Solar Financing Guide - The Best Solar Financing Options
Written byqualified solar engineerAniket.Last updated:
The costs of solar systems have decreased at an incredible rate in the past few years. Despite that, it does come with a significant price tag and some people may deem it to be expensive to buy outright. However, there are a few options where the customer can enjoy the benefits of solar without having to pay for it at once.
This article will cover the available solar energy financing options and the best solar finance companies for getting solar panels. This includes the oldest financing method of a loan, and novel methods such as PPA, along with the leasing option. All of these have their own pros and cons and may apply to different sets of people. Let us see these in more detail so you can make an informed decision.
Available Solar Financing Options for going green
The following are the solar system financing options in the market that are currently available:
One of the most traditional solar panel financing methods you can choose for your solar system purchase is a loan. You can either opt for a solar loan, or a personal loan. A solar loan will be considered as a ‘home improvement loan’ and will have your property as the mortgage. The solar financing rates of interest, down payments, terms, etc. In this case will be like any other home improvement loan.
You will, however, need to provide your credit history and the sanctioning of this loan will be subject to your credit score.
In the case that your credit score is not considered sufficient to be eligible for a loan, you can try financing through the special program of PACE (Property Assessed Clean Energy). As the name suggests, the eligibility criteria for this loan is not your credit history, but your property tax assessment, which is currently the best low credit score solar financing option.
Some states or financial institutions can also offer solar loans at a subsidized rate. This is done in order to promote clean technologies. Loans are increasingly been sought for solar farm financing of all sizes.
The greatest benefit of choosing a bank loan as your financing option is that you become the legal owner of the solar system. Owing to this, you are eligible for the federal tax credit for solar (ITC) which is 30% of your solar system’s purchase cost. This is often the argument that makes the down payment worth paying for.
Power Purchase Agreement
Commonly known as PPA, this is a method in which the customer only pays for the power he purchases, as is evident from the name. The agreement will have a duration decided by the offering company and can be 10 or 15 years. All the costs of the system are borne by the installing company, including the cost to install as well as maintain.
The biggest benefit of this system is there is zero one-time investment for the customer as he is not purchasing the solar system. At the same time, the monthly payments also do not affect the cash-flow adversely as the solar system reduces energy purchased from the grid. Since solar systems last for more than 25 years, entering a Power Purchase Agreement is beneficial in the short as well as long-term.
PPA is widely considered as a system that creates a win-win situation for both the customer and the company. Commercial solar financing companies often propose the PPA model, given the large sizes and costs of commercial solar systems.
The only disadvantage of this financing method is that the customer is not the owner of the system until the agreement is in action. Owing to this, the federal tax credit is not available to such customers.
Another common method of financing your solar system is leasing it. When you lease the system, essentially you pay over intervals for using the system, similar to a rental system. A significant number of residential solar financing companies offer leasing as an option.
Here, too, since the customer is not the owner of the system, the responsibility of maintenance goes to the installation company who provides the system on lease. The leasing amount is decided by the company based on the size of system and the approximate amount of energy that will be generated every month.
The customer cannot avail the solar tax credit if he chooses the leasing option, since he isn’t the system’s owner… the same reason as in a PPA.
Choosing the Right Option
Every financing option for solar has its own set of advantages and limitations, and there is a large variety of solar finance companies to choose from. This may make you wonder what the best way is to finance your system. There is no golden rule of which option is the best, but depends on factors on the customer’s end. If you are eager to receive the 30% tax credit and are willing to pay a down-payment, then a loan might be perfect for you. You can even try working out a few numbers beforehand using a solar financing calculator.
For someone who wants to start in a zero down payment way, the lease or PPA system makes more sense. In the end, you should assess your factors and what numbers the solar panel installation companies are proposing in lease/PPA, and you might have the perfect answer figured out. In either case, opting for solar energy will certainly bring you savings while also increasing the sale value of your home.
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Everything You Need to Know About the Federal Solar Tax Credit
Written byqualified solar engineerAniket.Last updated:
The federal Investment Tax Credit (ITC) is a mechanism that allows homeowners or businesses to receive a tax credit equivalent to 26% of their investment cost of a solar energy system. Essentially, this solar tax incentive is equivalent to having a system for a 26% reduced cost.
This value, however, will be reduced to 22% in 2023, and only 10% in 2024, only applicable to commercial systems. If you are about to install or have just installed your solar system, you can apply to the ITC by filling out the Form 5695. All you need to do is enter the details, calculate your solar tax credit on the form and enter the result on your regular Form 1040.
Where to Find the Federal Solar Tax Credit Form?
The application for the credit must be done through the Internal Revenue System’s (IRS) Form no. 5695, which is easily available on the IRS website.
The part I of the form 5695 consists of the ‘Residential Energy Efficiency Property Credit’. It has several lines, each about a certain type of energy saving/generating technology. The first two lines belong to types of solar energy systems. These should be filled in to claim the federal solar tax credit if you have installed or started installation of a solar system in the current or preceding year.
Line number 6 shows the current value of tax credit percentage that can be claimed for a solar system, along with any other or a combination of clean energy systems. As long as you have installed the system in 2020 or later, you can claim a 26% tax credit.
Once you have a final value in the complete IRS form 5695, you can enter that value in the regular IRS Form 1040 for your federal taxes.
The federal tax credit for solar panels is not to be confused with a direct financial assistance incentive. You are not eligible to get a direct reduction in your purchase/installation costs of a solar energy plant at the time of installation, but you save an amount in your coming year’s tax. This amount is equivalent to 26% of your solar system cost, meaning you can not only make a profit from your solar panels by saving on power bills, but also increase its value through the tax grant.
Commonly Asked Questions:
Who is eligible for the federal tax credits?
Until 2023, all the owners of solar systems or other specified renewable energy systems are eligible for the solar tax grant. This includes homeowners as well as business owners. The only important condition is that you should be the owner of the system.
Solar energy systems under the PPA (power purchase agreement) or leased systems will not get you the tax credit. Instead, the installing company/leasing company becomes eligible for such solar tax credit, since it remains the owner of the system.
