With federal tax breaks for solar panels ending in 2021, this could be time for your home energy independence. When it comes to deciding if an investment in solar will pay off, you have to do research and make smart decisions for your home and financial situation.
By Brandon Doyle
You should make your home as energy efficient as possible before investing in a solar system so you don't pay for a bigger system than you need.
A solar system is an investment with a typical payback period of eight years.
You should know the warranty terms of a solar system and who will maintain the system when there are inevitable issues.
Here are some steps to take along the way:
Step 1: Figure out the home’s solar potential.
To get an initial idea about a roof’s solar potential, you can enter the address at Google Project Sunroof or check out solar resource maps from the National Renewable Energy Laboratory. One common misconception is that solar panels only pay off in hot, sunny parts of the country. To test this idea, you should look around your yard. Are there trees and other green plants? Plants use the sun’s energy to grow their leaves, so they are a good indicator of solar energy in your yard. Solar panels actually perform more efficiently in cooler temperatures.
Step 2: See what the home’s utility bills tell you.
Are the annual utility bills high enough that a solar investment will pay off in a reasonable period of time? For most homeowners, a utility bill tells you one basic fact: monthly usage. But a high monthly electricity bill can be caused by many factors ranging from old appliances to inefficient HVAC systems to poor insulation. Make the home as energy efficient as possible before buying a solar system so you’re not paying for a bigger system than you need.
Step 3: Plan ahead.
Will you be living in the same house in the next decade? A solar system is a big investment with a typical payback period of eight years. If you plan to move in the next couple years, buying or leasing solar panels could be a money-losing decision. If you decide to move after leasing, you’ll need to buy the system, assume the lease, or pay the provider to terminate the lease altogether.
Step 4: Establish an accurate baseline.
A home energy monitor like Sense will track energy consumption both before and after solar is installed. Get a couple months of data and use that information to calculate how much of the current bill can be offset with solar and how big an installation is needed.
Step 5: Consider financing and payoffs.
Solar panels are an investment that needs to pay off financially. You should take your time analyzing whether buying or leasing will be most advantageous. If you decide to buy, most solar providers and websites like EnergySage will factor the 26% federal incentive into their estimates as well as any state incentives. Together, those incentives have a big impact on the final cost. If you need financing, you should talk with your bank, mortgage provider, or a lender, which offers solar-specific loans and resources. You should do the math to figure out how much you’ll need to invest and when that investment will pay off.
Loan and lease options are attractive because they can be cash-flow positive as soon as the solar panels are installed without a cash outlay in advance, but with a lease, customers don’t benefit from the federal tax credit. But you shouldn’t view leasing as a short-term decision since most loans and lease agreements are for longer than 10 years. The monthly lease prices of a solar system in the U.S. vary depending on how much energy a house requires and can produce. The higher the electricity bill, the higher the lease cost will be since it will demand higher solar productivity. To get an idea, Tesla calculates solar panel rentals based on the home’s address and electricity bill.
Step 6: Decide on storage or no storage.
Energy storage is still a premium option, but prices are dropping significantly every year. To help you decide if you need storage, consider two factors: when you use electricity and how frequently it’s interrupted. In areas with rolling brownouts or downed power lines from storms, solar storage can get you through without an interruption and batteries can store solar energy to use at night or on cloudy days. Do the math to figure out the payoff for storage.
Step 7: Make a short list of providers.
Once you've decided to install solar panels, you should research providers online and check their reviews. Identify three or four companies that look promising and ask for online quotes based on remote solar audits, then, narrow the candidates down to two or three installers. Their construction experts will visit the house to measure and assess the roof, conduct a shade analysis, and check to see if the electrical panel will need to be upgraded. Their final quote will reflect all those factors. When evaluating proposals, be sure it includes any costs to update the roof or remove trees that create shade.
Step 8: Ask more questions before deciding on a provider.
Once you have two or three final estimates based on in-person home assessments, you should ask the providers about how they’ll handle the installation. For instance, does the provider design and install the systems themselves, or do they subcontract to local companies? If the provider uses subcontractors, are the subcontractors licensed? Make sure the contractor can explain the components of the solar system they’re installing.
You should ask if they’ll file the necessary permits, including the electrical permit, building permit, and the dedicated solar photovoltaic permit. A reputable provider will help you file for rebates and tax incentives or do it for you. Make sure you know the warranty term and who will maintain the system when there are inevitable issues. And, finally, if you are leasing, you should ask the provider to disclose what the system is worth so you’ll have that information if you decide to sell your home.
Step 9: Patience required.
You should evaluate all the proposals to make sure they correctly address the home’s energy needs, then choose a provider you can trust. Once a contract is signed with a provider, the installation and permitting process can be surprisingly long as contractors file all the paperwork on your behalf with the utility and municipality. It can take a few weeks to get permits sorted out before the installer can get the solar panels on the roof.
When the system is installed and connected to the utility, it will start producing energy whenever the sun shines. You will save money on your utility bill while relying on clean energy that’s good for the planet.
Brandon Doyle, ABR, e-PRO, is a second-generation real estate pro with RE/MAX Results in the Twin Cities. He is also coauthor of the book M3—Mindset, Methods & Metrics: Winning as a Modern Real Estate Agent.