We're putting the power of solar back in your hands.
What would you like to know?
Navigating Your Solar Financials
Exploring Your Solar Financials
Going solar allows you to harness the latest innovative technologies, save money on your electric bill, and power your home with clean, green energy. Out of all the current sustainable initiatives, solar energy makes the most financial sense for homeowners like you.
But when you decide to consider upgrading, it’s important to investigate the usual financial costs and benefits of investing in a solar power system.
How Much Does Solar Cost?
One term you’ll find a lot when looking up your solar financials is “Cost Per Watt”. This is the estimated average you can reference when deciding how much your solar system may cost you. This can change depending on where you live, the price of parts, the labor involved, and any other design work. But it’s handy to use when you’re just starting out.
For example, if you’re looking at a 5-kilowatt system (5,000 watts), and the cost of your system is $15,000 your cost per watt is $3.00 ($15,000/5,000 watts). This is a good number to help you compare solar quotes between companies. Though be aware, there are often two ways to estimate cost per watt: before tax incentives and after tax incentives. So that $15,000 could look like $10,500 if we factor in the current 30% Federal Tax Credit.
Many solar companies offer quotes using the after tax incentives, so it is important to check with them what number they’re giving you. Once you have a few solar quotes, you can decide which option works best for your budget.
Another consideration when comparing the cost per watt between different solar companies is what’s included in the quote, the components, and the financing fees. Be aware that not all panels have the same efficiency and warranty; not all inverters operate in the same way. To learn more about the equipment and components in your solar system, click here.
Why Buy Solar?
It can be easy to take your energy bill for granted. You’re on the grid, you plug things into your outlet, and electricity happens. But all that energy is still an investment in a way.
Think of it like renting vs owning a home. Every month of rent you spend goes towards your landlord’s bottom line. Hundreds of your dollars that go towards an investment that isn’t yours.
Solar is similar! Your utility company essentially rents you the right to have power. Every month you pay them is money that could be going into your own personal investments—which is where your solar system comes in.
Rather than throwing your money away for power from the utility company, you can invest your money into owning a solar system that generates your very own power. Partnering with Self Solar puts even more control into your hands as we help you get what you want at a better price, which then generates a greater return on your investment.
Financial Benefits of Getting Solar
It might seem like a lot to invest in solar, but some of the important resources at your disposal are the various ways you can save money and recoup the costs of your investment. These include tax incentives on a federal, state, or local level as well as your general savings considering rising energy prices.
Tax Credits
You may claim a tax credit on your federal income taxes for a percentage of the cost of a solar system if you have enough tax liability to use the credit. There’s a 30% Federal Investment Tax Credit (ITC) for solar installed in 2022 through the end of 2032.
Note: These tax credits are NOT a refund (with certain exceptions for tax-exempt entities). It is a credit that goes towards any taxes you may owe. Assuming the numbers from our example above, if you spend $15,000 on your solar system, you will end up owing $4,500 less on your taxes if you purchase a solar system between now and the end of 2032. This tax credit doesn’t have to be used in one year. It can be rolled forward according to IRS guidelines. We recommend you speak with a professional accountant to determine whether or not you’re eligible to claim any tax credit. Make sure to also talk about possible tax planning strategies around when and how to use the ITC.
Federal ITC (30%)
a. Residential
If the system was installed during that time frame at your primary or secondary residence in the U.S., you qualify for this credit. The amount of credit depends on the year of installation.
b. Commercial
The current ITC for commercial projects is 30% through the end of 2032. In order to qualify for this credit as a business, the solar system must be used by a business which is located in the U.S. or U.S. territories; the system must use new or almost new equipment and not be used to produce energy for heating a swimming pool.
With the signing into law of the 2022 Inflation Reduction Act, tax-exempt entities participating in clean energy incentives can opt for a direct payment in lieu of tax credits. Non-taxable entities will be able to claim a refund for the excess taxes paid or deemed paid, essentially making the tax credit “refundable.” For more information on the direct pay option, please check with your tax professional.
There is also an accelerated depreciation benefit under MACRS (Modified Accelerated Cost Recovery System) that you can utilize to help recoup the cost of your solar system. This can be a significant cost savings. Depending on your company’s tax bracket, the depreciation benefit can save you as much as 30% of the total cost of your system. This is in addition to the 30% ITC! The benefit of this depreciation is you can utilize it in a way that best fits your company’s tax strategy. For example, you can claim bonus depreciation and write off 100% in the first year. Alternatively, you can spread the amount over a longer depreciation period.
It’s important to note that the business claiming the ITC must retain the ownership of the system until the 6th year of the solar system’s operation. Otherwise, the business will have to repay a portion of this tax credit. Because it “vests” at a rate of 20% per year over five years, any “unvested” portion is recaptured (repaid to the Department of the Treasury) if something occurs during the 5 years that would have made the project ineligible for this tax credit in the first place. Similar recapture rules apply to accelerated depreciation.
