Every solar firm uses the sales pitch, “Did you know that going solar can save you thousands of dollars?” They make it appear simple, but whether solar is a suitable long-term investment for you depends on a few crucial factors. Take this simple way to get through the sales language before you fall for the sales hype.
When you’re looking at solar options to determine if it’s right for you, there are a few questions you should ask yourself:
What Is Your Electricity Bill?
The amount of money you’ll save by going solar is mostly dictated by your current electric bill. Your utility company bills you for each kilowatt-hour (kWh) of electricity you consume, and the price varies substantially depending on where you live. In some sections of the country, you can pay as little as 8 cents per kWh; in others, you’ll pay 20 cents or more.
When you go solar, you’re effectively constructing a small power plant on your roof to replace the power plant used by your utility to generate electricity. That means that homeowners that switch to home solar power save the most money if their utility electricity bills are high.
If you’re just getting started and aren’t sure how much solar can save you, start by using an online Solar Calculator. “Our calculator analyzes local electricity pricing data to present you with a specific estimate of how much you may save and how quickly your investment will pay off,” explains Mahmudul Hasan, Founder and CEO of Nexergy. Nexergy, a New York-based startup, helps property owners examine the viability of solar panel installation on their rooftops and compare financing options.
How much does a solar panel system cost?
The cost of installation varies significantly depending on the solar company you choose and the equipment you use. While it may appear that purchasing low-cost solar panels is the simplest way to save money, investing in high-quality equipment will often result in higher long-term savings. Spend some time looking over all of your equipment options and figuring out what the optimum price/quality ratio is for your home.
Don’t forget to look into local solar incentives and rebates: they could reduce your net cost by 50% or more. Solar tax credits are available from the federal government, and many states and municipalities provide additional financial incentives to homes that install solar panels. Some utilities even offer financial incentives to customers who switch to solar.
How do you intend to fund your solar panel installation?
When it comes to establishing a rooftop residential solar system, there are two major options: buying the system outright or leasing it. Each has its own set of benefits and drawbacks, and no single solution is perfect for every home and homeowner.
The option to purchase or lease solar panels has a substantial impact on the system’s long-term worth. If you pay cash, you’ll save more money, but even if you take out a $0-down solar loan, you might save tens of thousands of dollars. Solar leases and power purchase agreements (PPAs) require no upfront payment and offer a maintenance-free solution, but there’s a catch: your overall savings will often be just 10 to 30% of your utility electricity bill.
Another consideration is that in a solar lease, or Power Purchase Agreement, the solar firm owns the equipment while the homeowner owns the energy it generates. Customers agree to offset a certain proportion of their total energy consumption, and the solar leasing payment substitutes the money that would have gone to the utility. As you might expect, when you buy a system, you get the equipment and all the electricity it generates.
A solar lease can save money up front by lowering the cost per kWh compared to the utility bill. If you want to save money right now, a solar lease is usually the best option. However, financing for a solar purchase is frequently available, allowing for a no-upfront-cost credit structure.
According to SolarReviews, while a solar lease helps prevent any upfront costs, it usually costs more over the course of the 20–25-year contract. SolarReviews.com is a review and rating website for residential solar panels and solar panel installation providers. Because these are long-term contracts, it’s critical that the system is properly designed to maximize savings.
In most circumstances, paying cash up front is the most cost-effective way to go solar. Mr. Hasan, the founder and CEO of Nexergy, estimates these systems can cost anywhere from $15,000 to $30,000 or more before rebates and incentives. In five to seven years, most cash purchases pay for themselves in savings, while a common loan breakeven point is reached in just over eight years. Interest rates are typically about 3-8 percent, and purchases can save a homeowner 40-70 percent on energy expenditures over time; solar leases save between 10-30 percent, according to Mr. Hasan.
Tax incentives and benefits
Rebates, tax credits, and other incentives, according to EnergySage Founder Vikram Aggarwal, can cut total costs by up to 50%. While in most cases a homeowner owns the rebates and credits in a purchase and the solar installer owns them in a lease, the benefits of these cost savings can be obtained in both situations.
Solar installers frequently handle client rebates and incentives, and the price decrease is integrated into the contract. Both leases and loans fall within this category. If receiving a tax credit directly is crucial to the homeowner, then purchasing is the best alternative.
Solar maintenance agreements differ significantly from one company to the next, and contracts should be carefully reviewed to understand what is included. When purchasing a solar system, the homeowner is frequently responsible for the system’s maintenance and monitoring. With a cash purchase or loan, solar firms may provide an additional maintenance protection policy.
A solar leasing is frequently combined with a full maintenance plan for the duration of the lease. Many solar providers offer performance guarantees, which imply that they must either keep the equipment producing at the level specified or compensate the homeowner for any production shortfalls.
Solar, according to SolarReviews, is relatively low-maintenance. A solar panel’s lifespan can be well over 25 years, and inverters are usually the first major component to break or cause downtime.
When you purchase a solar system, it is considered an upgrade to your property and boosts its value. Homes with solar panels sell for 4.1 percent more on average, and they sell 20 percent faster, according to Zillow.
A solar lease, on the other hand, does not directly raise the value of a home. Typically, the entire agreement can be transferred to the next homeowner. If the buyer refuses to sign the lease contract, the seller normally has the option of purchasing the solar system and recouping the cost when the house is sold. According to Forbes, this can make selling a home with a solar lease more challenging in some situations.
While solar benefits from sunlight, you might be shocked to learn that you don’t have to reside in the sun-drenched Southwest to profit from it. Indeed, the Northeastern United States, which is known for its frigid, snowy winters rather than sunny summer days, has some of the most installed solar in the country (including New York, New Jersey, and Massachusetts). What is the rationale for this? In these states, electricity tariffs are often higher, and local incentives are frequently better than elsewhere in the country.
A purchase may be the greatest alternative if long-term savings and the ability to sell the home quickly are your top priorities. A solar lease may make the most sense if you want a low-maintenance, turnkey option that starts saving money right away. Solar is a large investment that can pay off handsomely in the long run. Be sure to educate yourself on all of your options before signing on the dotted line.
*Ryan Kennedy is a freelance Journalist and Cleantech Analyst