Financial benefits of solar panels? Not so fast!

In my homeownership and priorities progress report in September, I mentioned that Jake and I were considering getting solar panels installed on our new house. Although that was our last priority, our first priority was replacing our HVAC unit. We thought there might be HVAC units that were made to be compatible with solar panels.

As a result, we decided that it might make sense to investigate solar panels sooner rather than later. That would give us a better sense of our timeline as well as help us determine how much cash we needed to start stashing away in our savings account. Here's what we found out.

Getting Our Home Assessed

The first step was to have someone from a solar panel installation company assess our home. This was free because they simply want your business. They look at factors like:

  • The size of your home

  • How much power you currently use, on average

  • The size/slant/orientation of your roof

  • How much, if any, of your roof is shaded

The solar company uses this information to determine how much power you will need to generate. Then they know how many panels you will need and can figure out the best placement for those panels. After that entire process, they can finally provide you with different options.

Option 1: Buying the System Outright

The first option we were presented with entailed buying the system outright. According to our home assessment, the system that would provide us with the power we needed would cost about $46,000. We were eligible for an energy efficiency tax credit of about $14,000 and other rebates and incentives of about $1,000.

This meant that we would be responsible for approximately $30,000. However, we could get the system for no money down. I assume that means the $30,000 would be financed through a loan from the solar company although the estimate doesn't specify this.

According to the information provided by the solar company, currently we pay 9.5¢/kWh for our electricity and have an average monthly bill of $178. The solar company also assumes that utility rates increase 3.9 percent per year. If we bought the solar panel system, we would pay 11.8¢/kWh for electricity. We would also have to stay on the grid of our current electricity company, so we would still receive a bill from them. According to the estimates we were provided, our average total bill (solar + electric utility) would be $207 initially and there would be a fixed increase of 2.9 percent per year.

We would be eligible for a rate reduction if we paid 30 percent of the total system cost. I imagine they mean we would have to pay 30 percent of the $46,000 and that the tax credits and rebates/incentives don't count toward that 30 percent, though the estimate doesn't specify this either. If my assumption is correct, we would pay $13,800 out of pocket and our rate would be 8.5¢/kWh. According to their estimates, our average total bill would be $156 per month, again with a guaranteed fixed increase of 2.9 percent per year on the portion of the electricity being generated by solar.

Not looking good so far, is it? We could have a higher monthly bill than we do currently, plus the payments on a loan from the solar company (30-year term, interest rate unspecified in the estimate). Or we could pay over $10,000 out of pocket and have a slightly lower monthly bill than we do currently plus the payments on a slightly smaller loan from the solar company. Now, a $14,000 tax credit (not a less appealing deduction) is nothing to sneeze at. But overall? Um, no.

Option 2: Leasing the System

We were provided with three estimates for leasing. Under all lease options they install and maintain the system for free. It's a 20-year lease.

  • The first option was 8.3¢/kWh with zero out of pocket, an estimated total monthly payment of $154 and an annual rate increase of 2.9 percent.

  • The second option was 10.9¢/kWh with zero out of pocket, an estimated total monthly payment of $192 and no annual rate increases over the term of the lease.

  • The third option was to pay 6¢/kWh with $22,000 out of pocket, an estimated total monthly payment of $29 (all of which goes to the utility company/grid) and no annual rate increase over the term of the lease. Essentially, this plan has you pre-buying your electricity for the next 20 years excluding the costs incurred by staying on the grid.

However, it is also important to note that the lease is non-cancellable. This means that not only can you not cancel before your 20 years are up, it also means that, if you sell your house, whoever buys it has to take over the lease. According to our real estate agent, at this point not all buyers are interested in taking over solar leases. While it may add value to the home for some buyers, it may actually be a potential hurdle if you are trying to sell.

Other Considerations

Based on the data we were presented, we decided solar panels weren't for us, at least not right now. I do think that, in another five to ten years, the technology will have advanced enough to make it worth another look. A couple of months after we decided that solar panels were a non-starter for us, we came across an article in our local newspaper relevant to our specific situation.

Nothing is finalized yet, but our electric company is proposing a $50-per-month fee for customers with solar panels. That means our monthly payment would go up under any of the plans except the third lease option. With the proposed fee, even that option might not yield any savings overall. Additionally, that is the option that requires the most ($22,000) out of pocket.

