A Guide to Finance for Solar and Battery Systems
Want to invest in solar power or battery storage for your home, but put off by the idea of forking out the upfront costs in one lump sum?
You’re not alone. The use of finance for the purchase of solar products is becoming more common for households. Financing the solar power installation enables you to purchase your system and avoid having to outlay the associated costs upfront. With interest rates at the lowest we have seen, it is becoming more appealing for customers to use finance for purchasing or upgrading their systems.
After 5+ years in the Finance Industry and recently directly working in the Renewable Finance Industry, in this blog post I will share my knowledge and experience to help any customers who may be looking at finance as an option to purchase their solar and battery system.
Regulatory Changes For Finance In The Solar Industry
Firstly, let’s delve into the background of current industry regulations around solar financing.
In 2019 the ACCC (Australia Competition & Consumer Commission) released the draft determination for a new Code of Conduct for the Solar Industry called the ‘New Energy Tech Consumer Code’ (NETCC).
As part of the initial draft, the NETCC determined that BNPL (Buy Now, Pay Later) products should be prohibited from being offered to consumers, after finding significant evidence to support ‘Gross Price Inflation’ in the Solar Industry by businesses using BNPL product offerings.
The NETCC has since backflipped on this initial decision, after numerous legal proceedings from BNPL providers who would much rather turn a blind eye to these findings, rather than abiding by some basic responsible lending guidelines like completing credit checks and verifying the income and expenses of its borrowers.
The Truth Behind Buy Now, Pay Later & Interest Free Products
Now let’s look at the concept of interest free loans for solar power.
You know the saying, if something seems too good to be true, it generally is. The myth that your payment in instalments for goods or services can be ‘Interest Free’, (or advertised as ‘interest free’), is promoted in every industry known to mankind.
The growth in BNPL (Buy Now, Pay Later) products has exploded in recent years, with products like Afterpay, Humm (formerly known as Certegy) and Brighte here in Australia.
The trouble with these products is how they are marketed to the end consumer, with catchy phrases like ‘No Interest Ever’ or ‘60 Months Interest Free plus a Bonus Gift Card’. But the question always remains: Where is the interest paid, and who is it paid by?
It’s quite simple really, from my experience the interest is absorbed into the price of the products so you as the borrower is the one who ends up paying for it. BNPL providers offer these products to vendors via associated merchant fees. In short, these merchant fees are the interest costs associated with the products.
Now you may ask yourself: Why would they do this and how does this benefit the vendor?
The main reason these products are used is to stimulate the buyer into the purchase, and at times is used as a tactic to rope vulnerable customers into a purchase. This ABC report completed in 2020 describes the unfortunate outcomes for several customers faced with these high-pressure sales tactics for BNPL products within the Solar Industry.
Below is an example of the merchant costs payable by a vendor for using BNPL products, which are variable based on the loan term selected.
As a footnote, In 2019 ASIC (Australian Securities and Investments Commission) provided evidence showing solar installers inflating prices between 3 per cent and 47 per cent when offering Solar Products, which is the associated Merchant Fee costs.
Example BNPL Merchant Fee Chart
| 1 Year Term | 2 Year Term | 3 Year Term | 4 Year Term | 5 Year Term | |
| Merchant Fee | 8% | 10% | 15% | 23% | 26% |
As you can see, the merchant fees from BNPL providers are higher than the low interest offered by regulated finance providers in the market. Now hypothetically, if you (the customer) were to find an interest free finance option for a $10,000 amount over 5 years (26% Merchant Fee), the vendor is left with the following options:
- Option 1 – Vendor pays BNPL Provider $2,600 from their profit margin.
- Option 2 – Vendor increases the cost of the goods by $2,600 to cover the associated costs of the finance.
To breakdown the two options above further, it’s important to highlight that Option 2 is in fact illegal. A business cannot increase the price of the goods to cover the associated costs of the finance.
In relation to Option 1, if a vendor is agreeing to pay the $2,600 vendor costs, the question is now: Where is the business is going to absorb this amount?
From my experience in the industry, the first area these costs are absorbed into is the products, generally meaning the customer is going to obtain a lower quality product compared to what they have been quoted or what they are actually worth. The other main avenue is cutting the installation and labour costs, resulting in poor installation practices and materials used to complete an installation.
Evidence to support this ‘Gross Price Inflation’ was collected by the Consumer Action Law Centre, when they completed a mystery shopping exercise involving a paralegal at law firm, Maurice Blackburn, who engaged with solar companies to seek financing options on a 6.6kW system. The paralegal was informed by solar sales consultants that financing with BNPL products made the system more expensive in order for the solar company to cater for the BNPL merchant costs.
As Goliath Solar & Electrical employs our own team, we would not be able to request our team take a 26% pay cut to complete your installation, or ask our wholesalers to provide 26% discount on their products, these are just not feasible options and therefore makes offering BNPL payment options unrealistic.
It’s important to highlight that Goliath Solar & Electrical has chosen to only offer regulated finance products to its customers, as they’re the most open and transparent option to present. Although Buy Now, Pay Later products do seem appealing, it’s at the cost of you the borrower who ends up overpaying for these products, compared to the more honest options available in the market.
