Solar energy is hot right now; in fact, because the cost to install solar has dropped by over 70 percent since 2010, more than 1 million U.S. homes are currently being powered by the sun (compared to only 30,000 homes in 2006). However, our country still has a long way to go before reaching its full potential in the residential sector—according to Google’s Project Sunroof, 80 percent of the 75 million homes in the United States are solar viable, meaning that they have enough unshaded area for solar panels.
It’s true that installing a solar energy system on their home can be an extremely financially beneficial decision for many individuals, not to mention the positive impact it has on the environment, so what’s holding homeowners back from making the switch?
Ultimately, it comes down to the fact that the solar industry is somewhat confusing and ever-evolving, making it difficult to navigate. Additionally, the way that some solar companies market residential solar can almost make it sound too good to be true, raising skepticism among homeowners.
This guide walk you through three important things that you should know about solar energy before deciding whether or not solar is the right fit for you or selecting a solar company to work with. Plus, we’ll help cut the confusion and level the playing field and, complete with a detailed list of advantages and disadvantages to both you, and the solar energy company to help you make a truly informed decision.
There are three primary ways to pay for a solar energy system: cash purchase, loan, and lease/power purchase agreement.
A cash purchase is pretty self-explanatory; with this option, the homeowner buys the solar energy system outright with cash.
Advantages to homeowner: With a cash purchase, the homeowner owns the system and all of the power it produces from day 1, which means that this option typically provides the highest dollar-for-dollar return. Additionally, because the homeowner is the one who owns the system, they get to take advantage of any tax credits, rebates, solar renewable energy credits (SRECs), and other incentives available in their area.
Through the end of 2019, the federal government is offering a tax credit that allows homeowners to deduct 30 percent of the cost of installing a solar energy system from their federal taxes. This tax credit will drop to 26 percent in 2020, 22 percent in 2021, and 10 percent in 2022.
Solar rebates are similar to rebates that are offered for electronics or appliances in that homeowners who purchase a solar energy system will receive money back, often in a lump sum. Rebates aren’t available everywhere, but Connecticut, New Hampshire, and Oregon currently have noteworthy solar rebate programs.
SRECs are credits that homeowners earn for the energy produced by their solar energy system that can be sold to utilities in exchange for cash. Because homeowners aren’t actually selling the energy their solar energy system produces, they can use all of the electricity generated by their system and still receive and sell SRECs. One SREC is earned for every 1,000 kWh of electricity produced, and prices per SREC range from about $5 to $400 depending on the state. New Jersey, Massachusetts, and Washington D.C. are currently the top markets for SRECs.
Homeowners can research incentives available in their area on DSIRE’s website.
Disadvantages to homeowner: A cash purchase requires a significant upfront investment from the homeowner.
Advantages to a solar company: With a cash purchase, the solar company will receive a nice lump sum of money when the homeowner purchases the system. Additionally, because the homeowner owns the system, the solar company typically is not responsible for any maintenance or repairs of the system (outside of what is under warranty, of course).
Disadvantages to a solar company: Some solar companies offer discounts to customers who purchase a system outright with cash, so they may end up making a bit less in the long run on an outright purchase than they would if the customer paid with a loan or signed into a lease.
With a solar loan, the homeowner finances some or all of the cost of the solar energy system, typically with funds from a third-party lender and not the solar company itself. However, most solar companies have partnered with lenders that offer or specialize in solar loans, making it simple and hassle-free for homeowners to secure financing. Homeowners can expect solar loan terms ranging from 7 to 20 years and interest rates ranging from about 3 to 7 percent.
Advantages to homeowner: Financing a solar energy system with a loan is a fantastic option for homeowners interested in the benefits of solar ownership mentioned above (financial returns, tax credits, and other incentives, owning the equipment and power it produces) without having to pay for it out of pocket. And, if the homeowner’s loan payment is lower than their previous electricity bill, they will begin saving money right away.
Disadvantages to homeowner: Homeowners who choose to go the solar loan route will likely end up paying more in the end than they would have with a cash purchase due to interest.
Advantages to a solar company: Similar to a cash purchase, because a solar loan results in the homeowner owning the system, the solar company usually is not responsible for any system maintenance or repairs outside of what is under warranty.
Disadvantages to a solar company: While selling a system is still beneficial for the solar company, it’s not as advantageous as signing a homeowner into a lease or a power purchase agreement. More on that below.
