Money-Smart Reasons to Install Solar Panels at Your Home Now

(Image credit: (c) altrendo images)

published 13 July 2015

Andrew and Sonia Campbell of Killeen, Texas, have been talking about putting in a solar power system for years. In June, the installers finally arrived—just as the near-biblical rainfall in their part of the state was finally letting up. The Campbells’ new system will supply nearly all the electricity they need and, besides slashing their electric bill, satisfy Andrew’s goal to reduce their dependence on fossil fuels. “In everything I do, I try to go green if I have the choice,” he says.

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Homeowners installed more than 186,000 residential systems in 2014, the third consecutive year the residential market grew by more than 50%, according to the Solar Energy Industry Association (SEIA). Falling prices for solar panels (especially those made in China) and flexible financing and leasing options have helped bring solar power systems into the mainstream. Homeowners are also keeping an eye on the renewable-energy tax credit, which expires at the end of 2016. The cost of residential solar has fallen by nearly half since 2010, to an average of $3.57 per watt of capacity, says Ken Johnson, of the SEIA. The typical home system has 6 kilowatts of capacity, so that translates to about $21,400. But the federal tax credit trims the cost to about $15,000, and state and local incentives bring the cost down even more.

But you don’t have to come up with the cash for a solar system. A decade or so ago, the up-front cost of installing solar at home was prohibitively expensive for all but the most well-heeled early adopters. When SolarCity, the largest residential installer in the U.S., introduced leasing in 2008, it made solar affordable. More than half of homeowners who have a solar electric system lease. Under the leasing model, solar firms supply the system and collect all subsidies. You pay the leasing company for your electricity at rates that save you between 10% and 50% compared with what the utility would charge, according to EnergySage.com, which provides information about solar electric systems.

The higher the electric rate you pay, the sunnier your location and the greater the financial incentives, the more compelling the case for solar. A rough guide: If you have a roof that faces south, southeast or southwest and you pay at least 12 to 13 cents per kilowatt-hour (kWh) for electricity, solar is probably a good option, says Jonathan Bass, of SolarCity. If your roof is more than 20% shaded, you may need a ground-mounted system.

Installers can give you an estimate of the system size you'll need by looking at a satellite view of your home. When they visit your home, they’ll verify the calculations, check your roof, and assess how a solar system will interconnect with your home’s electrical system and the grid. (Get your own estimates using EnergySage.com’s Instant Estimate tool.) Older homes may require a new electrical panel, subpanel or meter box, which could cost about $500.

What if you live in New England or the Pacific Northwest, where cloudy days outnumber sunny ones? Because solar power systems use sunlight scattered by clouds or humidity as well as direct sunlight, you’ll have adequate sunshine almost anywhere you live in the U.S. Plus, the colder the temperature, the more efficiently solar panels work, says Joshua Pearce, of the Michigan Tech Open Sustainability Technology Lab, in Houghton, Mich.

Homeowners in cold climates can use solar to heat their homes with an air-source heat pump that, with new technology, will work efficiently down to temperatures as low as –6 degrees Fahrenheit. Snow may block the panels and reduce output, but panels can be installed with more tilt, wind exposure and clearance at the bottom so snow will slide off faster—or you can clear the panels from the ground with a long-handled squeegee.

This past winter’s unending snowfall in the Boston area cut production from Bob Lehmann’s rooftop system in Concord, but he still didn’t receive an electric bill. Between production and net metering (selling power back to the grid), Lehmann saves $1,200 a year on electricity and the utility’s fixed charges. An unexpected bonus: His home’s second story is a lot cooler and requires less air-conditioning in the summer because the sun beats down on the panels instead of the roof.

If you choose not to buy, you have two main options: a solar lease or a power purchase agreement (PPA). With a lease, you pay a fixed monthly amount for the use of the system and a guaranteed amount of electricity. With a PPA, you pay the solar company each month for the actual amount of electricity your system produced, and that amount may vary seasonally. With either contract type, look for a production guarantee so that if there's a shortfall in production, the solar company will reimburse you for the amount of electricity that you had to buy from your utility. If your consumption increases, you're on your own buying more power from the utility. Either way, you should see monthly savings from the get-go, although you’ll almost certainly continue to pay your utility a small fixed fee each month for connection and infrastructure.

With a lease or PPA, you usually don’t have to make a down payment. However, if you’re willing to make one, you may nab a lower lease payment or PPA rate, or a shorter term. The solar company will take responsibility for the operation and maintenance of the system. At the end of the term, assuming you still own the house, you may be able to renew the contract, or the solar company will remove the system at no cost.

Leasing a solar system will lower your electric bill, but buying it will maximize the financial benefit. Vikram Aggarwal, chief executive of EnergySage.com, which offers an apples-to-apples comparison of proposals from local installers, uses this rule of thumb: If you lease, you’ll see 20% to 30% savings in your utility bill. But if you pay for a system with cash, you’ll enjoy 100% of the savings—after you recoup the cost of the system. If you finance a system with a loan, it will take longer to recoup your investment.

With a 20-year solar loan (with an interest rate of 5.0%), he saves an average of $83 a month and $19,800 overall. (Monthly savings of $55 in the first year will increase annually as utility prices increase.) With a 20-year lease, he saves an average of $24 a month and $5,700 overall. (The average annual increase in electric rates has historically been more than 3%, according to the U.S. Energy Information Administration.) If you buy or finance, you’re responsible for system maintenance, but experience has shown that solar systems are highly durable, with few maintenance issues.

Solar and renewable-energy loans (secured and unsecured) are becoming more readily available from a variety of sources, including Admirals Bank (nationwide), Sungage Financial, numerous credit unions, city and county programs, utilities, and manufacturers (such as SunPower). Even SolarCity, the leasing company, introduced a MyPower loan last fall. See DSIRE and Energy Sage, and check with installers to find loan programs. Interest rates start at 4.3%. The rate you get depends on the term, your credit history, and whether the loan is secured by your home.

The best installers are certified as photovoltaic installation professionals by the North American Board of Certified Energy Practitioners. Check installers’ Web sites for examples of their work and to see what kind of financing they offer (lease or loan, or both) and crunch the numbers. Then call three prospects for proposals. Ask them how long they’ve been in business, how many systems they’ve installed and why they support particular brands of components. Installer David Schieren, of EmPower Solar, in Island Park, N.Y, says that he can provide a performance ratio of projected production of electricity versus actual output based on results from his 1,000 installations. Check references.

Most solar-panel manufacturers offer a product warranty of 10 years (SunPower’s warranty is 25 years), as well as a production warranty that guarantees the panels will produce electricity at 80% to 90% of their rated power output at the end of 25 years (like a laptop or cell-phone battery, a solar panel’s performance degrades over time). Inverters are typically warrantied for 10 years. The best warranties are insured by a third party; they will be effective even if the manufacturer goes under. Installers should warranty their work for at least a year, but some cover up to 10 years.

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Esswein joined Kiplinger in May 1984 as director of special publications and managing editor of Kiplinger Books. In 2004, she began covering real estate for Kiplinger's Personal Finance, writing about the housing market, buying and selling a home, getting a mortgage, and home improvement. Prior to joining Kiplinger, Esswein wrote and edited for Empire Sports, a monthly magazine covering sports and recreation in upstate New York. She holds a BA degree from Gustavus Adolphus College, in St. Peter, Minn., and an MA in magazine journalism from the S.I. Newhouse School at Syracuse University.