Last week we talked about how to determine whether your home is solar-friendly. This is the first of several posts on the different payment options for your solar energy system. Well start with the simplest: paying cash.
There are several major advantages to buying with cash. Besides the obvious benefit of avoiding interest payments, you immediately own the system outright. This means youll receive any applicable tax credits and/or rebates. In most cases you can receive a 30% federal tax credit on the cost of the installation and system. For example, if your system costs $26,150 (the median price last year in Suffolk County per energysage.com) you would receive a tax credit for $7,845. If your tax liability is too low to claim the entire credit in one year, you can roll it into future years for as long as the credit remains in effect. You need to act quickly, though. The 30% rate will only be in effect through 2019; after that it decreases to 26% in 2020, 22% in 2021, and 10% in 2022. Massachusetts also offers a 15% tax credit for solar, up to a maximum of $1,000, so between the two rebates, your system would only cost $17,305.
Owning your system outright also will make things much simpler if you decide to sell your home, as any loan or lease must be paid off or transferred to the new owner. Solar panels typically add value to a property, about $3 per watt that your system can generate. The average system is 3.6kW (kilowatt) so that means your home would likely be worth $12,700 more*. Adding a solar system wont make sense if youre planning to sell right away but if youve had your system long enough for the energy savings to recoup your initial investment cost then youve essentially added value to your home for free.
Recapturing your investment may be faster than you think. Even using a gross price of $30,000 - on the higher end of what youd likely pay for a system - you would typically make back the investment in 7.4 years using the formula from energysage.com. Your initial cost would be $20,000 ($30,000 gross price- $9,000 federal tax credit-$1,000 state tax credit). Assuming a $100/month energy cost pre-solar and that your solar panels would provide all the electricity you need, youd be saving $1,200/year in energy costs. Plus you could potentially make $1,500/year in SRECs (Solar Renewable Energy Credits, outlined below) for a total savings of $2,700/year. Divide $20,000 by $2,700 and you get 7.4 years to get back your investment. Obviously, with a lower purchase price itll be even faster- if your system costs $18,000 before tax credits and we assume the same pre-solar energy costs and SRECs income, youd pay off the initial investment in 4.3 years.
Solar Renewable Energy Credits (SRECs) are essentially proof of solar-generated energy. These credits are important because utility companies in Massachusetts are required to generate a certain amount of their power from renewable sources (including a certain amount from solar specifically), and are fined if they dont. Rather than producing all the clean energy themselves, they can buy SRECs from their customers with solar panels and claim the energy the customer produced as part of their required solar production. The price varies but is currently around $300-$350 per SREC. A 5kW system (note this is larger than the average system nationally) will typically earn almost 6 SRECs per year; if we use $300 per SREC and say youre getting 5.5 SRECs thats $1,700 per year from the utility company for the rights to claim your SRECs.
There are only three major disadvantages to paying cash to install a solar system:
- It requires you to have a substantial amount of cash on hand up front.
- You will be responsible for any repairs and maintenance to your system.
- Depending on your credit, the solar company youre working with, your electricity usage, and a number of other factors, you may gain a better return on investment by taking out a loan to install solar at your home.
For more details on that, tune in next week!
*Both the $3/watt and 3.6kW numbers are national averages from energysage.com; figures werent available for MA specifically.
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