Numerous lawsuits are being filed against solar companies alleging deceptive advertising practices. Whatever the results of those lawsuits, what is clear is that installing solar panels is a huge financial commitment. If you are considering solar, crunch the numbers carefully, ask the solar company a lot of questions, and talk to current solar users in your area if you can to see what their experience has been.

This is just my experience with solar panels, of course. Your mileage may vary. But in the meantime, you may get more bang for your buck slaying energy vampires or implementing these 10 easy ways to lower your electric bill.

Have you gone solar or know someone who has? What was your/their experience? Let us know in the comments below!

More about...Home & Garden, Frugality, Taxes

Become A Money Boss And Join 15,000 Others

Subscribe to the GRS Insider (FREE) and we’ll give you a copy of the Money Boss Manifesto (also FREE)

Yes! Sign up and get your free gift
Become A Money Boss And Join 15,000 Others
guest
44 Comments
Oldest
Newest Most Voted
Inline Feedbacks
View all comments
Dutch dude
Dutch dude
5 years ago

Situation in the Netherlands is very different. It was partly subsidized by the state, energy companies do not make any hassle when you install solar panels.

Why are solar panels so expensive in the USA and why is installing solar panels being made so difficult? I bought a complete system with 12 panels for less then 3.000 euro. It is giving me 3.000 kWh per year which is about 600 euro. Within 4.5 years the whole installation has paid itself.

Honey Smith
Honey Smith
5 years ago
Reply to  Dutch dude

Traditional utilities are in competition with solar at this point. I read another article about a regional utility (not mine) that is going to start offering installation of solar panels and offering a monthly bill subsidy. That way it would all be through your regular utility and you’d know it would be cheaper. I’d be surprised if that didn’t take off here and finally make it worth it for us.

Mrs. PoP
Mrs. PoP
5 years ago

We are actually in the process of getting solar panels right now, but our numbers are much more compelling than yours. Here’s what we’ve written about it so far. http://www.plantingourpennies.com/happy-friday-happy-complication/ But the short of it is that our location is great for generation, so the cost for a system that will cover all of our electric use ($100/mo on average) is $30K, and we qualified for additional subsidies from our utility company that will cover approximately half of the cost. Those plus the 30% rebate from the federal govt mean that we’ll end up paying for about 20% of the… Read more »

Mr. Frugalwoods
Mr. Frugalwoods
5 years ago

I’m guessing you are in a state that doesn’t have good solar incentives? Here in MA the break even point for a home with a good south-facing roof is approaching 6 years. At that rate, it’s basically a no-brainer for a long term homeowner to buy a system. What really makes the numbers work are the SRECs and state tax rebates. In addition, the net metering rates are heavily tilted in the direction of solar… again, a state based incentive. I’d encourage everyone reading to not assume that Honey’s experience will match your own. The economy of solar varies dramatically… Read more »

Adam
Adam
5 years ago

As others have noted, take a look at what incentives your state government offers. Some offer tax credits, some offer low-interest loans.

Honey, take a look at geothermal heating/cooling. It works anywhere, and it’s just as green as solar panels. You also get a 30% tax credit from the federal government, currently. Geothermal systems also last longer than conventional HVACs.

Robhwales
Robhwales
5 years ago

You don’t specify what you were going to get for the $46k in terms of size of system so it’s pretty difficult to comment but that sounds a very high price. I’m in the UK and have had a 4kWh system for 3 years. That cost $15k when installed and would be less than $10k to install now. As early adopters we get paid here for each kWh that we generate and its a very good deal over the medium term.

Perhaps you could put more detail about the system?

Honey Smith
Honey Smith
5 years ago
Reply to  Robhwales

It was for a 10.25 kW system generating 18,811.06 kWh/year. Is that what you mean?

I think part of it was that we moved into the house in May and got the solar estimate in November. We didn’t have utility records for a calendar year and since summer is the most expensive time of year for utilities in the Phoenix area, their estimate of how much power we actually needed may not have been accurate.