In addition to this, the energy efficient property should be owned by you and under use for considerable part of the year. In case of holiday homes, if you do not live there for a significant portion, you could be ineligible for, or receive a lower tax credit for your solar panels. For example, if you use the holiday home for about a quarter of a year, you are eligible for a quarter of the tax credit, which means 25% of the 26%. Therefore, if the system costs $10,000, the 26% value comes down to $2,600 and a quarter of it becomes $650.
How does the federal solar tax credit work for me if my tax is lesser than the solar tax credit amount for my system?
It may happen that you have chosen to have an energy efficient home, but your tax liability is lower than the tax credit you are receiving. In that case, you cannot claim the entire credit in one year. You can, however, carry the solar tax credit forward to the next year. If you have received a $3,000 credit and your annual tax is $1500, you can use the tax credit for two consecutive years.
However, if the tax bracket is among the lowermost ones, owing to which you have no or almost zero annual tax liability, the federal solar tax credit for solar panels or any other tech may not be applicable to you. This may particularly be applicable to cases of credit for residential solar energy systems.
Which costs can be included under the solar system while applying for a tax credit?
Fortunately, all types of costs incurred in the process of installing your solar system can be considered for the solar tax credit application. This includes costs of consultancy, shipping, actual equipment, tools, the installation cost of solar panels, and nearly everything the solar companies may charge you throughout the process.
Another positive aspect of the tax credit is the fact that it has no upper limit or cap on the cost of solar panels or other systems. This is especially beneficial for industrial/commercial customers who require very large sizes of solar energy systems.
When Does the Federal Solar Tax Credit Expire?
The idea of an energy tax credit for solar energy was first born in 2005 under the ‘Energy Policy Act’ (EPA). The goal of this financial energy policy was to offer tax incentive to promote use of solar power as well as other clean/renewable energy systems to generate electricity on-site, considering the possible implications of climate change.
Initially, the federal solar tax credit expiration year was supposed to be 2007, but it witnessed a series of extensions, partly considering the fact that solar panel prices are high. In 2016, it received an important extension period of 5 years. This federal solar tax credit extension was made considering that the 5-year duration would be sufficient for the solar energy sector to be properly established.
The EPA and Dept. Of Energy have decided to gradually reduce the value of the ITC each year before cancelling it. As of now, the following percentages of tax credits can be claimed as per years (updated):
2024: 10% (only applicable to commercial entities)
It is important to note that the for residential solar energy plants customers, the tax credits expire on 31 December 2023. After that the solar tax incentive application will only be accepted by IRS from business owners and at a lowered 10%.
Making the Most of the Program
As the value of available energy tax credits goes down each year, it is wise to make a fast decision with respect to choosing to install solar panels. Fortunately, unlike in the past, you can apply for a solar tax credit as soon as you begin installation of the solar power system. You do not have to wait until your solar panels are up and running.
As the renewable energy sector catches up fast and cost of the systems goes down, most of the solar tax incentives or grants are subject to possible revisions, given the fact that with increasing electricity prices, solar panels are worth the cost. As such, we may soon experience future years with nearly no extra benefits besides the obvious ones of renewable energy such as free, reliable and clean power in the wake of climate change.
Written byqualified solar engineerLeonardo.Last updated:
Solar panels are expensive because they use large amounts of high-purity silicon, and they require qualified installers. They must also be complemented with inverters and electrical protections to provide a reliable power supply. However, the savings achieved by solar panels during their service life are normally much higher than their upfront cost.
Solar power costs are determined by several factors, and the project budget can vary from home to home. The most efficient solar panels tend to be the most expensive, since they are the most difficult to produce. Also consider that the number of solar panels needed increases for larger households, driving up the cost of the project.
Comparing the Costs and Benefits of Solar Panels
Solar panels may seem more expensive than conventional diesel generators when you only compare their upfront cost. However, solar panels operate with sunlight, which is a free energy source. They also have much simpler maintenance requirements than other power generation systems. On the other hand, a diesel genset depends on fuel deliveries to stay operational. Maintenance is also more demanding, since the generator is exposed to mechanical wear and combustion at high temperature.
In a few words, solar panels are more expensive than diesel generators if you only compare their upfront cost. However, when total ownership costs are considered for the entire service life of equipment, the balance tilts in favor of solar power systems. Since sunlight is free and maintenance needs are minimal, solar panels can achieve some of the lowest costs per kilowatt-hour produced.
The price of installing the solar panels determines in great part how they will perform financially. Getting quotes from several solar companies is strongly recommended to make sure you find the best deal available. You should also ask for a detailed breakdown of what the solar offer includes to ensure there are no extra costs like permits and taxes.
Installing Solar Panels as an Investment Decision
For many homeowners, going solar can be as lucrative as investing in a small business. While solar panels are normally installed to reduce power bills, they bring many other benefits. Keep in mind you need reliable information to decide if it is worth installing solar panels. The recommended first step is contacting a qualified solar provider to get a professional assessment of your property. This will give you accurate data on solar system prices and how much you can expect to save.
Solar panels are more productive in sunny locations. There is more solar radiation hitting their surface, which means they can produce more electricity.
Solar energy is more valuable in places with expensive electricity. If two solar panel systems in different cities have the same energy output, savings will be greater in the city with the highest kWh prices.
A lesser-known benefit of solar panels is that they increase property value. A building that is capable of producing its own electricity is worth more than an identical building that depends 100% on the power grid. In addition, many states give you a tax exemption for any increase in home value that is due to a solar panel system. In other words, your home is worth more and it has smaller power bills, but your property taxes stay the same!
Depending on local regulations, it may be possible to make money from your solar panels. Consider that panels are only productive during the day, and most of their energy output occurs in the hours around noon. On the other hand, homes consume energy during the day and night. However, if the local utility company offers net metering, you can become a small-scale electricity supplier.
With net metering, the local power company purchases any electricity produced by your solar panels that is not used at home.
On the next power bill, the balance in your favor is subtracted from the electricity consumed from the grid.
Depending on how large your solar panel system is, it may be possible to bring the power bill down to zero, or even accumulate a balance in your favor.
Some power companies carry over your balance to the next power bill, while others actually pay you in cash.
