Vikram Aggarwal, CFA, is the CEO of EnergySage, a website developed with federal funding from the U.S. Department of Energy that provides educational materials related to solar power, reviews of solar products and companies, and a marketplace where homeowners can obtain quotes. EnergySage.com
Get the best of Bottom Line delivered right to your in-box
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
Just a decade ago, the decision to install solar panels on a home often was more eco-minded than economic. But thanks to rapid improvements in panel efficiency and the expanded availability of experienced installers, solar now makes sense for many US households. Up-front costs remain significant—typically $10,000 to $25,000, depending on the size of the solar panel system installed and other factors—but these systems generally pay for themselves in just seven to 12 years by dramatically lowering electric bills. Solar panel systems also tend to last 20 to 30 years with minimal maintenance—25-year warranties are common—so homeowners can come out way ahead in the end.
In fact, solar could make sense even for people who don’t expect to remain in their homes long enough to enjoy a quarter century of utility savings. A 2019 study found that solar panel systems boost homes’ selling prices by an average of 4.1%.
But none of this guarantees that solar power would be a money-smart choice for you and your home. Here’s what you need to know before making this large and long-term investment…
Will a Solar Power System Work for My Home?
As recently as 2009, homeowners installing solar panels had to pay around $8.50 for each watt of power that their solar system provided. Referred to as dollars per watt, you can think of this as comparing dollars per square foot when shopping for a home. Most homeowners want to install a solar panel system that’s large enough to cover the majority of their electricity needs, if not all. For the average home, that means installing somewhere between a five-kilowatt (kW) and a 10 kW system, or 5,000 watts to 10,000 watts.
As of 2021, the dollars-per-watt price has fallen to $2.76. Those plummeting prices are why solar makes sense for many more homes now than it did a decade ago, but to determine if it makes sense for your home, consider the following factors…
How much are you paying for electricity? Solar panel systems tend to pay for themselves very quickly when they’re replacing high electricity prices near or above 20 cents per kilowatt hour (kWh), as are common in Alaska, California, Hawaii, New England and New York. Payback takes longer when solar replaces 10-to-15-cent-per-kWh rates—but it still might be a smart money move if your home scores well with the additional factors below.
Does your roof get lots of sun? Solar panels fare best on south-facing roofs that are sloped between 15 and 40 degrees and not shaded by trees, tall neighboring buildings or other obstructions. If your roof isn’t ideal for solar, ground mounted solar panels could be positioned in a sunny spot in your yard, though these tend to be more expensive than roof-mounted solar panels.
Local climate matters, too—the more clear, sunny days, the better. Texas and Florida are two of the fastest-growing solar markets in the country despite generally low electricity rates, for example, because they get so much sun.
What incentives are available to you? Residential solar power systems installed before the end of 2022 can qualify for a federal tax credit, which allows solar customers to deduct 26% of the cost of installing a solar energy system from their federal taxes. If you don’t have enough tax liability to claim the entire credit in one year, you can “roll over” the remaining credits into future years for as long as the tax credit is in effect. This credit is slated to fall to 22% in 2023 and disappear entirely for residential properties after that, but it may be extended and or increased (possibly to 30%) before that occurs. State and/or utility incentives are available in many areas, too—see the renewable energy and energy-efficiency resource DSIREUSA.org for details.
How old is your roof? Once there are solar panels on a roof, the cost of having that roof replaced is likely to rise by a few thousand dollars. Rule of thumb: If a home’s asphalt-shingle roof already is 10 to 15 years old or older, have the roof replaced before installing solar panels. Good news: Rooftop solar panels provide significant protection for the shingles below, so if your roof is less than 10 years old, you probably won’t have to replace the shingles underneath even though solar panels last up to 30 years and asphalt shingles ordinarily don’t last much longer than 20.
Buying Solar Panels Outright Isn’t the Only Option
The sun’s rays are free, but solar-power systems certainly aren’t. Among the options for paying for solar…
Cash is, of course, the simplest payment option, if your budget allows. It even might be worth tapping an investment account to buy a solar system—between utility bill savings and tax credits, solar panel systems provide some households with tax-free, low-risk 10% to 15% annual returns, which easily beat other safe investments.
Borrowing is worth considering because of today’s low interest rates. The solar installer you work with might offer financing, but local banks and credit unions often offer more attractive terms. As of late 2021, home-equity loans and lines of credit with rates below 5% were available to some borrowers…as were cash-out refinance rates below 3%.
Leasing and “power purchase agreements” (PPAs) are ways to obtain a solar system with little or no up-front expense—the solar company that supplies the system covers its cost and legally owns the equipment. The homeowner makes a monthly lease payment or buys electricity from the installer at rates that might be 20% to 30% below the local utility rate.
The catch: A long-term contract will be required—20 years is common. If the homeowner wants to move before this contract is up, he/she likely will have to pay thousands of dollars to buy out the remainder of the contract…or find a home buyer who’s willing to take up the contract, which could make the home significantly harder to sell. What’s more, solar energy companies tend to reap most of the financial benefits of lease and power purchase agreement (PPA) arrangements, with homeowners enjoying only modest savings—homeowners don’t even get the federal tax credit.
Community solar is a way to participate in solar power without having a solar system installed on your property. With community solar, many people subscribe to or purchase shares in a large solar project that feeds power into the grid. Those share owners and subscribers receive credit for that power, offsetting some or all of the power their homes take from the grid. This isn’t an option in every state, and it’s worth shopping around as terms vary significantly from project to project. While most provide 5% to 15% savings compared to local electricity rates, others offer no savings or can even slightly increase electricity bills, though this isn’t very common. Reason: Some community solar subscriptions are structured more like a solar PPA. So rather than a fixed discount on bill credits, you agree to pay a specific $/kWh for the electricity each year, and that price could be higher than what you pay your utility company, though this isn’t common and is why it’s important to shop around and use a marketplace to compare. Helpful: Most community solar projects today are free to join and allow you to leave without penalty. Be sure to review the signup and cancellation terms before subscribing to or purchasing a share of a project. Use CommunitySolar.EnergySage.com to find and compare projects in your area.
Choosing Solar Installers and Products
In some ways, selecting a solar installer is a lot like selecting any other contractor for your home—it’s best to hire someone who has at least five years of experience doing this sort of work in your area…who is recommended by friends and neighbors…and who stands behind his/her work, offering warranties on his labor in addition to the manufacturer warranty on the products he installs. Other concerns…
Ask solar installers which panels and inverters they would use in your system, then confirm that these are made by well-regarded manufacturers. Respected panel makers: Canadian Solar, Jinko Solar, LG, Panasonic, Q CELLS, REC, Silfab, SunPower and Trina Solar. Tesla’s “Solar Roof” is a legitimate and aesthetically attractive product as well, though it’s extremely expensive. Respected inverter makers: Enphase, SMA, SolarEdge, SunPower and Tigo Energy.
Get at least three quotes. That might not have been feasible a decade ago—many areas didn’t have multiple experienced solar installers—but the sector has come of age.
There are large solar-installation companies, but local solar installers often are the better choice—their livelihoods depend on maintaining a positive reputation in the community. Large installers also tend to charge $2,000 to $5,000 more than smaller ones. Use EnergySage.com for help obtaining and comparison-shopping quotes from reputable solar companies serving your area.