Financing Solar Panels: 8 Different Ways to Pay for Clean Energy
Solar panels are a popular green energy home improvement, but they aren’t the smartest money move for everyone. There’s not just one easy way to answer the question — are solar panels worth it? — since a lot depends on your location, the tax credits you’re eligible for, how long you plan to stay in your home, and how solar panels might impact your home’s value.
If you’re trying to figure out if solar panels will help you save money on utilities to the point where they’ll justify their cost, there’s an easier way to break down this decision. Thinking through the following five aspects of solar energy will help you figure it out.
In this article
- Understand your current electric bill
- Assess your sun exposure
- Estimate the cost of solar electric system installation
- Research incentives
- Consider your home value
- How to make the decision
- How to pay for your solar panels
- Bottom line
Understand your current electric bill
Solar panels tend to provide the maximum benefit in markets where electricity is very expensive. After all, if you’re paying a lot for electricity, then generating even some of your electricity usage via solar could provide substantial savings.
To get an idea of your current costs, take a close look at your price per kilowatt (kW). This should be listed on your electricity bill. The national average is 10.48 cents per kilowatt hour (kWh) according to the utility website Electric Rate. If your rate is much higher, you may be able to get above-average savings if you switch to solar power.
Consider your usage too. If your goal is to generate all of your electricity from solar, this becomes more difficult the more electricity you use. For higher usage, you will need a larger, thus more expensive, system.
By contrast, if you don’t use much electricity at all, you may be able to get by with a smaller system size. The benefit is you won’t need as many panels, yet by buying a larger system you gain cost advantages due to economies of scale. Adding each additional panel costs less once you’re already paying for the installation cost of the solar system. Of course, you could opt for a lot of panels anyway and sell the excess electricity back to your utility provider to defray some of the upfront costs.
Assess your sun exposure
Installing a solar panel system only makes financial sense if it’s going to generate quite a bit of electricity which helps you reduce your bills. If you don’t have much sun exposure, the panels may not produce enough power to be worth their cost.
If your home faces south and gets a lot of direct sunlight, you might be a good candidate for a solar installation. But if you have lots of trees around your home or the roof is at the wrong angle, solar energy may not be your best option.
Google actually has a helpful tool called Project Sunroof that allows you to provide your address and some details about your home to see if your property might be a good candidate for solar.
Estimate the cost of solar electric system installation
The cost of solar panels plus the cost of system installation will also determine whether going forward makes financial sense. Obviously, the more you pay for a system, the more electricity it would have to generate to be worth its cost.
HomeGuide reports that the average cost to install solar is around $1.77 to $2.20 per watt, with the typical homeowner who installs a 6-kilowatt system paying around $10,626 to $13,230 after receiving tax credits. However, your location and the type of system you want can have a big impact on its price.
For example, if you want your system to be off-the-grid entirely — which means it is your sole source of electricity and you aren’t connected to an electric company, i.e. “the grid” — you’d need to also pay for an off-grid inverter and batteries to store excess energy. After all, you’ll still need power when your panels aren’t producing at night or during bad weather. This adds considerably to your cost.
Most solar companies provide free, no-obligation estimates. So as part of this step, you might contact a few reliable solar installers in your area to get quotes and compare prices.
Save On Your Electricity By Going Solar
Get a free quote
Free Solar Quotes Benefits
- Free solar quotes
- See if you qualify in 30 seconds or less
- Pre screened top notch solar providers
- No obligation to buy
Get a free quote
The federal government currently provides a tax credit if you install a solar panel system. If your system is installed in 2021, the solar tax credit will be 22% of the costs of an eligible system. Tax credits reduce your tax liability on a dollar-for-dollar basis. So, if you get a $5,000 tax credit and owe $6,000 in taxes, you will only owe $1,000 after claiming your credit. According to the U.S. Department of Energy, this credit is set to expire in 2022 unless Congress renews it, so don’t wait if you want to get a system installed.
Depending on where you live, your state and local government or your utility company may also offer credits, rebates, or other incentives to install a solar panel system. You may also be eligible for expedited permits for your project and be protected from having your property taxes raised if solar panels increase the value of your home.
15 Smart (and Easy) Ways to Boost Your Home’s Value Before You Sell
Consider your home value
Solar panel installation can pay off not only by saving you money on your electric bill, but by also increasing the value of your home. In fact, Zillow found that homes with solar panels sold for an average of 4.1% more than comparable properties that didn’t have this clean-energy upgrade. Depending on the value of your home, that could be a big boost to your bottom line.
The impact of solar panels on your property’s price does vary by market, and it takes time for your lower energy bills to make a solar panel system worth it. As a result, if you plan to move very soon, think carefully about whether investing in solar adds sufficient market value to your home.
How to make the decision
To determine if investing in solar panels will be worth it for you, it’s helpful to consider your break-even point. To do this:
- Consider the amount of electricity your system will likely produce: If you have a quote from a solar provider, your quote should provide an estimate of the number of watts your system could generate. You can also estimate this amount based on the number of panels you’re buying multiplied by the watts each has the capacity to produce (typically between 250 and 400 watts depending on the panel and your location).