If solar panels will pay back what you spent on them within a reasonable timeframe, they can be considered a solid investment. Solar panel manufacturers normally offer a 10-year warranty against factory defects, and a 25-year warranty for energy production above 80% of the rated value. However, the payback period can be less than 5 years under favorable conditions.
Using high-quality products is important to get the best results with solar power, but also make sure you check all the solar financial information available. Ideally, a solar panel system should be properly installed and covered by warranties, but it should also offer an attractive return for every dollar spent.
How Solar Panels Can Pay for Themselves
For homeowners with access to low-interest loans, it may be possible to go solar with zero net cost. The solar panel installation can be paid with the bank’s money, and then you can use power bill savings to cover the loan. If the annual savings are higher than the loan payments, your solar power system can purchase itself.
Consider there is also a 30% federal tax credit for solar power systems in the US. This means you can cover part of the project cost with money that would have otherwise been paid in federal taxes. Depending on where you live, there may be additional incentives such as state tax credits, solar power rebates, or renewable energy credits.
Solar panel systems seem expensive if you only focus on their sales price. However, their operation and maintenance costs are very low and they have a long service life. The upfront cost of solar panels is normally recovered multiple times in the form of power bill savings.
How Much Money Do Solar Panels Save You on Electricity Bills?
Written byqualified solar engineerLeonardo.Last updated:
On average, solar panels will save you over $1,100 per year on your electricity bills. This is assuming a system size of 6 kilowatts, which is common in the US. The estimate also considers the average sunshine available in the country, and the average electricity price of 13.34 cents per kilowatt-hour reported by the Energy Information Administration.
The US is a large country, however, where sunshine and electric tariffs change a lot from place to place. For this reason, average performance values can be misleading. Solar panels offer increased savings in places with abundant sunshine or expensive electricity. California has both conditions, for example, and the annual savings from a 6-kW solar system can reach up to $2,000.
Solar panels have become popular thanks to their simplicity and excellent return on investment. When you install a home solar system, the long-term savings can be up to 3 times higher than the upfront cost. Also consider that electricity prices tend to increase each year, making solar energy more valuable over time.
How Local Sunshine Affects Solar Panel Savings
The savings achieved by solar panels are directly related to the sunshine they receive. To visualize the concept, assume you have two identical solar systems in different states, where one gets 50% more sunshine. Since the panels simply convert sunlight into electricity, you can expect them to produce around 50% more kilowatt-hours as well.
The local sunshine cannot be changed, but you can make solar panels more productive with smart placement.
Ideally, they should be installed in an area that does not get shadows from surrounding objects or buildings.
Avoiding shadows can be tricky: their position changes throughout the day depending on the sun’s position in the sky.
In the US and other Northern Hemisphere countries, most sunshine comes from the southern portion of the sky. To take advantage of this and save more energy, solar panels should be tilted slightly south. If you work with qualified solar installers, they can arrange your panels so they avoid shadows, while having an optimal orientation to increase the sunlight received.
Solar companies use a metric called the “specific yield” to describe solar panel productivity under the sunlight conditions of a given site. The specific yield provides the annual output in kilowatt-hours, for every kilowatt of installed capacity. Since the metric is expressed per kilowatt, it applies for solar power systems of any size.
For example, if the specific yield is 1,600 kWh per kW with the local sunshine, a 10-kW solar system will deliver 16,000 kWh per year.
A specific yield of 1,400 kWh/kW can be considered average for the US.
A value of 1,200 kWh/kW would be considered below-average.
On the other hand, a value of 1,800 kWh/kW indicates above-average solar productivity.
The electricity produced by a single solar panel can be estimated if you know the specific yield for the project site of interest. You just have to multiply the panel wattage by the kWh/kW value, and then divide the result by 1,000. For example, if you are considering a 330-watt solar panel model and the local sunshine allows a specific yield of 1,500 kWh/kW, each panel produces around 495 kWh per year.
How Electricity Prices Affect Solar Panel Savings
There is a common misconception that solar panels are worth the investment only in sunny places, but this is not the case. If local electricity prices are high, even a modest electricity output can cut your power bill significantly. Generating 2,000 kWh with a tariff of 12 cents achieves the same result as generating 1,200 kWh with a tariff of 20 cents. In both cases, $240 are subtracted from your power bills.
Of course, the highest possible savings are achieved when you have both abundant sunshine and high kilowatt-hour prices. The following table estimates the annual savings for a 6-kW solar panel system, considering various electricity prices and solar productivity values (specific yield):
Annual Savings ($) with Various Specific Yield Values (kWh per kW Installed)
Electric Tariff (Cents/kWh)
This table demonstrates how both sunshine and electricity prices are important when estimating the savings achieved by solar panels. Even sites with below-average sunshine can be viable for solar panels if local electricity prices are high.
The US Northeast provides a clear example of how solar panels can save money even with modest sunshine. These states are not particularly sunny, but they have some of the highest electricity prices in the country. Even if solar panels are less productive compared with sunnier states, their electricity output has a high monetary value.
If your state has a Solar Renewable Energy Credit (SREC) program, this is great news. In addition to saving on electricity bills, you will earn one SREC for every 1,000 kilowatt-hours generated by your solar panels.
A 6-kW solar panel system will normally accumulate between 7 and 10 SRECs per year.
SRECs have a variable sales price, but they represent extra income beyond your power bill savings.
The best recommendation is getting in touch with SREC broker to sell yours, since the required paperwork can be complex. In states that have SREC markets, they typically sell for over $150 each. This means that 7 SRECs will leave over $1,000 in your pocket!
Comparing the Upfront Cost and Long-Term Savings of Solar Panels
While it is true that solar panels are expensive, the savings they achieve in the long run outweigh their upfront cost. Solar panels are durable and easy to service, and they come with solid warranties if you purchase them from a trusted supplier.
In the US, the cost of installing solar panels on a house is around $3 per watt of capacity. Assuming a capacity of 6 kW, which is quite common, the expected budget is around $18,000. However, the 30% federal tax credit cuts the net price to around $12,600, and incentives from local utilities and authorities can make solar panels even less expensive.