How Do You Claim the Federal Tax Credit?
To qualify for this credit, your system has to be installed between January 1, 2022, and December 31, 2032 at your primary or secondary residence in the United States, or for an off-site community solar project; you must own the system (purchased with cash or financing) and the system must be new or being used for the very first time.
While we’re solar experts, not tax accountants, we always strive to give accurate advice. However, please check with a professional to verify that you are eligible for deductions and qualify to claim credits.
One thing we recommend is to keep any and all receipts through your solar system project. This not only establishes a paper trail, but it accounts for everything you spend. The more you spend on your project, the larger your potential credit. Some of the expenses you’re allowed to claim include:
- Solar equipment, including storage devices
- Freight shipping
- Solar consulting fees
- Professional installation
- Electrician fees
- Tools bought or rented
- Permitting fees
- Contract hiring
Just about the only thing you can’t claim is the cost of your own labor as an expense, though installing it yourself may save you more.
State Tax Credits
In addition to the above, there are several states that offer additional state tax credits, rebates, and/or incentives for buying a solar system. To see if your state offers any credits, rebates, and/or other incentives, click here.
Local Rebates
Local utilities sometimes provide additional incentives to inspire customers to install solar power systems. It can be a rebate on energy bills, depending on how much energy your system generates, or one-time subsidies to install a new solar power system.
Other Local and Municipal Incentives
The cost of solar batteries can also qualify for the tax credit in the year they are added to the system. For this to happen, it must “derive 100% of power from an onsite solar array”. In other words, your solar system (rooftop or a ground-mount), must charge your solar battery exclusively. Charging the battery from the electricity grid does not qualify for the tax credit. The cost of electric vehicles (EV) charger may also qualify for the tax credit in the year the equipment is installed.
A great tool for finding out about all these incentives in your area is https://www.dsireusa.org. They keep track of many state and local credits, update regularly, and help you determine exactly which ones fit your situation.
Power Bill Savings
On top of all the federal, state, and local incentives, you can also save lots of money in other ways when you go solar. Besides these incentives, the other major way to recoup your solar investment is through power bill savings over the years.
Behind the meter
In general, the user’s (or property) side of the meter is called behind the meter, and anything on the grid (or utility) side of the meter is in front of the meter. When you install a solar system from Self Solar, any excess power created by it returns to the grid, meaning you earn credits! This is why having a solar system on “your side of the meter” saves you money on electricity every month!
When you install a solar system, like one from Self Solar, any power produced and then consumed by the property while the system is producing doesn’t cost anything. It’s free because it’s behind the meter. The excess power created then returns to the grid.
Net Metering/Feed-in Tariff Credits/Net Billing/Purchasing
When your solar system has generated more power than your property has used, the excess energy will be sent back to the grid and tracked according to your utility agreement. For net metering, a specified credit (in kWh or dollars) will be allocated for the excess energy and applied to your power bill. The unused credits will typically roll over every month, usually up to a year. For feed in tariffs, the excess energy will be purchased by the utility at the dollar amount stipulated in your long-term contract and applied as a credit to your power bill. The unused credits will typically roll over until you’re able to use them.
Utility Rates and Fees Increasing Every Year
In the past ten years, solar energy has come a long way. The cost of solar has been dropping dramatically, and new technologies are going to boost efficiency and drive costs even further down. According to the International Energy Agency’s World Energy Outlook 2020, solar energy is now the cheapest electricity in history. Solar technology is cheaper than coal and gas in most major countries.
While all that is going on, utility companies are increasing their costs and rates. Most utilities will increase their rates twice a year to bump their fees by about 4-5% annually. Assuming the span of an average solar system’s lifetime (30+ years), that means there’s an ever-increasing cost for those choosing not to invest in solar. This means the power your solar produces becomes more valuable over time.
Every year, more and more governments around the world are offering better incentives to residents and businesses to go solar. What used to be an interesting innovation is becoming the norm, and the most crucial source of energy production in many parts of the world.
It’s important to be aware there is a growing trend in the United States for utilities to pay you less for the excess energy generated by your solar system. Today, we still have a brilliant opportunity to create a positive impact on the environment and climate change, since as we know, the time to act decisively is running out.
25-year Performance warranty
At Self Solar, we understand that purchasing a solar system is a large, long-term investment. We take it very seriously, just like you, and this is why you can enjoy complete peace of mind and confidence with a minimum 25-year manufacturer’s performance warranty on all solar panels. This insures your savings for 25 years or more. Your investment in a better future is safe with us!