Lease/Power Purchase Agreement
With a lease, the homeowner essentially rents a solar system from a solar company or third-party financier, while with a power purchase agreement (PPA), the homeowner pays only for the power the system on their roof produces at a flat, locked-in rate.
Advantages to homeowner: If the homeowner lives in an area with exceptionally high electricity rates, such as California, Hawaii, and Massachusetts, their lease or PPA payment will likely be less than their previous electricity bill, which means they will save money each month without having to take on the financial risk of an investment. Additionally, because the solar company owns the equipment, they are responsible to cover maintenance and repairs.
Disadvantages to homeowner: If a homeowner lives in an area with low electricity rates, such as Washington, Missouri, or North Dakota, their lease or PPA payment will be higher than their previous electricity bill, which doesn’t make much economic sense. And, because the homeowner does not own the solar energy system, they will not be able to take advantage of any federal or state incentives. Further, most lease and PPA agreements are set at 20 years, which could leave the homeowner scrambling to pay off or sell their contract in the event that they have to relocate.
Advantages to a solar company: Some solar companies push leases and PPAs because, in many cases, these payment options are the most advantageous for them. With a lease or a PPA, the company gets to retain ownership of the system and all of the benefits that come along with it (tax credits and rebates, equipment and power ownership) while still collecting a payment from the homeowner each month.
Disadvantages to a solar company: Because the company owns the system, it’s their job to take care of any necessary maintenance and repairs.
The two primary equipment components of a solar energy system are the panels and the inverter.
There are two main types of solar panels used for residential projects: monocrystalline panels and polycrystalline panels. The biggest difference between these two types of panels lies in efficiency rating, which is a measure of a solar panel’s ability to convert sunlight into energy. Monocrystalline panels are generally more efficient than polycrystalline panels, which means you need fewer monocrystalline panels than polycrystalline panels to produce the same amount of energy.
While purchasing super-efficient panels might seem like the best option, it’s not mandatory unless a homeowner has limited roof space and a high electricity usage. If a homeowner has sufficient roof space to do so, they can most likely save money and receive the same levels of output by adding a few extra, less-efficient panels to their solar array.
Most solar companies offer a variety of different brands and models of panels, so if a homeowner has options in terms of roof space, it doesn’t hurt to have the company write up multiple quotes to see which setup is most economically beneficial.
It’s important to note that the quote a homeowner receives from a solar company will specify a certain amount of power that a system of that size and efficiency level will generate. This amount is warrantied by what is known as a performance guarantee, which is offered by the panel manufacturer. Under this guarantee, if any of the panels lose more than a certain percentage (typically 10 to 20 percent) of their promised energy output during the life of the warranty (typically 20 to 25 years), the manufacturer will replace those panels for free.
All solar panel manufacturers offer a performance guarantee, and most solar companies offer some type of monitoring program that allows the homeowner to check production levels and ensure that everything is working as it should be.
The good news with solar panels though, there is very little maintenance that comes along with them. It is suggested that you have them inspected a few times a year just to help maintain any dirt or debris that may have fallen onto the panels.
The inverter is the part of the solar energy system that converts the direct current (DC) electricity that the panels produce into the alternating current (AC) electricity that is utilized by both the home and the grid. There are two primary types of inverters used in the solar industry today: string inverters and microinverters.
String inverters tie all of the panels in a solar system together into a circuit, or “string”, which means that anything affecting one panel will affect all of the panels. For example, if one panel on the string becomes shaded, all of the panels on that string’s production will dramatically decrease.
Microinverters, on the other hand, provide each solar panel in the array with its own inverter. Each microinverter operates independently of its fellow microinverters, which means that shading on one panel will not affect the production of any of the other panels.
Homeowners who live in particularly sunny areas will likely be safe with a string inverter, which is the cheaper of the two options. However, homeowners who live in areas that are prone to shade or cloud coverage will typically be better off with a microinverter.
What if the system produces more electricity than the house needs?
When a homeowner has a solar energy system installed, it will be connected to the public utility power grid. When the sun is shining bright (i.e. during the day, during summer months, etc.) the system will power the home and send any surplus energy that isn’t being used back to the grid (assuming the system does not include battery backup). At night or on cloudy days when the system is not producing or producing at a lower rate than is necessary to power the home, electricity will be drawn back from the grid. This process is regulated and tracked through what is known as net metering.