Assuming favorable conditions, a 6-kW solar panel system can save over $30,000 during its service life. In other words, the long-term benefit is 2 to 3 times higher than the upfront cost. Also consider that electricity tariffs increase over time, typically between 2% and 4% annually. On the other hand, solar panels have minimal maintenance costs after the initial investment.
With high-quality equipment and a professional installation, the lifespan of your home’s solar panels will likely be over 25 years. In other words, you get a reliable electricity source that will not become more expensive over time, unlike the local utility service.
How Smart Financial Decisions Can Help You Purchase Solar Panels
If solar panels pay for themselves, they can be installed at zero net cost. For example, if you borrow $12,600 for a 6-kW solar system, with an interest rate of 4% and a repayment period of 15 years, the annual debt payment is slightly over $1,100. Typically, the annual savings will be higher than this, and no money will come out of your pocket.
Utility companies in the US normally offer net metering, which consists on giving credit for any surplus solar generation you inject into the grid.
If the power generation from your solar panels exceeds your monthly consumption, there is a balance in your favor.
Most electric companies carry the balance over to the next month until you consume it. However, in some cases you may be offered cash payments for surplus electricity, which essentially turns your home into a small-scale power plant.
Another financial benefit of solar panels is increasing the value of your home. Property values depend on several factors, but an average home with solar panels is around $20,000 more valuable than an identical home without them. Also, there are many states that offer a property tax exemption for clean energy systems: you will not pay higher property taxes if the increase in home value is due to a solar panel installation.
When you have more solar financial information at your disposal, you can make better purchasing decisions. Using high-quality solar equipment and working with qualified installers is important, but you also need make sure you’re analyzing all of your purchasing options.
Written byqualified solar engineerAniket.Last updated:
On average, solar panels increase a home’s value by over 4%. Depending on various factors like the size of the house, the solar plant, or the location, this number may go up or down. When speaking about solar panels, the usual topics that crop up are how the energy is virtually free of cost and how it is good for the planet. The topic of whether they increase the worth of the home over which they are installed is often overlooked.
A buyer will surely pay more for a home if there are assured savings on recurring expenditure on power. It therefore means that if you are worried your solar investment will be wasted when you decide to sell your house, you do not need to.
The Statistics Behind the Claim
There have been more than one study on the relation between typical home prices and the presence of solar panels on their roofs. For instance, one of the researches is by the Zillow Economic Research’s study of listing descriptions and transactions. Done between March 2018 and February 2019, it comprehensively lists out the percentage increase of home prices per location. The following graph gives a clear idea:
PV premium estimates for new and existing homes in California as well as the rest of the US (Source – Zillow)
Although there was a considerable variation in the amount of increase in house prices, what is important to note is that all of the prices are different, and none of them dropped.
A similar study, backed by the US Department of Energy, was done by the Lawrence Berkeley National Laboratory, named ‘Selling into the Sun’. Interestingly, this study used a methodological ‘Base Model’ approach and arrived at the same result as the previous study.
Among the various results this study produced, the following table gives an idea about the rise in PV premium in terms of $/watt (circled row).
This points us to the fact that on average, a rise in about $4/watt is experienced as shown by the tabulated data. Considering a typical 5-6 kW system, this means the home value is increased by around $20,000-$24,000. Noting the average cost of installation for this type of a system, it is surely a profitable deal.
Factors That Control the Increase in the Value of a Solar-Fitted Home
In addition to the pricing stats, the Berkeley lab study also pointed out that the increased worth of a home will depend also on the age of the solar panels installed. This is a reasonable occurrence, given that the existing owner has already reaped a portion of the benefits the solar plant had to offer.
The location of the house is another important factor that decides how much of your home’s value will go up. This fact is clearly visible in the results of the Zillow and Berkeley research.
Additionally, it is important to note that whether the solar system is owned or leased also plays a crucial role in whether the price will be enhanced or not. Leased systems, for self-evident reasons, will not positively affect a home’s price.
A sizable number of home owners find themselves curious about the prospect of installing solar panels. However, the uncertainty in owning the same house for a few decades holds them back from deciding in favor of solar.
If you are curious about the value that solar panels would bring to your home, you can get a quote from a local solar company.
Written byqualified solar engineerLeonardo.Last updated:
If you have a good site for solar panels then they will be worth the investment. Every $1,000 invested upfront will yield over $3,000 in savings during the next 25 years. Solar panels are like any other investment, where capital is spent in exchange for a greater benefit. In the US, you can expect an upfront cost of around $3 for every watt of installed capacity. This means a 6-kilowatt solar system will cost around $18,000, although prices can change slightly depending on the provider and location.
The first step for knowing whether or not solar panels are worth it is getting detailed solar offers with financial projections. The payback period depends on the monthly savings achieved, and this is determined by two main factors:
The solar electricity production per year.
The local price of electricity.
If you have a solar energy system that produces 10,000 kWh per year, and your local power company charges 20 cents per kilowatt hour, you save $2,000 per year. However, someone who generates 16,000 kWh and pays 12.5 cents per kWh will also save $2,000 per year.
Other than the solar installation costs and electricity rates, you must consider any local incentives. These normally take the form of tax benefits or cash rebates. They reduce the net cost of solar panels, leading to a higher return on investment. Some states also have Solar Renewable Energy Certificates (SREC), which give you extra cash for every 1000 kWh produced by your home solar system.
10 Financial Facts That Make Going Solar an Easier Decision (Infographic)
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The Costs Involved When Installing Solar Panels?
The first step to analyze solar power as an investment is factoring in how much solar panels cost. As previously mentioned, you can expect an initial investment of $3 per watt. However, this cost can be covered more easily if you look for financing options. If you have access to a low-interest loan, you can go solar with money from a bank, and then pay the debt with solar savings.
Calculating the cost of installing solar panels requires a professional inspection of each property. There are different types of roof structures, and their slope also varies. Since these factors affect the difficulty of solar panel roof installations, they must be considered by solar companies.
The use of solar shingles has been increasing, and they allow the construction of roofs with embedded solar cells. They are over two times more expensive than panels, leading to a longer payback period. However, they are a viable option if you are considering a new home, since you don’t have to pay for a separate roof.