- Estimate the reduction in your electric bill: For example, if your system could meet around half your energy consumption needs, you’d reduce your utility bill by about 50% (or perhaps a little less if your utility provider charges a flat fee for being connected). If your bill was $215 per month and included a $15 flat fee, you’d save around $100 per month in this example.
- Divide the estimated savings by the cost of your system: If you’d have to pay $15,000 for a system and you save $100 per month, you’d break even in 150 months or 12.5 years. If you didn’t plan to move in that time frame and your system had a 20-year warranty, then it would likely make financial sense to go forward. The system would pay for itself over 12.5 years. From that point until the warranty ends, you’d basically be getting around seven-and-a-half years of free electricity.
When you’re shopping for systems, you’ll also want to make sure you’re comparing apples-to-apples to get the best price. To do that, calculate your price per watt and compare that metric across different providers. You can calculate this by dividing the total cost your installer is quoting for the system and dividing it by the system’s watt capacity.
For example, if you get a 6 kW system, that’s 6,000 watts of capacity. If you pay $18,000 for it, you’d be paying $18,000 / 6,000 watts or $3 per watt. As we mentioned earlier, the average cost to install solar is around $1.77 to $2.20 per watt. So, in this scenario, the math could help you see that this particular estimate for solar panel installation might be too high.
Typically, installing a larger system actually results in a lower price per watt since adding additional panels doesn’t cost as much once the installers are already at your home and have installed the other components of the system.
How to pay for your solar panels
While you may decide that renewable energy is well worth paying for, there’s also the matter of having to come up with the money to cover the system cost. Since a solar electric system can cost tens of thousands of dollars to install, you’ll need to make smart choices about how to get a loan if you can’t pay cash upfront.
There are a number of options for financing solar panels, including:
- A home equity loan: This allows you to borrow a fixed amount against the equity of your home. You’ll want to shop carefully for the best mortgage lenders to make sure you borrow at the lowest rate possible. Home equity loans can come with low rates and tax-deductible interest, but be aware you’re putting your home on the line and risk foreclosure if you can’t make payments.
- A home equity line of credit: This is similar to a home equity loan, but you’d be given access to a line of credit you could borrow against as needed. You’re also tapping into your home’s equity and putting your home on the line with this loan type. Usually, these loans also come with a variable rather than fixed rate, so the costs of borrowing over time could change.
- A personal loan: Personal loans can also be used to fund solar panels. They often have higher interest rates than home equity loans or lines of credit, and the interest isn’t tax-deductible. However, they can be quicker to get approved for, have fewer upfront fees, and your house doesn’t have to be collateral for the loan. Make sure to shop from the best personal loans to see what range of loan terms you might qualify for.
- Financing through your installer: Some solar installers help you arrange financing. You may not necessarily get the best rates, though, so be sure to shop around and compare borrowing options.
Some companies also allow you to lease solar panels or enter into a power-purchase agreement. This means you don’t own your panels, but you pay for the power they generate. This generally doesn’t provide as much savings on your electric bill as installing an owned system, but you also don’t have to worry about maintenance or repairs.
Do you really save money with solar panels?
Yes, you might be able to save money with solar panels. Whether or not you’ll see a return on your investment depends on how much power the panels generate, how much electricity costs in your area, and how much you paid for the solar panel system. Shopping around for the most affordable system and financing it through a low-interest loan option can help you save money with solar, especially if you live in a market where electricity rates are high.
How long does it take for solar panels to pay for themselves?
The length of time it takes to break even on solar panels depends on how much electricity they generate, the cost of electricity in your area, and other factors such as your usage. To determine your break-even point, first, estimate how much power your solar panels will produce. Based on this number, you can then determine how much usage the panels will save you on your electric bill. Next, divide the cost of the system by the monthly savings on your bill. This will tell you the number of months it takes to break even. Also, be sure to take any solar incentives like tax credits or rebates into account when estimating the net cost of your system.
Is it harder to sell a house with solar panels?
Generally, it is not more difficult to sell a home with solar panels. In fact, research from Zillow found homes with solar electricity actually sell for an estimated 4.1% more than comparable properties. However, if you have a solar lease, you will either have to transfer the lease to the new homebuyer (who must take over payments) or buy out the panels from the leasing company. This can create an obstacle if you can’t find a buyer willing to take on this obligation or you don’t have the cash to buy out the lease.
Solar panels can be expensive, but federal tax credits, as well as state and local incentives, can help you defray the cost. Solar panels may pay for themselves over time if your system generates enough electricity to provide substantial savings on your power bill. This is more likely if you buy a larger system or if electricity is expensive in your area.
If you decide to install solar panels, make sure you shop around for both the best price from a solar installation company as well as the best loan to pay for it. This will keep your costs down and help you break even on your solar investment as quickly as possible.
Get The Cash You Need Without Leaving Home
- 100% online application and appraisal
- Easily see your rate in a few minutes
- Use to consolidate debt or finance your next project
- HELOC rates start at 3.00% APR
Mortgage Loan Modifications: An Alternative to Foreclosures