One of the quickest ways to increase solar adoption is through easily accessible and low-cost financing. Today, there are numerous ways to finance solar.
Residential Solar Financing
Cash is the least expensive way to go solar from a capital perspective. Home solar purchased directly with cash in Alaska can pay for itself in 8-10 years and continue to generate no-cost energy for decades to come.
What does a model home solar project look like in Alaska?
Conventional/ Home Equity Loans
Several banks offer conventional or home equity loans for solar installation. If you have equity in your home, a home equity loan will have the lowest cost of capital. With any type of solar loan, you own the solar installation and receive the financial incentives, including the 30% federal income tax credit (ITC) and renewable energy credits (RECs). Each month, you will pay your lender a predetermined amount that will also include interest. Interest rates typically range from 3.5% to 7% with terms of 7 to 20 years.
PPAs and Leasing
While previously popular (solar leases) and more common in other states (PPAs) these methods of financing are not recommended. Leases do not allow you, as the system owner, to utilize the federal ITC. PPAs, while popular elsewhere and have helped to drive solar adoption, are legally and administratively challenged in Alaska. Statutory reform would have to take place for this to become a viable option in the future.
Commercial Solar Financing
Commercial solar lending in the small-to-medium project space has been an underserved market in solar finance. Similarly to residential financing, the best option here is cash payment or a loan. The same 30% ITC applies, but also accelerated equipment depreciation, which can account for up to another 30% in federal incentives for businesses considering solar. If your business is outside of Anchorage, you could also qualify for the USDA REAP grant, a reimbursement grant for solar project expenses (25% of the project cost). Commercial solar projects that combine these incentives often see paybacks of less than 5 years. Here’s more info about the USDA REAP program.
Commercial Property Assessed Clean Energy (C-PACE)
C-PACE programs finance clean energy retrofits through property tax increases. Done by a 3rd party financier in conjunction with a Municipality offer no-upfront cost, low interest solar project financing. Adopted as Alaska state law in 2017, C-PACE will likely become available sometime in the next few years after municipalities set up the administrative structures needed to implement and operate the program.
Utility Scale Solar/ Community Solar
Community solar is where a central operations and maintenance provider (system owner) pays for a large solar installation and then shares its production with “members” for a cost. The benefits of serving solar power in this way are that a home or business owner doesn’t need an ideal roof for solar or upfront capital to receive the benefits of solar energy. Utility Cooperatives are particularly good applications for community solar as they can provide a benefit to their members by providing clean energy sources, while also operating and maintaining the facility on behalf of participating members. In this scenario, the utility will typically go through its established capital improvement channels to receive financing for this type of project. Technically, a group of home or business owners could pool resources and develop a co-owned community solar array, but they would be subject to regulatory oversight (and this is not recommended for home or business owners to undertake).
Non-profit solar financing has proven to be a difficult market to develop due to the fact that non-profits do not have the tax appetite to utilize the federal ITC or depreciation mechanisms that commercial solar can. This has slowed non-profit solar adoption as the appetite for incentive-free solar (or non-incentivized solar) has many potential customers diverting capital elsewhere. Solar costs have come down exponentially, but non-incentivized non-profit projects are still typically in the 15-17 year payback range and most customers aren’t comfortable with that long of an economic payback. Some organizations have had success financing non-profit solar through PPAs in other markets that have a more conducive environment with the offering and provision of PPAs.
Have other unanswered questions regarding solar energy? Read more here.