To estimate the roof area required for the project, the first step is knowing how many solar panels you need. For example, assume your solar installer suggests a capacity of 6 kilowatts, or 6000 watts. If each panel has a capacity of 250 watts, you need 24. The panels are normally smaller than 20 square feet each, which means this project will use less than 480 square feet.
Which Are the Incentives for Solar Panels?
If you have access to solar incentives, the net cost of your system will be less than the sales price in the solar offers. There are three main types of incentives that reduce the cost of going solar:
Tax exemptions and credits may seem similar, but there is an important difference. When solar energy systems are not subject to a tax that would normally apply, you have an exemption. On the other hand, when you can deduce part of a solar investment from your tax burden, you have a credit. The two types of tax benefits work differently, but their benefit is the same: paying less to own solar panels.
Cash rebates have nothing to do with taxes, since they are simply payments you get for going solar. Rebates are normally offered by local government programs or electricity companies. When both rebates and tax credits are available, the credits are calculated with the net cost after subtracting rebates.
Solar power systems become more affordable each year, which may lead to the conclusion that you should wait for lower prices. However, there is a catch: there is a 30% federal tax credit that ends in 2019, and it will be reduced to 26% and 22% in 2020 and 2021. Once the year 2021 ends, this benefit becomes zero. While the sales price of solar panel systems will continue to decrease, the net price after the tax deduction will increase. This means you are likely to pay more in the short term if you wait, even if the cost of panels continues to drop.
To summarize, the cost of installing a solar system is equivalent to the sales price from your solar installer, minus any incentives available.
How Much Money Do Solar Panels Save?
As previously mentioned, the savings achieved by solar panels depend on how much energy they produce and the local electricity cost. While panels are guaranteed to save money, the exact amount depends on these factors.
There is a common misconception that solar energy systems are only useful in sunny places. However, you can get decent savings in place with moderate sunshine and expensive electricity.
New York is a good example: the state is not very sunny, but local electricity prices are among the highest in the country. Solar power is growing fast in the state, since the dollar savings are high even with modest sunshine.
Two solar power systems of the same capacity in kilowatts can have different results depending on where they are installed. This is a consequence of the way solar panels work: they only operate at peak capacity when they get full sunshine. At other times, the panels only deliver a fraction of their rated capacity. This is simply how the technology works, and not a quality issue.
Installing efficient solar panels pays off, since they convert a larger portion of sunshine into electricity, which is reflected as extra savings in your electricity bill. It’s important to consider that they last a long time; more than 20 years for high-quality brands.
Most solar incentives reduce the ownership cost, but there is a specific type that increases the savings achieved: Solar Renewable Energy Certificates (SREC). These programs can be summarized as follows:
If you own a solar system, you get one SREC for every 1000 kWh generated.
States that have SREC programs also have minimum clean energy requirements for utility companies and large-scale consumers. If these organizations don’t generate or purchase enough clean energy to reach the target, they can fill the gap by purchasing SRECs.
By selling SRECs, you get extra cash beyond the solar power savings.
Assume you live in a state where electricity costs 15 cents/kWh and SRECs are sold at $150 each. For every 1000 kWh generated, you save $150 on power bills and get a SREC that sells for an extra $150. The total benefit for every 1000 kWh is $300, which is like saving 30 cents per kWh.
When Is Solar Power a Good Investment?
Are solar panels worth it? As discussed in this article, the answer to this question depends on several factors. Some of them can be controlled, while others are external.
The ideal location for solar power would be a sunny state with expensive electricity and abundant incentives, but this combination is rare. New York is a good example of a state with many favorable conditions, in spite of not being very sunny:
The 30% federal tax credit is combined with a 25% state credit, for a total of 55%. In other words, you can deduct more than half of the solar investment from your tax burden.
There is a sales tax exemption for solar systems, and a property tax exemption for the increase in home value after installing them.
The NY-Sun rebate program covers residential solar systems, as well as commercial and industrial installations.
Local electricity prices are among the highest in the country, exceeding 20 cents per kWh in some tariff schedules.
There is a net metering program for solar installations up to 25 kW. Any surplus electricity fed back to the grid is credited at retail price on the next power bill.
These are excellent conditions to buy solar panels: their net cost is reduced, and the savings per kWh are high. The lack of sunshine is not an issue in this case, since there are so many financial benefits for going solar.
The best solar companies will provide financial projections with their offers, considering local electricity prices and including any incentives available. Solar power can offer a payback period below 5 years with favorable conditions, which is great for an investment that lasts over 20 years. A solar calculator can estimate your costs and benefits, but only a professional assessment provides an accurate budget and savings estimate.
Keep in mind: you can go solar without assuming the full upfront cost by taking a loan or leasing the solar system. Loan financing makes sense when the terms are favorable, and debt payments are lower than the energy savings. Leasing has the advantage of transferring maintenance responsibilities to the provider, but you lose owner benefits like rebates and tax benefits.
Written byqualified solar engineerLeonardo.Last updated:
The cost of installing solar panels depends on many factors, but a U.S. homeowner can expect to pay around $3 per watt. For example, a 5000-watt solar panel installation would cost about $15,000. These figures are excluding solar tax credits which reduce costs by 30% to around $10,500.
Solar energy systems experience economies of scale. This means a large installation will tend to have a lower cost per watt, even when the total cost increases. Medium-sized businesses may reach solar system costs below $2 per watt, which is lower than the residential installed cost. In large facilities, solar energy can achieve an installed system cost below $1 per watt.
Residential solar power does not have such a drastic cost variation. However, you can still expect a slight price variation based on scale. A 10-kW solar system is more expensive than a 2-kW installation, but its cost per watt will be slightly lower.
Solar companies often have panel cost calculators on their websites, which gives you an idea of how much you can expect to pay. However, an accurate solar panel installation cost can only be determined with a professional assessment of your property. Keep this in mind when using a solar calculator.
How Much do Solar Panels Cost for an Average House?
Residential solar systems can be found in a wide range of sizes, but the typical household in the United States can get good results with around 5 kilowatts of capacity.
This example assumes a national average solar system capacity of 5kW, but actual projects are based on a professional assessment of each property. The amount of energy solar panels produce is determined by the local sunshine, which means you need more panels in places that get less sunshine.