‘Pay As You Save’ & The Theory On How This Works
One of the most common phrases used in Solar Finance is ‘Pay As You Save’, which can be confusing for some customers as the initial thought is that you won’t be servicing a loan or paying for the goods until you start earning credits on your power bill. You will generally see ‘Interest Fee’ and ‘Pay As You Save’ in the same advert, but in my opinion they go together like chalk and cheese.
In theory, ‘Pay As You Save’ is a brilliant marketing concept, as you should be saving based on your current quarterly bill expense by installing a solar system. However, there are many variables to consider:
- What happens if your Solar Feed In Tariff (FiT) drops?
- What happens if you end up using more power?
- What impacts will ‘Time of Use’ have on your solar savings?
Before entering into a Loan Contract, it’s important to factor in any potential variables that could affect your budget or ability to afford the loan repayments.
Offsetting the cost of your power bill by installing a solar system is a great financial investment, with average payback periods of around two to three years in most instances. This practice is a basic cash-flow principle (Money In Vs Money Out), which many households already do throughout their day to day living.
However, when these variables are not considered from the outset, borrowers can find themselves unable to continue to afford the repayments or be surprised by unexpected additional costs to their budget, for example: receiving a quarterly power bill when they were expecting a credit.
What To Avoid When Looking For Solar & Battery Finance
The best solar financing product will differ for each individual household or business, depending on your circumstances.
It’s important to ensure you find a finance product that works for you, and only you will be able to determine which product is the right fit. When looking for solar power loans or finance products, you need to ensure you find an option that suits your profile as a borrower, with payment options that suit your situation.
For regulated finance, options like Police Credit Union, Plenti and Wisr offer finance products which have a lending criteria and responsible lending requirements for which each borrower must be approved. It’s important to understand that Goliath has no control over the lending criteria, but we trust these financiers to provide our customers with fair and transparent options. Goliath also does not receive any ‘kick-backs’ or ‘commissions’ for referring its customers to these finance providers, unlike some other solar providers.
Understanding The Costs Associated With Finance
When determining what finance product is best for you, the easiest place to start is looking at what the loan is going to end up costing you. This includes the fees payable and the interest being charged. Below is a comparison of the three finance providers available via Goliath Solar & Electrical, and the costs associated.
$10,000 Loan over 5 Year Loan Term
(Approx. cost of a 13.32kW Solar System)
| Police Credit Union | Plenti | Wisr | |
| Interest Rate | 4.69% | 5.99% | 6.49%* |
| Comparison Rate | 4.69% | 8.68% | 7.31% |
| Indicative Repayment | $188 per month | $206 per month | $204 per month |
| Establishment Fees | $0 | $350 | $295 |
| Monthly Fees | $0 | $5.99 per month | $0 |
| Total Amount Payable | $11,280 | $12,360 | $12,266 |
| Total Cost of Loan (Interest & Fees) | $1,280 | $2,360 | $2,266 |
* Wisr rate of 6.49% is available for customers with a credit score above 835
NOTE: The total cost of the loan is based on you making the minimum monthly repayment over the 5 year term. As all products have ‘No Early Repayment Fees’, any additional repayments will decrease the total interest payable on the loan and therefore decrease the total cost of the loan.
FURTHER NOTE: BNPL Products do NOT offer Early Repayment like the options above, a BNPL contract means you are entering an agreement to pay the total amount regardless if you pay it off early or on time.
What Residential Solar Financing Options are Available at Goliath?
If you are looking for options to assist with the purchase of your system, Goliath will be able to provide you with some of the best regulated solar power finance options in the market. Below is a list of the options that Goliath can present to you and a quick comparison for each product currently available.
| Police Credit Union | Plenti | Wisr | |
| Interest Rate | 4.69% | 5.99% | From 6.49%* |
| Comparison Rate (on $10,000 loan over 5 years) | 4.69% | 8.68% | 7.31% |
| Indicative Repayment (on $10,000 loan over 5 years) | $188 per month | $206 per month | $204 per month |
| Loan Terms | Up to 7 years | 3-7 years | 3, 5 or 7 years |
| Establishment Fees | $0 | $350 | $295 |
| Monthly Fees | $0 | $5.99 per month | $0 |
| Minimum Loan Amount | $5,000 | $2,001 | $5,000 |
| Early Repayment Fee | $0 | $0 | $0 |
| Product Niches | • No Fees • Lowest Rate in the market • Owned and operated in SA | • Quick online application and approval process • Low interest offering across flexible loan terms | • Quick online application and approval process • No Monthly Fees |
| Application and Sign Up Process | • Online application or request for phone call by PCU consultant can be arrange. Loan acceptance process will require borrower to complete sign up at PCU branch | • Digital loan application and loan acceptance process | • Digital loan application and loan acceptance process |
* Wisr rate of 6.49% is available for customers with a credit score above 835
A Final Note On Financing Your Solar System
Using finance for the purchase of solar and battery systems can make financial sense for many consumers. As long as the finance is regulated and provides you the same protection as finding a reputable solar company, someone you can trust will be there for you when you need them.
Be aware of the snake oil salesman trying to sell you on ‘Interest Free’, whether that’s for solar products or a new TV for the home!
Lastly, this blog should not be taken as financial advice, but I hope it can provide some insight to financing and help you with deciding what options may be available to you.