peer to peer lending. Matched up with funders via crowdsourcing. Typically a higher interest rate than the home equity loan. 

3. Shared Solar

  • Not all buildings are suitable for solar.

    • Although only 26% of the total rooftop area on small buildings (those with a footprint smaller than 5,000 SF ) is suitable for PV deployment, the sheer number of buildings in this class gives small buildings the greatest technical potential.

    • 83 percent of small buildings have a suitable location for PV installation, but only 26 percent of those buildings' total rooftop area is suitable for development. 

  • -Gives everyone an opportunity to go solar. Either community owned or owned by third party. Homeowner subscribes to shared solar and then receives energy credits accordingly.

Third Party Owned (Leases, PPAs, etc.) vs. Direct Ownership

Solar Tax Credit (http://www.seia.org/policy/finance-tax/solar-investment-tax-credit

  • The ITC is a 30 percent tax credit for solar systems on residential (under Section 25D) and commercial (under Section 48) properties.

  • The Section 25D residential ITC allows the homeowner to apply the credit to his/her personal income taxes. This credit is used when homeowners purchase solar systems outright and have them installed on their homes. In the case of the Section 48 credit, the business that installs, develops and/or finances the project claims the credit. 

  • Both the residential and commercial ITC are equal to 30 percent of the basis that is invested in eligible property which have commence construction through 2019. The ITC then steps down to 26 percent in 2020 and 22 percent in 2021. After 2023, the residential credit will drop to zero while the commercial and utility credit will drop to a permanent 10 percent.

  • An extension of the tax credit and this phase down was agreed upon in 2015 by Congress in the Omnibus Appropriations Act. Basically the democrats got it in exchange for lifting the ban on exports of crude oil. 

  • The residential and commercial solar ITC has helped annual solar installation grow by over 1,600 percent since the ITC was implemented in 2006 - a compound annual growth rate of 76 percent. (See more solar industry data.)

Net Metering (http://www.seia.org/policy/distributed-solar/net-metering

  • Net metering allows residential and commercial customers who generate their own electricity from solar power to feed electricity they do not use back into the grid. Many states have passed net metering laws. In other states, utilities may offer net metering programs voluntarily or as a result of regulatory decisions. Differences between states' legislation and implementation mean that the benefits of net metering can vary widely for solar customers in different areas of the country.

  • Net metering is a billing mechanism that credits solar energy system owners for the electricity they add to the grid. If the home is net-metered, the electricity meter will run backwards to provide a credit against what electricity is consumed at night or other periods where the home's electricity use exceeds the system's output. Customers are only billed for their "net" energy use. On average, only 20-40% of a solar energy system’s output ever goes into the grid. Exported solar electricity serves nearby customers’ loads.

  • California public agencies and schools will save $2.5 billion in electricity costs over the next 30 years using net metering. 

  • 43 states + DC have adopted a net metering policy. In 2015, 46 states considered changes to compensation for rooftop solar systems (http://www.greentechmedia.com/articles/read/net-metering-fights-are-bad-for-business.-heres-how-utilities-and-solar-adv). 

  • Rising rooftop-solar penetration levels have spurred utilities to reconsider how they compensate customer-sited generation in order to mitigate revenue loss and avoid undue cost-shifting. But sudden revisions to incentives that solar owners rely on for financing creates backlash. That’s what happened in Nevada when solar customers filed a class-action lawsuit against NV Energy after the state slashed its net metering program for all customers.

  • Maine tried for a compromise; however, Maine’s governor has vowed to veto it. Maine legislators introduced a bill to replace net metering in 2017 with a system where regulators periodically reset compensation levels applied to aggregated solar power sold into the wholesale market. Solar owners would get market-based compensation. They’d also have an option to get grandfathered into the old net-metering system, while paying a larger share of transmission and distribution costs.

  • Minnesota was the first state to set a value-of-solar (VOS) tariff including the value of delivered energy, generation and transmission capacity, line losses, and external environmental benefits -- many of distributed solar’s most important attributes.



  • The levelized, or average, cost of electricity from a solar PV array is derived from all the money spent to buy, install, finance and maintain the system divided by the total amount of electricity that system is expected to produce over its lifetime. We call this value the Levelized Cost of Electricity (LCOE) and it’s expressed in terms of dollars per kilowatt-hour ($/kWh). The same metric can be used to determine the cost for a coal or natural gas plant. Planners like it because it reduces the cost of a power plant over a span of many decades into a single number. However, it leaves out geographic variability, changes with seasons and usually ignores the cost of environmental impacts such as the cost of carbon emissions. This metric is a bit too simple when comparing variable wind and solar generators to power plants that you can turn on and off at will, such as those fueled by uranium, coal and natural gas.