The amount of solar panels needed for an average house depends on their individual capacity. An installation that uses 250-watt panels will need 20 to reach 5 kilowatts, but a system using 320-watt panels will only require 16. The most efficient solar panels need less space, since you are installing more watts per square foot. However, the specific panel capacity has little effect on the average cost of solar power.
Before purchasing a solar power system for your home, make sure you contact several contractors to compare their solar offers. Your first option will not necessarily be the most affordable.
What Solar Panel System Size Does My Home Need?
Solar panels have a modular design, which allows their use in projects of all scales. However, finding the right system size is a very important design decision. Both undersized and oversized installations have disadvantages.
An undersized installation has a lower price, but the average cost per watt will tend to be higher. This makes the payback period longer, while reducing the return on each dollar spent. If the number of panels is too small for your home, your power bill will only be reduced slightly.
On the other hand, oversized solar systems represent a waste of capacity. If your utility company offers net metering, any solar generation you don’t use is exported to the grid and subtracted from your energy bill. However, power companies often place limits for net metering:
You can use surplus generation to offset your electricity usage at night. However, in most cases you can only expect to reduce the power bill to zero. Only a few power companies pay you for producing more than what you consume in a year.
There may be system size limits for net metering, and any capacity beyond the limit is not eligible.
Surplus electricity production is not always credited at the full kilowatt-hour price. Many power companies apply a smaller rate, which reduces the value of surplus generation.
The main factors that determine the optimal solar system capacity are the energy needs of your home and the local rules for net metering. Larger solar power systems with surplus production make sense if these rules are favorable.
Are There Financial Incentives for Residential Solar Panels?
The average price of $15,000 for a 5kW installation ignores the incentives available for solar power throughout the US. Once these benefits are factored in, you can expect to pay much less. The most common types of incentives are the following:
Making solar systems exempt from the sales tax or the property tax
Federal and state tax credits
Rebates, where the power company or local government gives you an upfront cash incentive for going solar
Tax exemptions are great, since they reduce the ownership cost of solar panels directly. Solar tax credits do not reduce the installation cost directly, but they let you deduct a percentage from your tax burden. The US has a 30% federal tax credit for solar installations, which applies for the entire country until the end of 2019.
Solar rebates are cash incentives that reduce the net cost of the installation. When rebates and tax incentives are available in the same location, the credits are calculated with the net price after subtracting the rebate.
Of all the incentives mentioned in this section, only the 30% solar tax incentive from the federal government applies in the entire country. The availability of state tax benefits and rebates changes by location.
What Happens to the Federal Solar Tax Credit After 2019?
Thanks to the 30% federal tax credit, a solar installation with a sales price of $15,000 has a net cost of only $10,500. However, this incentive will be gradually reduced between 2020 and 2022. The following table demonstrates how the federal incentive would drop in the case of a 5-kW system with a price of $15,000.
Solar Tax Credit (%)
Tax Deduction ($)
Net Cost ($)
The federal tax incentive becomes 0% for residential solar energy systems in 2022, and only a 10% credit will remain for commercial installations. Even if the cost of solar panels continues to decrease during the next years, they will seem to be more expensive as the tax incentive is phased out. The solar panel costs that are possible in 2019 thanks to the tax deduction will not be available again, until the sales price of solar systems decreases by 30%.
The 30% federal tax credit applies for solar batteries as well, but there are two conditions:
Batteries only get the credit if they get at least 75% of their charge from solar panels or another eligible renewable energy system.
The solar panels and the batteries must have the same owner.
The credit given for batteries is based on their solar charging percentage. For example, a home battery that gets 80% of its charge from solar panels gets 80% of the credit, equivalent to 24%. On the other hand, a battery that is fully charged with solar generation gets the full credit of 30%.
When using a solar panel cost calculator, check if the tool deducts tax benefits automatically. Some solar providers have this feature built in, while others calculate the price before incentives.
Understanding the Price of Solar Panels
If you look for solar panels online, you will notice that the cost per watt is much lower than $3. However, the number is lower because only solar panel prices are considered. Some manufacturers have achieved solar panel costs below $0.30 per watt.
A complete solar system is much more expensive than the individual panels. However, it makes sense once you learn how solar panels are installed:
To be installed safely on your rooftop, solar panels are mounted on special racking.
Solar panels must also be connected together with special wiring, in order to collect their energy production.
Because of how the solar panels work, electricity is produced as direct current. A solar inverter converts the electric power into alternating current, which is suitable for home appliance.
Like any electrical installation, a solar system must be protected by special breakers. These are found inside a fuse box.
All of these components count towards the total price of a solar power system, and you must consider there are delivery costs as well. Also, keep in mind that solar companies are businesses after all, and they add a profit margin. You can find the best solar company by comparing several offers.
The prices discussed in this article are for conventional solar systems. Solar roofs are much more expensive, typically above $8 per watt. However, solar shingles can be viable in new constructions, since the consolidate the roof and the panels into a single element.
Recommendations When Purchasing a Solar Panel System
The installation cost of solar panels is important, buy focusing on price only is not the best approach. When comparing offers from different solar contractors, consider the following aspects:
How long solar panels last: Solar panels can be expected to last for over two decades, but make sure you are covered by warranties. The best solar panels come with a 10-year warranty against manufacturing defects. There is also a 25-year warranty for energy production above 80% of the rated value.
Knowing how efficient solar panels are: Solar panel efficiency can be estimated by dividing their rated wattage and area. If two panels of the same size and different brands are rated at 320W and 250W, the 320W panel is more efficient. High efficiency panels use the available space more effectively, but this is only an issue if your roof space is limited.
The amount of money solar panels save you: Offers from solar companies may differ not only in price, but also in savings achieved. There may be cases where a more expensive system also produces more energy, and its extra cost is recovered many times as power bill savings.
When negotiating with solar installers, ask for a detailed budget of the project. The solar offers should be broken down into line items with unit prices, instead of presenting a lump sum. This way you can compare individual components, and you get a clear picture of what you are purchasing. When a lump sum is provided, there is no information on how the solar cost is broken down, and there could be hidden costs.