Debra
Debra
5 years ago
Reply to  Honey Smith

Uh, Phoenix? We’re in Phoenix and just installed solar panels in April. I certainly hope those greedy idiots at APS don’t get their way. We put solar on because we believe in alternative energy, and we were hoping it would save us a little money. If they can charge us $50 extra, that puts us over the “saving money” threshold!

tas
tas
5 years ago

We get a better deal here in Maine, but use significantly less electricity than you do (though our prices are also quite a bit higher than yours — 11 cents a kw sounds like a deal!). Our local company generally can do it for the price of your current electrical bill and they offer a 2.9% loan to cover that with nothing down. Wonder if you could get estimates from other companies or if you’re just in an expensive area? I also keep reading about these ‘connection fees’ — does having a backup generator instead of having a connection to… Read more »

Tyler @ BibleCents
Tyler @ BibleCents
5 years ago

Having worked as an structural engineer for numerous solar installations (residential, commercial and agricultural) there can be other costs as well. 1. You may need a new roof as there is no sense putting a 25 year solar system on a roof with only 5 years of life left. 2. Utility connections and/or transformer upgrades. Depending on size and location of the system, the electricity utility may need to run new lines or install new transformers. If you are in an urban area this is usually not too big an issue but can be significant for rural owners. 3. Building… Read more »

Grace | Total Investment
Grace | Total Investment
5 years ago

Hi Tyler, I just want to give you a big thank you for your additional information.

Tyler @ BibleCents
Tyler @ BibleCents
5 years ago

My pleasure Grace.

Wendy
Wendy
5 years ago

For the sake of full comparison, could you provide your geographical location and the size of your house? The cost of solar panels heavily depend on that. Thank you.

Honey Smith
Honey Smith
5 years ago
Reply to  Wendy

I’m in the Phoenix area, our house is 1650 square feet and we also have a pool.

CA Here
CA Here
5 years ago

California here. We have an third option that is not purchase or lease but rather purchase electricity from the solar company. They install and maintain for free. They remove when we want.

We buy electricity from the solar panels at a low price which brings down our need for grid electricity and reduces our grid tier pricing to the lowest.

Overall we are paying about 1/2 the cost of electricity with no out of pocket costs and cancel at any time.

Ciaran
Ciaran
5 years ago

We’re currently talking to SolarCity about putting panels on our roof. I know it’s probably greater value to own my panels outright, and it’s more of a means of locking in a rate than eliminating an electricity bill entirely. But with a 10-15 year return on investment on a sizable investment, I would much rather save 30-40% on my electricity bill today than wait and pay interest on a loan for solar panels. We’re currently paying about 18 cents/kW (everything’s more expensive in NY) and we would lock in about 11 cents/kW for the next 20 years. Another factor that… Read more »

David Salahi
David Salahi
5 years ago
Reply to  Ciaran

We went with Solar City and have been very happy. We chose the 20-year plan with Solar City owning the panels. That works fine for us–one less home maintenance responsibility. After 20 years who knows whether the panels will be of any value? And it’s hard to imagine SC will want to come and uninstall these old panels to use them elsewhere after 20 yrs. There will undoubtedly be better solar panel technologies by then.

matt
matt
5 years ago

Vivint solar has no equipment costs. Talk about no brainer. They become your electric company & you pay about a third of what you were paying. To pay for panels at all makes no sense to much liability

David Salahi
David Salahi
5 years ago

I have to agree that installing solar panels doesn’t necessarily make sense from a strictly financial point of view. We got solar panels installed about 5 years ago on our home in Southern California and I don’t think we’re saving money. We may even be paying more (who knew that oil would be down below $50/bbl?). But we did it as much for environmental reasons as for any potential rate reduction. One extra feel-good reason for patting yourselves on the back if you get solar panels is that they generate the most power at the time when the grid needs… Read more »

Kelly
Kelly
5 years ago

I have them here on my house in NJ, but we have a decent SREC market. We went through a Sunpower dealer in 2011 when they were still doing leases. In our contract, we have a one time buyout option that we’re saving for. We do maintain a giant excel spreadsheet that calculates the long term cost to make sure it’s still worth it. As the SRECs go back up (they dropped from something like $500 to $100 for a while right after we started the lease), the deal keeps getting better for us. Check to see if your employer… Read more »

Kelly
Kelly
5 years ago
Reply to  Kelly

Also to note because it wasn’t exactly covered, you are still 100% on the grid. When the power goes out, your power goes out. It’s a safety issue for the utility workers. The system now can’t handle your house feeding into the grid when everyone else is off. Maybe in a few years, they’ll work this out with the inverters. But for now, you’re out of luck just like everyone else.