Property value increase
Going solar is a great investment because it will also increase the value of your property or business.
a. Residential appraisals
A few years ago, standard appraisal requirements did not recognize solar. Now, specific underwriting criteria for appraisals include solar which can increase the value of your home.
According to research from Zillow, houses with solar panels sell for roughly $15,000 more on average than a similar non-solar house, which is a 4% increase. Other studies discovered a 2-8% boost in the solar system home value compared to traditional houses (which varies according to the property’s features and location).
If you are considering a leased solar system, realize your savings may be different. When selling a home with a leased solar system, the home buyer has to take over the lease payments and agree to the terms of the lease contract.
b. Commercial appraisals and NOI
For commercial buildings, going solar can significantly reduce operating expenses allowing you to spend that money on other areas of your business. Solar can also increase the property value by 4-7%. One of the easiest ways to calculate the value is to take the increase in the Net Operating Income (NOI) provided by your solar system and divide by your cap rate.
Using solar at a business will also let you benefit from more positive public perception. Greater numbers of organizations than ever before are taking corporate social responsibility more seriously, and it’s been especially important in the eyes of new generations. This can be seen by the recent trend to evaluate companies by ESG scores (Environmental Social and Governance).
Ways to Purchase Solar
The options below are listed in order of which provides the best return on your solar investment:
Cash
A cash purchase is the best way to maximize your savings. It means your investment will free you from paying for electricity for many years to come. While the panels are guaranteed for 25 years, your system will last much longer if properly maintained.
Another benefit to purchasing your solar system with cash is you avoid the interest and finance fees, many of which can be hidden and as high as 25% of your total system cost.
Remember, solar is an investment. You might see a better return on your investment from solar than if you invested that money into something else. You will own your power instead of “renting” it from the utility and being subject to regular electricity rate hikes.
HELOC/2nd Mortgage
If you aren’t able or don’t want to purchase your solar system with cash, you have other options.
The Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) offer programs that let homeowners pay for solar systems and other upgrades as part of their mortgage loan.
With a second mortgage, you might secure lower interest rates and better repayment terms than a separate solar loan.
Additionally, you may qualify for a larger tax deduction – interest on mortgage payments is tax-deductible, but interest on solar loans or other personal financing methods is not. At Self Solar, we always do our best to provide accurate information; however, we are solar experts, not tax accountants. Please consult a tax professional about your eligibility to take any deductions or claim any credits.
Many customers can benefit from a Home Equity Line of Credit or HELOC – a secured loan capitalizing on your home equity and keeping the interest loan rates low.
If you have a good credit score and equity in your home, HELOC is the best way because you can get a rate of 5% or lower with minimum upfront fees. This will reduce your monthly payments and save you more money.
Finance
Solar loans are another financing option to go solar and own the system with no cash upfront. It might even cost you less than what you’re paying for electricity right now. There are many marketing approaches to these types of loans that make them sound very appealing and convenient, such as no money down or no payments for 12 to 24 months, etc. However, it’s important to understand the costs that go along with the benefits of this type of financing.
When you purchase your system with a solar loan, you own the system and can claim the Federal Tax Credit for going solar. While these solar loans may sound easy and attractive, they often include hidden fees the borrower doesn’t see. Since solar loans are largely unsecured, the issuing bank or finance company will charge upfront points to compensate for the added risk. These points can be as high as 25% of the total cost of the solar system. Depending on the loan program, payments may not be due for the first year. But don’t be fooled – the bank or finance company will not lend you money for free. Even though payments and interest may be deferred, you will pay more by way of increased interest rates and additional fees – fees you may or may not be aware of.
If a solar loan is the only way for you to purchase your solar system, it may still make sense. It’s always a good idea to own the system because homes with solar sell for 3-4% higher than similar homes without it. If you’re interested in a solar loan, and understand the higher cost, we have aligned ourselves with lenders that will help you with the process and be transparent along the way. For more information, please contact us at info@selfsolar.com.
PPA/Lease
In this case, a third-party owner installs solar panels at your house and then sells you the electricity generated by the solar panels at a set rate.
With a solar lease/PPA, a third party owns and maintains the system. The major negative to a solar lease/PPA is you won’t be eligible for any of the tax credits since you don’t own the system. However, your lease/PPA payment will typically be less than your power bill and locked in for the agreement term of about 20 years. The lease/PPA financing option use to be fairly common in the beginning stages of the solar industry, but it is not as common now. There are some rare circumstances where this type of financing may be the right fit, but in general it is much better to own your system and enjoy all the benefits of solar.
Navigating Your Solar, Your Way
We hope this has provide you with some insight on the approaches, options, pitfalls, and resources to watch out for when deciding if solar power is right for you. At Self Solar, we believe everyone should be able to access solar energy in their own way and that starts from having the right information.
Jump to Content