The solar system price you get should cover all components and activities necessary to have the panels installed and operational. Ask your solar contractor if the following costs are covered:
Solar panel and component deliveries
Taxes, work permits, and interconnection fees
A complete solar offer also includes a savings estimate with the expected kilowatt-hour output. While this is not part of the project cost, it gives you an idea of the payback period and return on investment. The solar offer with the lowest cost per watt will not necessarily be the one with the best performance.
Install Solar Panels at Zero Upfront Cost
Solar power offers an attractive return on investment for homeowners, but the upfront cost can be high. However, there is no need to assume the full cost at once. Many banks offer solar panel finance options, which bring several benefits:
The upfront cost is covered by the bank’s money.
Loan payments are covered by the solar savings.
This approach works best if you have access to favorable loan conditions, such as a low interest rate and a long repayment period. High-interest financing options such as credit cards are not viable if you want a solar panel installation to pay itself.
If you are unwilling to take a loan to install a solar power system, leasing is also a viable option. The solar panel lease cost is calculated to be lower than the power bill savings, leaving cash in your pocket from the first month of use.
When choosing between solar loans and leasing, consider the pros and cons of each option. Loan financing lets you claim the solar tax credits and rebates, since you own the installation. However, you are fully responsible for system maintenance and component replacements. On the other hand, a solar lease makes the provider responsible for maintenance, but you lose the ownership benefits.
An online solar panel calculator is useful as a starting point for a purchase decision. However, it cannot replace a professional assessment. There are many site-specific factors that affect the cost of a solar energy system. The cost varies by state, so that is also something important to consider.
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Written byqualified solar engineerCarlos.Last updated:
It is possible to make money from owning solar panels. By installing solar panels in the US, the customer is entitled to earn money for every kWh that is injected back into the grid. The customer is also entitled to claim an important tax credit amount.
This can only apply with the Feed-in Tariff policy, which is only available in some states of the US as we will discuss in this article. Despite the Net Metering scheme, which is the most popular mechanism, this will only allow you to save money, not earn it. If you are more interested to know how much you can save by investing in solar panels, check out our solar calculator tool which will help you get a more accurate estimate.
The Context of Renewable Energy Subsidies
Renewable energies’ deployment began in 2010. Back then, green energy sources were so expensive that they couldn’t compete with fossil prices. Therefore, they needed a little push to put the wheel in motion and motivate the private sector to invest in renewables.
That’s how renewable energy subsidies started to deploy across the world, starting in Europe with mechanisms like the Feed-in Tariff, successfully implemented in Germany, Australia, and the UK. Other mechanisms implemented to promote large-scale power plants were the renewable energy auctions, where project developers bid on a utility project to obtain the government incentive. During the auctions, the company that offered the lowest price was able to win the project.
On the other hand, and as usual, the US began its own subsidy mechanism and implemented several policies across the country that transformed the US into an important and complex policy market, different from any other country in the world.
Renewable energy subsidy mechanisms have now become a new way to earn or save money in the US. By installing solar panels in the US, the customer is not only entitled to claim an important tax credit amount, but is also entitled to earn money for every kWh that is injected back into the grid.
What Are the Incentives for Solar in the US?
In order to understand the true costs and value of installing a solar power system at home or in your business, you must first understand the available renewable energy incentives from the government or private sources that you can opt to. Moreover, understanding the different available mechanisms will show us if it’s possible to make money with your PV System.
Federal Renewable Energy Tax Credit
The first, and maybe most important, was an incentive implemented across all the US is the Federal renewable energy tax credit. This incentive is focused on any residential homeowners that choose to install any of the following sources of energy to power their home: Solar Water Heating systems, geothermal heat pumps, small wind turbines, fuel cells, and solar photovoltaic systems.
The program entitles the homeowner to receive a 30% rebate credit over qualified expenditures related to the equipment, labor costs, system installations, and piping or wiring to interconnect the renewable energy system to the household. Therefore, the program allows you to offset the costs of the PV system by 30%, which will be attributed to your annual tax payments.
If the 30% equivalent amount exceeds your tax liability, then you will be able to carry the remaining amount to the next taxable year.
You must know that the program will be available for solar until 2021 and will reduce to 26% tax credit from January 1st of 2020. In other words, if you are thinking to go solar, now would be the perfect time to do it.
It is important to mention that energy storage systems do not qualify for the program. Keep that in mind.
The Net Metering incentive is maybe the most successful incentive applied in the US. The scheme focuses on providing an electricity credit for every kWh of excess energy injected to the grid from a solar PV system.
Over 38 States have implemented Net Metering Schemes, and some have implemented variations of the scheme including Minnesota, Austin, and Texas. They have adopted Value of Solar (VOS) schemes that are a similar concept. The difference is that the rate is fixed over 20 years, and that also accounts for the benefits that the grid obtains from solar energy (ancillary services, frequency regulation, etc.) rather than just taking the price of solar electricity.
It is important to mention that the incentive does not offer cash or money in any form for the kWh injected to the grid, instead, the scheme offsets the consumed electricity during non-solar production hours with the net metering rate. If solar energy production over a month exceeds the consumption of electricity from the grid, the greatest benefit that you could possibly achieve is obtaining a zero-energy bill at the end of the month. Actually, some utilities will ask you to pay at least a fixed amount of money at the end of the month, no matter what your production was.
You can take a look at the States that have implemented this policy in the figure below.
One of the most popular mechanisms implemented worldwide (with a larger rate of success, as well) is the FiT. The FiT is optional and depends on the utility company that wishes to grant such benefit for solar energy. Basically, it consists of obtaining payment for every kWh injected to the grid at a fixed rate over 15 or 20 years.
The difference with net metering is that it offsets kWh produced from solar at a retail electricity rate, which is equal or very similar to the electricity rate that you pay when consuming from the grid. Meanwhile, FiT offers a fixed monetary credit independent from the retail electricity rate that can be lower or higher than the electricity rate of your utility. In other words, in net metering you get paid with kWh and with FiT, you really get paid.
The possibility to earn money with the PV system will depend on the price of retail electricity and the amount of the FiT incentive.
