With the surge in demand for solar photovoltaic systems across both the residential and commercial property sectors, a number of financing models have emerged as an alternative to the straight-forward capital expenditure purchase. According to industry experts, each has its pros and cons, and there are definitely some things anyone should be aware of – and in some cases, beware of.

Nigel Morris, director of Solar Business Services, told The Fifth Estate that anything other than buying solar upfront means paying more.

The Australian solar market is dominated by small residential systems paid for upfront, he says, which is anomalous compared with the rest of the world.

Morris says that the various alternatives to outright purchase that are available are reasonable, though some are more de-risked due to the established nature of the financing model and the degree of consumer protection they afford.

“Australians are waking up to the fact there are so many ways they can get solar,” he says.

Angus Gemmell, managing director of Solar Choice, told The Fifth Estate the majority of systems are still being purchased outright, particularly in the residential sector. By paying upfront, the cost of interest that is built into all rent-to-buy or pay-as-you go schemes is avoided.

“Most solar financiers are looking for a 10 per cent return,” Gemmell says.

The cheapest sit at around seven to eight per cent, but this is generally the rate applied to commercial-scale installations; most consumers will be paying around 10 per cent at least.

“Only around 10 per cent of residential sales are financed; it is a very minor part of the market. And there is the upfront subsidy that brings the cost down for systems up to 100 kilowatts.”

Generally, between 35 and 40 per cent of the value of a system is financed through small scale technology certificates under the Renewable Energy Target.

Consumer group Choice reports that the difference for small solar customers between buying outright and a lease arrangement can add up to thousands of dollars more for a system that is purchased under rent-to-own, with some deals charging interest comparable with a high rate credit card.

Environmental Upgrade Agreements

In the commercial sector, while installing solar is an option as part of an Environmental Upgrade Agreement, the Clean Energy Council told The Fifth Estate that because the model is so new, uptake has so far been minimal.


Morris says leasing is halfway between a capex purchase and a power purchase agreement.

“There are lots of different arrangements and they have different pros and cons,” he says.

In the commercial sector, the straightforward model is rent-to-own, where the lessor owns it until the end of the lease, at which point the lessee can purchase it, and during the lease period it is the lessor who gains all the tax breaks.

Gemmell says his company is seeing leases with a variety of residuals. The longest are for large facilities with leases of up to 14 years with a 10 per cent residual, and also leases as short as three years with a 50 per cent residual.

Chattel mortgage

Another commercial model is the chattel mortgage, which Morris says is a preferable financial product to rent-to-own. Under this model, which is often used in the car sales industry, the system itself acts as security for the loan until it is repaid.

The system is owned by the purchaser but the title held by the financier until the final payment. The purchaser can claim the allowable depreciation and interest as a tax deduction, and while GST does not apply to monthly payments, the GST is recoverable at the time of purchase.

Point-of-sale financing

Morris says this can be an advantage if a home owner or firm has no other means of obtaining financing and wants on-the-spot approval. However, he points out that these arrangements fall outside consumer law and that even when a “no interest” period is promoted as part of the deal, buyers will inevitably be paying some kind of interest that is bundled into the cost.

“Ultimately someone’s got to get the money,” he says.

An investigation by Choice found that many of the providers of point-of-sale financing, including Certegy, which dominates the Australian residential solar market share of POS finance, can have interest rates well over 10 per cent.

Morris says that, as a product, this is a real “buyer beware” due to the lack of consumer law protection. Choice also found some of these products can lack transparency, and can come with hidden costs such as monthly fees, an account establishment fee and escalating interest over the term of the purchase agreement.

The reputation of the provider is a key point, so those POS arrangements being offered by retailers such as Origin may be a safer bet.

Power purchase agreements

A power purchase agreement means the provider owns, operates and maintains the system, and the customer signs a contract to purchase the power at a rate that is lower than grid power per kilowatt.

Morris says this arrangement is best suited to those who don’t have the funds for a capex purchase, and don’t want to or can’t own the system itself. While they will save money compared to conventional grid energy retail prices, it is one of the more expensive ways to purchase solar. The upside is someone else does everything.

“It is not the best way to leverage savings but people will save money, depending on their energy costs,” Morris says.

“The safest position for a PPA is one where nothing changes around you over 10, 15 or 20 years – but the probability of something changing around you is very high.”

Gemmell says providers of solar under PPAs are generally providing a lower price for the electricity for longer agreements. There are also some providers that give customers the option of owning the system after 10 years or so.

One of the potential downsides of a PPA is some contracts will specify the customer has to purchase a certain amount of energy per month, according to Choice. This means if a business has a prolonged closedown over the holiday season, it can be paying for power it simply isn’t using.

The roof rights dilemma

One of the limitations in the commercial sector is the vexing question of roof rights for tenants. Gemmell says that even where a tenant does not have them, a solar provider can still structure a leasing or power purchase agreement arrangement as a “win-win” with the landlord, for example, some of the power is used by the tenant, some for the base building.

What to do before investing in solar

Where leasing to own or buying outright, the important thing is to size your system according to energy use rather than “spill power to the grid”, Gemmell says.

The installer also needs to understand the building or businesses load profile to correctly locate the panels, Morris says, or “the economics changes completely”.

Stephen Ingrouille, principal of Going Solar, says that while feed-in tariffs were high the tendency in the residential sector was to locate panels on the north to maximise generation in the middle of the day. With the decline in tariffs, it is now more advantageous for most home owners to locate panels on the east and west to provide power when people are at home and using it.

Morris says that in assessing suppliers, buyers should look for good honest advice, transparency and longevity in the market, and ideally preference suppliers that have taken the extra step of engaging with and becoming certified by the Clean Energy Council or Solar Council.

Also find out, how good is their reputation? Do they have in-house expertise? Are the workplace health and safety practices compliant when installing systems? Do the products they intend to install have a good track record and verifiable quality and compliance documentation? What is the warranty period?

Industry sources tell The Fifth Estate that there have been a number of firms that jumped into providing solar, particularly to the residential sector, that make a practice of going out of business within three to four years to avoid responsibilities under warranty. Often, we are told, they appear again under a different name.

This can damage the broader industry reputation, Ingrouille says. It is of particular concern where there is a risk either to workers doing installations or to occupants of buildings. He says that without an adequate focus on ensuring appropriate training and compliance, the industry risks its own “pink batts” scenario.

Morris says there are programs run by both the Clean Energy Finance Corporation and the Solar Council that accredit both installers and suppliers.

Product quality has also come under the microscope recently, and he says that in some cases poorly performing products are a case of “cheapest” does not mean “best”. Some Australians are discovering the hard way that “you get what you pay for”.