The average payback period for investing in a solar system through recouping utility bill savings is seven and half years . For the remainder of the 25 year life span of your solar panel system after the investment has been repaid, you will save tens of thousands of dollars on energy, depending upon your electricity use.
Given the political instability of the fossil fuel market and the tumultuous effects of climate change, finals savings could be even more, especially in the context of the recent events. Do not forget that as soon as you have the solar system installed, you are offsetting your energy costs from day one. Additional advantage that is not that much spoken of are the generous incentives and rebates that are available for solar power in most states.
Residential electricity rates have risen considerably over the years. In January 2001, the average price to the end consumer was 7.7 cents per kilowatt hour. Prices peaked at 13.3 cents per kilowatt hour in September 2017 when the oil rigs in the Gulf of Mexico were evacuated and refineries shut down in the Houston area when Hurricane Harvey hit. The most recently released data for the end of 2021 shows current prices averaging 13.75 cents per kilowatt hour .
The cost of a solar energy system depends on the number and quality of the solar panels you selected. Presently, a high quality 7-kilowatt solar system costs about $21,350 before any tax credits or rebates. In Los Angeles, a 7-kilowatt system would be more than enough to cover the energy needs of an average household, even though solar power generation varies by number of sunny days in area, the placement of the panels in relation to the sun and other factors affecting the efficiency of your solar system.
A valuable tool to determine what a solar system suited to your needs would cost in your area is the solar calculator.
While at first blush it appears to be just a marketing tool to open the door for solar installers to call you, the tool was initially funded in part and is recommended by the US Energy Administration to help prospective solar power investors enter customized information and make better-informed decisions .
There are also advantages to obtaining quotes from local installers of solar energy who are familiar with the weather patterns in your area and local solar incentives and rebates for new customers, as these can significantly reduce the final price you have to pay for your solar system. Let’s see more in detail what options you have.
What solar incentives and rebates are currently available for homeowners?
Tax credits and rebate programs that can help offset solar equipment purchase and installation costs were created with the initial purpose of encouraging homeowners to give a try to solar energy. Incentive programs in place at the federal and state levels have become quite widespread in the last two decades and have been greatly successful.
According to a survey from 2019, 46 percent of homeowners were seriously thinking about getting solar panels for their homes in these upcoming years, and some of them claim that the solar investment tax credit is backing their decision.
Solar incentive programs vary among states, or even among utility companies within a state, but in general, they offer financial advantages for homeowners who decide to switch to solar energy. The best incentive programs that are well established in most places you are:
#1 The net metering program
Ongoing significant savings can be experienced through net energy metering. Net metering is perhaps what many of us imagine as a well working scenario for those who decide to produce renewable solar energy.
Net metering is a widely available solar incentive that allows a solar homeowner to store excess energy produced in the electric grid and then draw from credits issued for that excess energy generated when the household needs it.
For example, if excess solar energy is produced on a sunny afternoon when no one is home, it goes to the utility grid and is distributed to your neighborhood according to the energy demand in exchange for credits. Later in the evening when photovoltaic solar panels do not produce energy, your electricity is drawn from the utility grid at no cost as long as you still got these credits.
When you have a net metered solar system installed, it works like this: when your panels are producing, your electric meter runs in reverse, when you are using the energy from the grid, the meter runs forward again. In the end of the year, you pay only for the energy you used extra if any.
Net metering truly brings many benefits. You do not need to invest into a battery storage for your solar energy, neither worry about maintenance, but will still basically “store” your solar power in the grid to be used later, when you need it. It’s a good compromise.
Many states have mandatory net metering rules for utility companies and a few even compensate solar generators for unused power.
#2 The Federal Solar Investment Tax Credit
The Federal Solar Investment Tax Credit or ITC is a federal incentive to invest in solar power. It is a dollar for dollar reduction in income taxes that a person would otherwise owe the Internal Revenue Service (IRS).
The ITC offered a 30 percent dollar for dollar reduction in taxes for both residential and commercial solar projects until 2019 and originally was supposed to phase out by this year. Luckily, the phasedown process has been delayed by two years. You could take advantage of this throughout 2021. This year you can still benefit from 26 percent of the amount of investment in the solar system (after any rebates).
The only condition is that the construction of the solar system must have begun by 2022 to take advantage of the full 26 percent tax reduction. Next year the reduction will drop to 22 percent and then 0 percent for residential solar .
State solar tax credits
Some states have tax credits similar in structure to the federal ITC. There is for example a locally assessed property tax exemption in the state of Texas. The exemption is valid to solar or wind energy device owners. Each case is decided individually but the homeowners may be eligible to full annual tax exemption from owning a property.
To see whether there is some kind of additional tax credit option for you, visit the Database of State Incentives for Renewables and Efficiency. You will find the detailed information on solar energy incentives that are currently available at your location.
#3 Solar Renewable Energy Certificates (SRECs)
Many states have Renewable Portfolio Standards in effect that require electricity providers to produce a certain percentage of their power from solar sources. The utility is mandated by state law to power the electrical grid with a certain share of renewable energy, and outsourcing this share from homeowners with solar panels is cost-effective for them. These utility companies or cooperatives must then provide proof to the State by presenting Solar Renewable Energy Certificates (SRECs).
A Solar Renewable Energy Certificate (SREC) is a unit of solar renewable energy (1 MWh) generated by a home or business that is sold to the local utility. This means that they are based on the performance of the solar system. Homeowners like you then earn one SREC for every 1,000 kilowatt hour produced by their solar panel system. One SREC may command as much as $230.