Before 2018, solar energy also could apply to the Production Tax Credits (PTC) incentives, but the scheme concluded at the end of 2017 for solar PV. Only wind projects can have access to this scheme now.
The Delaware Renewable Portfolio Standard is another program that required utilities to purchase at least 25% of its electricity production from solar energy by 2025. Values of the incentive vary according to market conditions. Massachusetts, New Jersey, Ohio, Pennsylvania and Maryland also offer similar Solar Renewable Energy Certificates (SRECs) that will provide a payment between $250-$400 per MWh injected to the grid.
For more information on State Level incentives refer to PV Magazine.
Can You Earn Money by Installing a PV System?
As you can see, most of the available incentives for solar energy aim to reduce your consumption from the grid and the costs of the PV system. You cannot make money with the Federal Tax Credit or with the Net Metering Schemes.
The Feed-in Tariff scheme is the only option that allows you to earn money with your PV system. However, there are not many utilities that offer you the possibility to access the scheme at residential scale, and the profits will vary a lot according to the project itself, the location, the size of the system, and the price of electricity. SRECs are also another option to obtain money from a PV system, but they are more intended for commercial systems that can easily produce 1 MWh in a year. If you decide to change or get rid of your solar panels, there is some money to be made back by recycling the solar panels and their parts.
Commercial and utility-scale projects can achieve higher earnings with a fixed contract of FiT from a solar farm. Low size PV systems (1-5 kW) can eventually achieve earnings through this scheme, however, the attraction of solar energy on residential-scale in the US should be seen from a perspective of “savings” rather than from a “making money” perspective. To estimate how much you can save with solar energy you can visit the PVWatts tool.
Written byqualified solar engineerCarlos.Last updated:
Yes, solar panels will be able to pay for themselves within their lifespan. However, the time it will take to reach the payback time or the earnings that can be obtained are deeply varied and site dependent. Below are the main factors that influence this timescale.
Factors such as solar panel costs, incentives, the type of solar panels, and your location influence the payback period of your system. Nevertheless, across the US it is possible to assure that the solar panels will pay for themselves in their lifetime no matter where they are located. Actually, by establishing an average in many states of the US, a solar panel system would be able to pay for itself between 9-12 years. If you are worried about the cost of installing solar panels initially, don’t be, as a lot of solar companies throughout the USA will provide solar financing.
In order to estimate the payback times of solar panels, we must first understand how these factors affect the break-even point of a solar system.
Which Factors Affect the Break-even Point of a Solar Panel System?
The location is a crucial factor. The amount of energy that your PV system can produce is entirely based in the solar irradiance available in your household. If you are located in a place with high levels of irradiance, then your probabilities to reach the break-even point sooner will be bigger.
The location is also related to the electricity rate from your utility and will be a decisive factor to determine when your PV system will start saving you money.
Some States like California and Florida have the perfect match between high electricity rates and high solar irradiance values, therefore break-even points will reach much faster than on other States.
Measuring how these two variables interact between them might not be easy if you are not familiar with the solar industry. However, there are reliable tools like PVWatts that can make this task easier
One of the greatest benefits in the US is the access to excellent incentives from the government to go solar.
The first one of them is the access to the Renewable Energy Tax Credit at Federal level where you can obtain up to 30% discount on the total capital cost of your PV system, discount that will be attributed to your taxes at the end of the year. An important detail about this incentive is that from 2019 the discount will only be 26%. In other words, these are actually the last days where you can gain access to a 30% rebate.
The second incentive is Net Metering which is based on revenues obtained by feeding solar electricity to the grid that will vary according to the State
PV System Costs
To measure the capital cost of a PV system, the expenses are generally divided between hardware costs and soft costs. Hardware costs are attributed to all the equipment needed to install the PV system: modules, inverter, wires, mounting systems, combiner box, etc. On the other hand, soft costs are attributed to all the permitting, taxes, labor including the installation time required and interconnection to the utility grid of the system.
PV System costs have reduced radically over the last decade. Actually, back in 2010, the average price of PV modules was close to 2.15 USD/W, while today the price barely reaches 0.35 USD/W. Such cost reduction is due to the accelerated growth of solar installations and improvements in module efficiency that have decreased manufacturing costs of solar panels
Moreover, soft costs related to permitting and labor tend to change slightly according to the jurisdiction and utility that you will get connected to. Soft costs in the US tend to represent almost 50% of PV system costs, values that have maintained solar installation prices above other countries.
Nevertheless, 2017 was a great year for reductions in PV prices, a factor related to the increase in PV system installations around the world. We can take a look at a PV system cost breakdown using the latest data from NREL (2017).
As we can see on the graph above, there are variations in the prices according to the type of grid-tied PV system selected.
PV Systems in the US, Are They Worth It?
Based on what we discussed above let’s make a little exercise. Let’s suppose that we want to install a PV system of 5kW.
As you could see in the image, the average price of a grid-tied PV system for residential purposes is close to 2.80 USD/W, therefore, we could approximate a capital cost close to 14,000 USD. If we apply the Federal Tax Credit of 30%, then the real cost would be approximately 9,800 USD
Moreover, we can estimate the average US savings of PV systems as 865 USD, according to data from Energy Sage and PVWatts. Based on these numbers, it would take about 11 years to reach a breakeven point. Additionally, if we consider that solar panels can last up to 25 years, then we can estimate total average savings as 12,110 USD!
If we want to obtain the highest savings that can be achieved in the US, then we need to install the PV system in California (with average annual savings of 1,272 USD). Here we could obtain payback times in almost 8 years and achieve savings close to 22,000 USD by installing a 5kW grid-tied system.
On the other hand, if we refer to the State of Missouri that has low electricity rates and one of the lowest solar irradiance values in the country, then payback times could be close to 15 years and savings around 6,425 USD.
As we can see payback times can vary a lot depending on the size of the system, the location and type of system implemented.
You must choose the right solar installer that helps you achieve the greatest savings based on your energy requirements.
To give yourself a better idea of how much you can save by installing solar panels, you can use our solar calculator where you only need to add some details like your location, monthly electricity bill among a couple other minor details to find out how much you can save.
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