In the fourth article in our series, which contains everything you need to know about rooftop solar systems, we focus on ways to finance your rooftop system in residential areas. This description will help you understand the various options for financing your roof-top systems through banks or financial institutions, the associated processes and documents, the applicable interest rates and the securities.
Take a look at the first and second part of the series.
The system costs
The third article in the series provided information on the cost of the solar system on the roof, which depends on the price of the modules and inverters used.
The cost of a 1 kW rooftop solar array ranges from £ 45,000 (~ $ 612) to £ 85,000 (~ $ 1,156), excluding the cost of the batteries. A 5 kW system could cost in the range of £ 225,000 (~ $ 3,061) to £ 425,000 (~ $ 5,782) without GST.
Financing through banks and NBFCs
The first line of funding is banks that offer credit through top-up plans such as home loans and renovation loans. For this scenario we consider that the capital will be invested by the consumers who own the solar systems on the roof of their homes.
Some banks specifically finance rooftop systems, although interest rates vary significantly from bank to bank, ranging from 10% to 18% depending on the source of income and the risk profile of the borrower. The maximum term of the loan again varies from bank to bank and ranges from 1-5 years to 20 years.
The securitization of the loan also varies from lender to lender. Canara Bank will pledge the residential property and mortgage the solar system. In the meantime, the YES bank affiliated with Luminous can provide an unsecured loan.
Speaking to Kor Energy’s director, Priyanka Mohan, Mercom said, “There are several banks and non-bank financial institutions (NBFCs) that we target our customers with. However, we prefer that our clients’ existing banks take over the financing as they already have a report. We then send the detailed project report to the bank and ask our customer to obtain the loan from it. If there are any problems with the banks, we can always turn to NBFCs and other institutions that offer solar financing. “
NBFCs finance solar systems on residential properties. Unlike banks, however, the interest rates are quite high, ranging from 13% to 24%, although most do not ask for collateral.
Companies like Luminous, which work with YES Bank and IDBI, now also finance their end customers through their dealer networks.
Luminous India’s National Sales Director, Solar and Deputy Vice President, Sanjay KVS, spoke to Mercom about it: “Around 98% of our business comes from our distribution network and we are empowering our retailer to do good business for us. As a rule, our dealers are battery and inverter stores. Luminous makes a deal with the larger financial institutions and shares the deals with them. The commercial fees and charges are covered by Luminous so the customer and retailer don’t have to pay them. “
Customers can also pay the Equated Monthly Rate (EMI) using credit cards, just as they can with other consumer goods. These options are only for the components where the customer comes to the switch, buys the battery / inverter / panel, swipes their credit card and pays for the EMI later. Sanjay added that Luminous has an agreement with Pine Labs – an Indian trading platform that provides finance and last-mile transaction technology to the retail sector.
Speaking to customers who want full-fledged installations, Sanjay said, “We work with financial institutions such as IDBI and YES Bank and do not offer direct financing. The institutes will assess the creditworthiness and project size and on this basis approve and disburse the loan. “
Installers vouch for alternative financing options
When Mercom spoke to various rooftop installers in residential areas, their responses revealed a clear disdain for bank financing. According to some installers, it makes more sense to opt for a permanent consumer loan or a personal loan rather than opting for a top-up home loan or NBFC funding.
Sushil Sarawagi, director of Kor Energy, said, “There are certain specialty products that banks have put on the market for solar systems on residential roofs. RBI has instructed banks and NBFC to include rooftop systems in home loans. The problem, however, is that the home loan or home improvement loan requires the customer to mortgage their property for £ 500,000 to £ 1 million (~ $ 6,746 to ~ $ 13,493). This becomes a point of contention for customers. “
He added, “Although we refer our customers to banks, they are not interested in bank financing as they find the entire documentation and mortgage process cumbersome. Our customers are looking for simple financing options that are similar to consumer permanent loans. With such options, you can secure financing for about a year without any essential documents or mortgages. “
Arshi Chadha, COO of Sunson Energy, shared similar views, stating that it was more practical to finance residential property in a cluster (e.g. housing associations) rather than finance a residential property. It ensures that payments keep flowing.
“We’re experimenting with a new financing model on a pilot basis, targeting customers who we know will stay with us for the long term, and taking 50% of the prepayment from them during the installation phase. The remaining 50% would fall under the EMI option, ”Arshi told Mercom.
Arshi added that while Sunson is working on securing loans, the deals are quite expensive. “Interest rates are around 16% whether our clients turn to banks or NBFCs, and it makes more sense to go for personal loans. I went to the headquarters of every bank, from the Bank of Baroda to the SBI. Banks like SBI only finance roof systems as top-up loans. One of my clients owns a £ 100 million (~ $ 1.3 million) 50 year old home; Why should they provide it as collateral for a £ 1 million (~ $ 13,493) loan? The ideal way to finance rooftop systems are loans without collateral. “
To sum up, the end user has numerous options for financing their rooftop solar system – from traditional mortgage loans to unsecured personal loans to over-the-counter credit card payment options. It boils down to being aware of all of the options available in order to make the right funding decision.
Contact us if you are planning to install solar on your roof – email@example.com
Rahul is a reporter at Mercom India. Prior to entering the renewable energy world, Rahul was the director of the Gujarat office for The Quint. He has also worked for DNA Ahmedabad and Ahmedabad Mirror. Rahul has a background in banking and finance and has also worked for JP Morgan Chase and the State Bank of India. More articles from Rahul Nair.