Unfortunately, this incentive is not available in all states. A handful of states allow homeowners to sell SRECs to their utility, including:
- New Jersey
- District of Columbia
Additionally, residents of Michigan, Indiana, Kentucky and West Virginia are allowed to sell their SRECs in Ohio’s Renewable Portfolio Standard (RPS) market.
At today’s SREC price of $234 per megawatt hour , a New Jersey homeowner with a 4-kilowatt system could expect to make close to $900 per year. Over the 20-year life of the solar project, SREC payments in New Jersey could more than pay for the system itself.
You can continue receiving this income from the State even after you move unless you expressly transfer that right to the new homeowner .
However, some markets have been oversupplied for the past couple years. This is the situation in Ohio and Pennsylvania, where the SREC price dropped to around $12 and $39, respectively.
Eventually, all of the SREC programs will be phased out once state renewable energy goals are reached. Some markets have stopped accepting new applications already and buy solar power just from the customers with contracts from the previous years.
#4 Performance-based incentives
Performance-based incentives (PBIs) are, as the name suggests, payments or credits you get for the performance of your solar system. You are rewarded for the generated electricity (per kilowatt-hour) and not for installing a solar system.
If you want to take advantage of this offer, your solar system needs to be connected to a meter that will measure its energy output and based on the produced energy amount, you receive your monthly payments according to your contract. One example of performance-based incentive is Solar Massachusetts Renewable Target (SMART) Program.
Feed-in tariffs, that have been abundant in the last decade, belonged to this type of incentive. Their main objective was to encourage the adoption of renewable energy. In many places, this tariff has been phased out, or is going to be in the close future, but you may still find alternative programs that work on the same principle. For example, owners of small one household solar systems still can apply in Indiana for feed-in tariff offered to customers of the NIPSCO utility company. Their current reward offer is $0.15 per kWh.
#5 Various solar rebate programs
Your utility company, municipality or possibly your state or other organizations interested in promoting solar energy may offer a solar rebate for homeowners who install solar panels. Solar rebates are to paid upfront and can further help to reduce the cost of your solar system. How much a homeowner receives depends on the agreement. It is quite usual to calculate the amount to be paid based on the size of a purchased solar system.
These additional solar rebates may differ greatly even among municipalities, and do not be surprised if there is a lot of paperwork or other requirements involved in the application process. You should be well informed and prepared to share a detailed information about your solar installation, but in most cases, the effort is worth it once you get approved for the rebate.
For example, the city of Austin, Texas, offers a $2,500 rebate to those homeowners who install solar panel system on their home. The special requirement that comes with the rebate is to complete their online education course on solar energy. You also have to hire a participating contractor, who will take care of the rest of the application process.
An example of a utility company offering a special rebate to their customers willing to install solar panels is CPS Energy. As CPS customer, you should be eligible for $2,500 rebate for a solar installation, or for $3,000 in total if you select locally produced solar equipment .
You may have noticed by now that the solar incentives and rebates can quite differ among individual states or even on a local level. Luckily, there is a great overview freely accessible online.
The most comprehensive and up-to-date information on net metering policies and other solar power incentives in each state can be found in the Database of State Incentives for Renewables and Efficiency.
Third party ownership and solar incentives
What if you don’t have the cash to purchase a solar panel system right now but want to take advantage of the incentives currently in place that may not be available in the future?
You still have some options how to benefit from above mentioned incentives and rebates. One option is to get your solar system with a solar loan.
Solar loans are offered by banks, credit unions, state programs, utilities, solar developers and private solar financing companies. Some states offer subsidized solar energy loans with lower than market interest rates. In other states, loans can be repaid through your monthly electricity bill with participating utility companies using a mechanism called on-bill financing.
When you take a loan to finance your solar system, you are still considered the owner of the solar installation and equipment, which means that you are eligible for the major incentives and rebates offered for solar energy. This includes even the ITC with 26 percent tax credit throughout 2022.
Getting a loan for transitioning to solar energy is not a limiting solution. Even if you must pay the market rate for a typical home improvement loan, consider that the monthly payment on top of getting some of those incentives and rebates on solar energy, may well be below what you are paying for your electric bill at the moment and that you will continue to experience these savings for years after the loan has been repaid.
Solar lease and power purchase agreements
Other option is to simply rent a solar panel system, rather than purchase it. Solar leases or power purchase agreements (PPAs) are offered by solar installers. Leasing generally means that the installer owns the solar system and is responsible for the maintenance and performance. In return, you as a homeowner agree to pay a fee for the rights to use all the electricity the panels produce for a set period of time, usually between 15 and 25 years, while you also experience anywhere from 10 to 30 percent savings on your electric bills. Once this lease is over, the arrangement ends and the homeowner has no further financial liability.
In this case, you do not own the solar system and you are, in general, not eligible to apply for solar incentives.
Terms can vary widely. Some installers even offer a zero down payment option when you do not pay anything for the solar system , but you do not own the solar system. You basically allow the installer to place solar panels on your property and buy the energy they have produced at a smaller cost compared to the utility.
You may ask. What is the catch of this method. Well, the installer as the owner of solar panels will take advantage of the tax credit, which is still a significant amount. If this is an option you are considering, the best terms will probably be available while the federal ITC is available.
The independence from fossil fuels as well as political vagaries should be in the end the best incentive for you when you decide to take the step and decide for local and renewable energy of the globally abundant resource – the Sun.
The US Environmental Protection Agency estimates that the average household emits 20 metric tons of carbon pollution each year. A typical two person-household can reduce its carbon footprint by three to four tons annually by going solar .