i am your guide to solar finance

Financial considerations

When choosing finance for a solar system there is more to consider than just the cost of the system. Things to keep in mind:

Cost of finance

The cost of finance is usually expressed in interest rates or repayment amounts but there can be other costs like:

  • establishment fees
  • monthly or annual administrative fees
  • early repayment charges
  • exit fees

Comparison rates

A comparison rate is used to measure and compare different products. This converts all interest rates and other fees and charges into one equivalent interest rate to allow consumers to easily compare different products. When comparing solar finance products ask the solar retailer or financier for a comparison interest rate. Providers of regulated consumer credit are required to disclose a comparison rate.To help you compare different products we have developed a request for quote template. Use the template to get the same information for each product.

Cash flow impacts

The purpose of solar finance is to help you spread out the cost of a solar system and use the energy bill savings to help make repayments. However, your bill savings may not completely cover the repayments.

 Make sure you can afford the repayments for the life of the payment plan. When calculating your cash flow position keep in mind:

  • upfront costs and finance payments
  • electricity bill savings
  • maintenance costs

 When considering different products remember:

  • Longer-term products like solar loans and power purchase agreements will involve smaller repayments over longer periods, usually 7-15 years.
  • Shorter-term products like interest free plans typically involve higher repayments over a shorter period, usually two to three years.
  • Solar systems will usually continue to deliver bill savings over 25 years.

Tax implications

Even if your energy bill is credited for energy fed back to the grid, as a home owner, your solar system is generally not treated as an income-earning investment and therefore eligible for tax deductions.

 Investment properties

If you are buying the solar system for an investment property, different finance options will have different tax implications.

Generally, ownership of the system means you will most likely only be able to claim interest and depreciation for tax purposes. Third party ownership of the system means you will generally be able to claim all payments as expenses for tax purposes.

Home businesses

If you run a business from your home or have a home office that uses some electricity, you may be able to claim some of your costs as a tax deductible expense.

You should seek expert tax advice when considering the tax implications of your solar system.

Feed-in tariffs

Solar systems can export excess electricity to the grid. The feed-in-tariff is the rate an electricity retailer will pay for solar energy exported to the grid. Energy retailers are not required to pay a feed-in-tariff, though many will. The feed-in-tariff is generally lower than the rate you pay for grid electricity. It will not provide enough of a financial return to pay for a solar system that generates more electricity than you use.

The government regulator the Independent Pricing and Regulatory Tribunal (IPART) provides guidance to energy retailers and customers on what constitutes a fair ‘feed-in-tariff’.

Selling your home

When choosing a finance option it’s worth considering what would happen if you sell your home.  Depending on the type of finance, you have the option of either paying out the solar finance contract or transferring it to the new owners.

Paying out the contract

If you pay out the contract ahead of time you may have to pay penalty fees. Once you pay out the contract you have full ownership of the solar system. This will simplify the sales contract negotiations for your house.

Transferring the contract

It may be possible to transfer the solar finance contract to the new owners. You will need to negotiate with the new owners and the financier and this option may involve administration costs.

Keep in mind that a solar system may increase the value of your home by more than the cost of the system. It could help if you keep track of energy bills to show how much money you have saved.

Consumption costs

You typically pay between 20 and 50 cents for every unit of grid electricity you use in the daytime.

Once you have paid for a solar system, the energy it produces is free. When you consider the costs of a solar system, the average unit cost of the energy it produces over its lifetime can be as low as 8 to 12 cents per unit (kilowatt hour). This is lower than grid electricity costs.

So if you invest in a solar system that replaces or reduces your daytime electricity use, you will save money on your energy bills.

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Page last updated: 13 January 2016