The past few decades saw huge developments in the use of solar power. These grid panels can use solar energy and turning it into electricity. Many neighborhoods have at least one house with solar panels installed on the roof.
Someone may have passed by your house offering solar panels for your home. These solar company representatives can be found just about everywhere. You may not have explored the use of solar power for you home since you are not familiar with how the whole system works. You may have also thought it is expensive.
Many people feel the same way. They are not using solar energy simply because they are not sure how much they have to spend for it. They may also be wondering when they can recover the cost.
Solar panel cost
The first thing to consider is the cost of installing solar panels on your roof. While the sun provides free energy for billions of years, it is costly to keep our planet safe.
EnergySage, a solar marketing company based in New England, offers a way to compute the average cost of getting solar panels. You can look into the price per watt. This price is rather consistent all around the country.
For this year, many homeowners are spending from $2.87 up to $3.85 for every watt when they install solar panels. The gross average cost of solar panels before the tax credit reaches up to $16,800. These numbers are based on data from EnergySage. When you put in the tax credits, the price will go down to between $10,000 and $13,500. This is based on a regular 5 kilowatt or 5,000 watt system that is normally used in the United States. These figures are around nine percent lower compared to a year ago, according to EnergySage. But, the company is also advising potential users to compare prices given to homeowners in the neighborhood.
Since you already know the cost of the system, you should consider the time it takes to recover this cost.
When will you recover the cost
The digital marketing strategist of BestCompany.com for solar coverage, Sarah Hancock says three factors determine the time to recover the cost. BestCompany.com is an online review website that classifies companies coming from different industries.
1. Present electricity prices
Hancock says you can save money using solar power if the price of electricity in your area is high. This allows you to recover the cost faster.
Hancock added that California residents can recover the cost faster than Washington residents. Electricity prices in California are at $0.17 per kilowatt-hour. On the other hand, Washington electricity prices are at $0.09 per kilowatt-hour. Due to this, California residents can save of their monthly electricity bill.
2. Available incentives
States offer different incentives. These incentives include rebates, tax exemptions, tax credits, and performance payments. You can recover the cost faster if there are more available incentives.
Paradise Energy Solutions marketing manager Andy Schell said one incentive is a federal tax credit of 30 percent. The tax credits allow users to recover 30 percent of what they spend on the project. If the 30 percent is not recovered within one year, it is carried over for twenty years until the tax credit is used. Qualified farms and businesses can also use accelerated depreciation schedules and USDA grants.
You can check for solar energy incentives you can use in your state.
3. Payment method
Hancock says you have some options on how you can pay for the solar panels. You can purchase them outright or get a loan for them. It is also possible for you to lease or use a PPA or power purchase agreement. The PPA is a financial agreement allowing developers to manage the design, permits, financing options, and install the system. This agreement is good for ten to twenty five years.
But, some studies indicate that home value goes up when you use a PPA or lease to upgrade your home. Upfront purchases or using a loan means the buyer of the house does not need to pay for the electricity from the panels since it was already paid for. On the other hand, the buyer will pay for the electricity with a PPA. But, the rate will be lower compared to those getting their electricity from the local power company. A PPA can be transferred easily. The buyer or seller can also buy it out.
The method of payment you can use for a faster investment recovery time depends on the state and the two other factors, price of the utility and incentives available. A loan can be used if the state has high electricity prices and a good number of available incentives. In this situation, your savings from utility expenses may be higher compared to your monthly loan payments. On the other hand, an outright purchase is better for states with fewer incentives and low electricity rates.
Hancock added that many users usually recover the cost of going solar within fifteen to twenty five years.
Comparing leasing a solar panel system with an outright purchase
EnLight.Energy representative Julio Daniel Hernandez said the company guides homeowners on deciding the payment method to use basing on their tax liability. EnLight.Energy is a renewable energy firm.
He said homeowners should take advantage of all loans and tax credit available. This is applicable to homeowners whose tax liability a big enough for them to benefit from state and federal tax incentives. But, a PPA or lease is more practical if they do not have any tax liability. With this, they can use their solar energy system to power their homes at a cost lesser than current utility prices. They can save up to 20 percent when they use solar energy and they may not even have to spend anything.
Hernandez has a more liberal computation when it comes to recovering the cost of the investment.
He said there is nothing to recover when a PPA or lease is used since the homeowner did not pay for anything. They immediately start saving. He said it is similar to third party electric companies in deregulated markets. But, if the solar panel system is bought basing on the available incentives, the recovery period is around eight years or even shorter.
Incentives and pricing
Early adopters of solar power ten years ago had all the incentives waiting for them to use. But, the situation is different these days since more people are using solar power as their main source of energy. Similar to other technologies, costs go down as the technology develops.
The number of incentives available these days are fewer compared to a decade ago. This is due to the increasing popularity in the use of solar energy. But, Hancock said solar panel prices have gone down by over sixty percent in the last decade. Due to this, solar power is still affordable even with the fewer incentives offered by local and federal authorities.
Is solar power a good investment?
Solar power is a good investment in many states since it offers a considerable return in twenty to thirty years.
For instance, California users buying solar power systems outright can expect a return of around $30,000 to $40,000 within 25 years. On the other hand, Washington residents can expect a $10,000 return in the same period.
While the dollar-on-dollar return is not high for Washington residents compared to California residents, they can both save money when they use solar power.
Hernandez said the value of homes may go up by $15,000 when solar panels are installed. While the increase depends on the system size, research shows that most of the increase in value is based on the installation of solar panels. The difference depends on the size of the system installed.