Transitioning to Solar Energy: What You Need to Know

Understanding the Growing Popularity of Solar Energy

As spring approaches and the temperatures rise, many of us are preparing for the increased use of air conditioning, which inevitably leads to higher electricity bills. With the growing awareness of climate change and the desire to reduce our carbon footprint, solar energy has become an attractive option for homeowners. The Solar Energy Industries Association reports that solar energy accounted for 43% of all new electricity-generating capacity added in the U.S. last year, making it the leading source of new power for the second consecutive year. Currently, there are over 149 gigawatts of solar capacity installed nationwide, which is sufficient to power approximately 26 million homes. The cost of installing solar panels has decreased by more than half over the past decade, making it more accessible to homeowners across the country. While California remains the leader in solar adoption, states like Texas, Florida, and New York have also seen significant growth in solar installations.

The Cost of Solar Panels and Potential Savings

While solar panels generate free electricity once installed, the upfront cost of installation is a significant factor to consider. The national average cost for a home solar system after applying the 30% federal tax credit is $20,650, according to EnergySage. However, this cost can vary widely depending on the size of the home and the state in which the homeowner resides. The good news is that switching to solar can reduce your energy bills by as much as 75%. The payback period, or the time it takes for the energy savings to offset the installation costs, typically ranges from five to 15 years. This means that while there is an initial investment, the long-term savings can be substantial.

Navigating the Federal Tax Credit and Additional Incentives

The federal solar investment tax credit is a significant incentive for homeowners considering solar panels. This tax credit allows qualified property owners to claim a credit of 30% of the cost of installing a solar energy system on their federal taxes for systems installed between 2022 and 2032. After 2032, the credit will gradually decrease each year until it expires in 2035, unless Congress decides to extend it. This tax credit applies to solar panels, labor costs, system equipment such as wiring and batteries, and any permits or fees associated with the installation. Homeowners should also explore additional incentives offered by their state and local governments by visiting the Database of State Incentives for Renewables & Efficiency.

To Buy or Lease: What’s the Best Option for You?

When deciding whether to buy or lease solar panels, there are several factors to consider. Leasing solar panels often requires little to no upfront costs, making it an attractive option for homeowners who cannot afford the initial investment. However, leasing means you do not own the system, and a long-term lease could complicate selling your home in the future. On the other hand, buying solar panels offers long-term savings and can potentially increase the value of your home. A 2019 survey by Zillow found that homes with solar panels sell for about 4% more than similar homes without solar panels. Additionally, to qualify for the federal tax credit, homeowners must purchase the solar panels. If you plan to stay in your home for at least seven years, buying solar panels is generally the better option.

Exploring Financing Options for Solar Panels

For homeowners who cannot afford to pay the full upfront cost of solar panels, there are several financing options available. These include Residential property-assessed clean energy loans, home equity loans, home equity lines of credit, and government loans such as Fannie Mae’s HomeStyle Energy Program. Some solar companies also offer their own financing options. Additionally, if you are buying or refinancing a home, you can consider the HomeStyle Energy Mortgage Program and the Federal Housing Administration’s Energy Efficient Mortgage Program, which can help you install solar panels as part of your mortgage. It’s also worth considering purchasing a battery or energy storage system to have power during outages and at night when the solar panels are not generating energy. If you sell your home, the solar panel system, even if financed, can be transferred to the new owner.

Understanding Leases and Power Purchase Agreements

Leasing solar panels means you make monthly payments to use the system for the duration of the lease term, typically between 20 and 25 years. The leasing company is responsible for maintaining and repairing the system during this time. At the end of the lease, you usually have the option to renew the lease, purchase the system at its fair market value, or have the system removed from your property. During the lease term, you pay a flat monthly fee for the energy generated by the panels. It’s important to check with your insurance company to ensure that the leased panels are covered by your policy. A Power Purchase Agreement (PPA) is another option for homeowners who want solar panels without the upfront cost. In a PPA, an energy service company (ESCO) installs and owns the panels, and you purchase the electricity they generate at a fixed price. While this can be a beneficial arrangement, it’s crucial to carefully review the terms, as some homeowners have reported feeling "stuck" if the price increases over time. If solar panels are not suitable for your property, you might also consider a virtual lease or PPA.