Financing options far US solar energy projects Solar energy refers ta the use of systems that collect, store and deliver solar heat far a useful purpose, such as water heating ar electric power generation. Due ta the diffuse nature of the solar resource (1 kWtm\ systems require a large surface area. Solar energy systems are therefare characterized by high initial costs and benefits that accrue over time. Financing converts the future stream of revenues ar savings into the required initial investment. Solar energy competes with alternatives that have a lower initial cost, but higher operating and fuel costs. Whether the higher initial cost of solar energy systems is justified by fuel cost savings depends largely on the terms of the financing arrangement. Strategies ta extend the term of financing and reduce the interest rate will speed the implementation of these clean, sustainable technologies. in the US, alternatives far financing either public ar private solar energy projects include: O Appropriations (using your agency's ar your organization's own money) O Debt (commercial bank loan) O Mortgage and home equity loan O Limited partnership O Vendor financing O General obligation bond O Revenue bond lease O Energy savings performance contract (ESPC) O Utility programs O Chauffage (end-use purchase) O Grants. FINANCING TERM AMD INTEREST RATE The term is the time period over which the principal is scheduled ta be paid down through periodic payment, and is often less than the project lifetime. The interest rate is the factor multiplied by the remaining principal amount ta determine the annual cost of financing. The interest rate is often expressed as a published index plus a !ender spread, plus a hedge, plus a prepayment adder. The index is a published reference interest rate that may be the prime rate (the rate at which banks lend money ta each other ar ta their best customers), the LIBOR (Landon lnterbank Offered Rate) ar the rate associated with Treasury Bills of similar term (referenced by Federal reviewers). A published rate called the 'swap rate' is increasing in popularity as an index. The swap rate is the current fixed rate, which traders would exchange far a variable rate. Ta the index, a financer would add a !ender spread. The !ender spread covers legal and administrative costs, and usually adds O,1 %-0,3 % ta the index. roduction
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