Renewable energy is any source of energy that is replenished easily as it is used. It is also sometimes called clean energy because it does far less environmental damage than using certain nonrenewable energy sources.
Most sources of renewable energy involve harnessing natural processes, such as wind, energy from the sun, or the energy created by running water. In the United States, the use of renewable energy is on the rise because more home and business owners are worried about environmental issues, as well as expenses.
If you are currently using nonrenewable energy sources in your home, you are contributing to environmental concerns. Your monthly energy bills are also probably quite high. Yet, you might not know how to cover the initial expense of converting to a renewable energy source, such as the expense required to install solar panels on your property. One way to cover such costs is by applying for a renewable energy loan. Here are some important things to know about how renewable energy loans work.
What Are Renewable Energy Loans?
Renewable energy loans are financing options that allow property owners to make clean energy-related improvements to their properties. Such loans typically have specific requirements regarding how much money applicants can borrow and how the money is spent. Often, properties must undergo assessments to determine necessary changes and make sure those changes are covered by renewable energy loans. The goal of such loans is to help property owners convert to clean energy sources when they do not otherwise have the financial means to do so.
Who Qualifies For Renewable Energy Loans?
You may wonder what the difference is between applying for a standard personal loan and a renewable energy loan. The biggest difference is often in the qualification requirements. Typically, you must have an excellent credit history to qualify for a standard personal loan. However, a renewable energy loan program may allow you to qualify with a poor credit history.
One major goal of most renewable energy loan programs is accessibility. In fact, many municipalities have loan programs in place specifically to cater to low-income residents. Another important distinction between standard loans and renewable energy loans is how the loans are assessed and attached. Personal loans are attached to the applicants. Renewable energy loans are attached to the properties requiring the energy upgrades. You cannot qualify for such loans unless you are a property owner.
What Do Renewable Energy Loans Cover?
You may wonder what types of improvements and conversions renewable energy loans cover. The answer varies depending on the programs available in your area. However, coverage typically includes the labor, equipment, and materials needed to make accepted energy-efficient changes on your property. Accepted changes must typically be permanent or semi-permanent. They must also always be attached to the property in some way. For example, switching to energy-efficient light bulbs is not covered. Nor is the installation of energy-efficient appliances, since those appliances are not attached to the property. However, installing solar panels or energy-efficient doors and windows is accepted because doing so makes a long-term improvement to the property itself. Other examples of changes usually covered by renewable energy loans are:
- Generator Installation
- Roof Installation
- Installation of an Energy-Efficient Water Heater
It is important to know that renewable energy loans are usually designed to cover initial installation and related expenses. You usually cannot apply for renewable energy loans to cover routine maintenance on pre-existing energy-efficient systems, such as solar panels. Similarly, you may not qualify for renewable energy loans to repair pre-existing systems.
State Administered Renewable Energy Loan Programs
Renewable energy loans offered by the government are called Property Assessed Clean Energy Loans (PACE). Such loans are typically divided into two categories. C-PACE loans are provided for commercial properties. R-PACE loans are provided for residential properties. Regardless of type, PACE loans have one common purpose. They allow property owners to switch to renewable energy sources. Presently, more than half of the states in the U.S. have C-PACE programs. However, only three states have R-PACE programs. They are:
State PACE programs are typically created by government officials at the state level using federal guidelines, which states can modify in some instances. In most states, the responsibility of administering the PACE program falls on local government officials in their various districts. However, some states hire private organizations or contractors to administer their PACE programs.
Other Renewable Energy Loan Programs
There are many renewable energy loans provided by other sources not administered by state agencies. Some are offered by private companies, such as the Fannie Mae HomeStyle Energy Mortgage. Others are offered by local government agencies. Such programs have similar goals to PACE programs. They aim to make funds accessible to property owners in an effort to encourage the use of sustainable resources. However, you must carefully assess such programs before signing up. They have varied qualification requirements and loan terms.
Benefits of Renewable Energy Loans
One of the biggest benefits of renewable energy loans is the property attachment. That attachment means applicants who sell their properties after taking out such loans are not required to pay the loan balances. The loans stay attached to the properties. Other common benefits of renewable energy loans include:
- Elimination of Initial Costs for Property Owners
- Removal of Expensive Nonrenewable Energy Sources
- Monthly Loan Payments Are Typically Easy to Pay Due to Energy Bill Savings
- Longer Repayment Periods (Up to 20 Years) Create Lower Monthly Payment Requirements
- No Early Repayment Fees (Usually)
- Fewer Risks to Municipal Funds/Loan Defaults Are Less Likely
- Lower Interest Rates Than Most Personal Loans
- Fixed Interest Rates (Usually)
- Tax Credits Are Available for Renewable Energy Conversions in Many States
Is a Renewable Energy Loan Worth It?
Any type of loan creates a temporary debt you may not want. However, a renewable energy loan is often considered worth it due to the long-term benefits. You can benefit personally by lowering your energy bills each month. Owning a property where renewable energy is used also allows you to feel good knowing the environment is benefiting from the changes you have made. If you like those benefits, a renewable energy loan is probably worth it to you. However, each loan is different. Make sure you select one with agreeable terms.