Cost of Solar & Purchasing a Solar System

How much does solar energy really cost?

A solar system consists of photovoltaic (solar) panels, power inverter, charge controller and battery. The most expensive of these components are the solar panels and they range in price depending on the conduit material and the efficiency of the panel. Today, solar panel prices have reached an all-time low of approximately $1.20-1.50 per peak watt. To keep costs down and ensure that consumers receive the greatest return on their investment, each residential solar system should be correctly sized according to the size of the home and the amount of electricity it consumes. It is not uncommon to start with a smaller system that satisfies the majority of residential needs while leaving room for expansive panels as demand increases with new technologies such as plug-in electric powered vehicles.

The amount of power created by solar panels fluctuates throughout the day as the sun moves, which means that the solar system will not necessarily produce a consistent supply of power. Sophisticated charge controllers and battery storage systems assist in stabilizing the frequency of power for practical use during the day and night. These systems often range in expense depending on quality of the controller, inverter, and battery systems, all of which vary in individual pricing.

The typical residential solar system will cost between $12,000-$20,000 once solar rebates and incentives are taken into account. However, this is a small price to pay given that you will probably spend over $72,000 on electricity over the life of your solar system. With solar energy’s popularity rising, some companies have even started offering solar lease options, where the installation requires little to no out-of-pocket expenses.

Ultimately, the true cost of solar will depend on how large you want your system to be and what the available government rebates and incentivesare when purchasing. Unfortunately, the rebates will run out of money eventually so if you want to purchase a solar system, it is better to act now than risk missing out on money.

Are there any tax incentives and rebates if I want to buy a solar system?

A fantastic thing about investing in solar power is not just the practically year-long sunshine, but also the many state and federal tax incentives and rebate programs that make solar power for your home affordable. The certified solar installer you choose should be up to date on all applicable incentives and rebates. Here is a brief rundown on some of the basic rebates and incentives that can lower the cost of solar if you want to buy a solar system:

  • Federal Tax Credit: The Investment Tax Credit (ITC) allows individuals to deduct 30% of the cost of a solar energy system from personal federal income taxes with no maximum limit. This applies to both new and existing homes and only those systems that are placed in service by Dec. 31, 2016.
  • Individual State Rebates: States often offer flat amount rebates or a progressive system of rebates based on the size of your solar system. Detailed, comprehensive information on your state’s rebates can also be found at the government’s Database of State Incentives for Renewables & Efficiency. For example, the California Solar Initiative offers a maximum rebate of $10,000 for residential photovoltaic systems as well as an additional maximum potential rebate of $1,875 for solar water heating installations depending on who your utility provider is.
  • Municipal and Utility Rebates: Most municipalities and major utilities offer rebates specific to the installation of solar power systems for residences. In addition, numerous rebates exist for Advanced and Innovative Technologies if you choose to upgrade your photovoltaic system with more intelligent controllers and battery systems. Click here for more information about solar rebates and incentives throughout the US.
  • Property Tax Exemptions: The California Revenue Code has been modified to exclude 100% of the value of a solar energy system from your annual property taxes. For example, if your new solar system adds $25,000 to your home value, that $25,000 will not be counted toward your assessed home value when paying property taxes.

To help you understand how these tax incentives and rebates operate, the following is a chart that outlines how much you might be out of pocket if you purchased solar in Arizona and how long it may take the solar system to pay itself back. Please note that this chart is example filled with many assumptions but it provides some context for consumers to understand how basic government incentives work in solar.

What about financing and lease options?

Many homeowners do not want to purchase a solar system because even with rebates and incentives, the up front cost of solar can still be very high. Fortunately, there are other options for those consumers who want to go solar: financing and leasing. There are a number of financing and leasing programs available to all homeowners who have good credit and are installing a qualifying solar system:

  • Home Loan or Home Equity Line of Credit: Similar to taking out a bank loan to finance a remodel of your home, some banks will offer loans to finance solar systems. Homeowners with higher credit scores will find it easier to receive these loans. The bank may have requirements that the system is permanently attached to the home so it remains part of the property which allows the bank to treat the system as a secured loan and therefore offer a lower interest rate. Average interest rates for these types of loan are similar to or slightly higher than a home mortgage.
  • Installer Loan: Many solar installers have developed partnerships with their own third-party loan providers that allow them to offer financing programs to their customers. Although your installer will coordinate the loan and may help you with many of steps in the process, the third-party (usually a bank or national loan provider) will provide the cash to pay for the system. You will then make payments to the third party rather than the installer. The interest rates for installer loans are similar to or slightly higher than a home mortgage. You need to talk to your solar installer to see if this is even an option with them.
  • Solar Lease: Solar leases allow homeowners to effectively ‘rent’ solar panels for their home. Under this arrangement, the solar installer retains ownership of the system while it’s in use at your home. You simply agree to make a monthly lease payment to that solar installer who often times will maintain the system including panel cleaning and inverter replacement (typically after 10 years). Typically, the rental fee plus your new lower utility bill from solar is still less than you would be paying on your utility bill without solar. Most solar installers who offer solar lease options have a variety of offerings with different down payments to accommodate the financial restraints of their customers. This is currently one of the most popular ways to go solar in California.
  • Power Purchase Agreement: A power purchase agreement (PPA) is similar to a lease agreement in that a third-party pays for and owns the solar system. In a PPA, instead of paying a fixed monthly lease amount for a system, you agree to pay for the electricity that the system produces at an agreed-upon rate for a set number of years. In this instance, the purchaser receives the benefit and security of a predictable electric bill for a number of years despite continuing increases in utility prices.

Please note that certain states, such as Georgia, Florida and North Carolina, currently do not allow leasing, power purchase agreements or other third party ownership mechanisms to help you go solar. State solar advocates are working to change these laws as leasing and power purchase agreements can make solar accessible to those consumers who want to go solar but simply cannot afford the up front cost.

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