States and utilities with favorable net metering policies allow homeowners to roll over surplus energy credits indefinitely or will compensate homeowners for any surplus credits remaining at the end of the year, while states and utilities with less-than-favorable policies do not.
Net metering differs from the SREC market in that the SREC market does not compensate homeowners for excess production; it simply offers credits for the energy produced by the system, whether the energy used by the homeowner or not.
Does having solar equipment installed add value to a home?
A study conducted in 2014 by the Lawrence Berkeley National Laboratory found that buyers were willing to pay a premium of $15,000 for a home with an average-size solar energy system, likely because solar reduces the running costs of the home and may even provide a long-term income stream for the homeowner.
However, value is subjective; if the buyer likes and is interested in solar, having a system connected to the home can add appeal and value, while if the buyer is not interested in solar or does not like the look of the panels, having a system may actually devalue the home in that particular buyer’s eyes.
If a homeowner were to sell their home in the middle of a lease or PPA, they would either need to work with the solar company to have the system moved to their new residence, or convince the buyer to assume the contract, which may be a significant deterrent to some buyers.
How do I even know if my home is a right for solar energy?
Deciding if a solar energy system is right for you depends on many factors, not the least of which are cost, rebates and tax credits available in your area, as well as how long you plan to stay there. But physically, is there a type of home that is better suited?
A home in a sunny location with a south-facing roof and minimal to no shading is ideal. However, solar panels can still be quite effective if placed on a west-facing roof. The most important thing is that the panels are placed in an area that receives sufficient sun exposure. If rooftop solar just isn’t an option for a particular home, a ground mount system may be a good alternative if the yard has space for it.
When it comes to actually selecting a solar company, homeowners should aim to find a company that is reputable and has the makings to be in business for years to come.
Is The Company Reputable?
One of the best ways to figure out how a company does business is to talk to people who have actually done business with the company themselves. Ask family members and friends if they have had any experience with a particular company, or if they know someone who has, and read verified customer reviews for different solar installers online.
Outside of the experiences and reviews of customers, other indicators of a reputable company include transparency, strong relationships with vendors, solid understanding of the homeowner’s specific energy market, and licensed and certified installers.
How Long Have They Been in Business?
The solar industry is growing rapidly, which means that solar providers are facing tougher and tougher competition as new companies enter the market. This can lead to bankruptcy cases for solar companies that fall behind in the industry.
Understandably, if a homeowner is signing a lengthy contract, they want to be sure that the company they’re choosing to work with will be around for the long haul. While it’s impossible to know exactly what is going to happen in the future, there are a couple of different indicators that homeowners can look at to judge the potential longevity of a solar company.
The first is how long the company has been in business. If a company has been installing solar since the 80s or 90s, there is a good possibility that they’re well established and will continue to offer service for decades to come. However, if the company was founded just last year, there isn’t much to go off of.
If the solar company itself is publically traded, the next thing to look at would be financial statements and stock valuations. However, if the solar installer is a private local company, ask them who manufactures the equipment they sell and research the financial health of those manufacturers.
What to Ask a Solar Salesperson
A salesperson from a qualified solar company should be able to provide clear, transparent answers to each of the following questions. If they can’t answer or try to avoid certain questions, that should be a red flag.
- How long have you been in business?
- How many installations have you performed?
- What licenses and certifications do you have?
- Is my home actually a good candidate for solar? Why or why not?
- What payment options do you have available? What are the terms associated with each option?
- What brands and models of panels and inverters do you offer? Why do you choose to use those brands and models in your installations?
- Which equipment specifically is going to be used in my home?
- Who is going to be designing my system?
- Who is going to be performing the installation?
- What warranties do you offer, and what exactly does each of them cover?
- What happens if there is a roof leak? Would removing panels to repair the leak drive up the repair cost? Is this something that would be covered under warranty?
- Which incentives are available in my area?
- Do you offer assistance applying for tax credits, rebates, and other available incentives?
- What should I expect in terms of system maintenance? Will you be performing the maintenance, or will I be responsible for it?
- Do you offer system monitoring? How will I know that my system is producing at promised levels?
- What happens if my roof needs to be replaced before my contract is up?
- What if I have to move before my contract is up?
- How long is my system expected to last for?
- How much can I expect to save the life of my contract? What are you basing that number off of?