Emily @ Simple Cheap Mom
Emily @ Simple Cheap Mom
5 years ago

I live up in Canada and after some quick calculations we decided to try to decrease our usage instead. We were able to drop our usage from 25-40KWH/day down to about 10kwh/day! We’re saving al ot of money and if we ever did want to install solar panels, we could get by with a much smaller system!

Dianecy
Dianecy
5 years ago

I’d be very careful as you speak with people who have installed solar, especially recently. They are going to have a bias that they’ve made a good decision, because well…they want to believe they’ve made a good decision. I’d ask a couple of realtors about the problems that go along with re-selling a house with solar. I would also talk with early adapters. How’s it working once the equipment is 8, 10, 15 years old? Sure technology has changed, but it’s going to keep on changing in the years to come. Soon enough you will be saddled with old equipment.… Read more »

Debra
Debra
5 years ago
Reply to  Dianecy

I agree about the power those power companies wield. I’m also wondering who is backing those lawsuits…

akoilady
akoilady
5 years ago

This post isn’t so much about installing solar panels as it is in utilizing the offers power companies offer me. I’m not sure what happens in other states, but here in PA we can chose the power company that “supplies” our power, and the local company is in charge of maintaining the lines. The company I chose has an option of a “free power” day, generally on a Sat or Sun. I chose Sat, and that is when I do laundry, run the dishwasher, use space heaters and turn the gas heat down. (It’s down to begin with) I should… Read more »

Shaun
Shaun
5 years ago

I’m also in the Phoenix area (Chandler) and started looking into solar. Turns out, Solar City won’t even give me a quote until the local electric company (SRP) figures out if/when they are going to start that $50/month fee for solar users. But there is another option to consider – buy the system outright, but do it via a no-money down FHA loan instead of a loan through the solar company. Then you would have no monthly electricity payment to them only your monthly loan payment to an FHA lender. And you get all the tax credits that you give… Read more »

Debra
Debra
5 years ago
Reply to  Shaun

I’m surprised it’s SRP and not APS that’s promoting the $50 fee.

Beard Better
Beard Better
5 years ago

It’s really unfortunate that deceptive industry practices and utilities absuing their monopoly powers are making a huge headache out of what should be a slam dunk decision, both in terms of cost and environmental impact. As much as I hate the refrain of “5 years away,” I really think we are 5+ years away from a regulatory and technological landscape that will allow for widespread adoption of consumer-scale photovoltaic technology in the US. Prices will continue to fall, efficiency and panel lifetime will improve, and enough of the bad apple companies will have been sued into bankruptcy that I think… Read more »

Eddie
Eddie
5 years ago

At least part of the problem is the power market in Arizona. Your rates sound a lot better than the ones here in Southern California. Plus the state of Az seems fairly regressive when it comes to rooftop solar. We had a nearly 4Kw system installed almost 2 years ago. In the first year (11 months) our savings were $586. This year, with one month to go we’ve saved $884 with another $40-$50 likely for January. A large part of that is the result of adding AC late last year and running it reasonably hard this summer. In CA the… Read more »

Rail
Rail
5 years ago

Just wanted to say thanks Honey. We are looking into solar and wind power and appreciate any info. Cheers!

zzzzzz
zzzzzz
5 years ago

My first reaction to your post is that you use a lot of electricity (almost four times what my family uses), which is why you would need so many panels. I would suggest first taking a look at your electricity consumption, and how you can reduce that. Given where you live, my guess is that you use a lot of electricity running your AC. Have you considered a solar water heater? Heat is abundant where you live, especially during the summer, and water has a high specific heat, so it takes a lot of energy to heat water. This means… Read more »

Shaun
Shaun
5 years ago
Reply to  zzzzzz

Everyone’s energy usage will vary. I probably live within a 20 miles radius of Honey and her numbers are almost identical to mine. My average electric bill is about $185/month – with lows ranging from under $100 to a high in August of almost $400. My total yearly kwh usage is within 1,000 of hers. I have a 2,900 square foot house with 2 air conditioners and mostly electrical appliances – a gas water heater and cook top are the only gas items we have. We have ceilings fans and use them. We have plants growing on the outside walls… Read more »

brian
brian
5 years ago

You are leaving out some very key details, like your monthly usage, and how large of a solar array (Dependant on location and orientation of the home/roof). Does your power provider offer peak pricing? Did you first do an energy audit, to determine efficiencies that can be addressed, lowering your average power use?

Kevin
Kevin
5 years ago

Perhaps I just need to investigate further myself but I don’t understand why, if you purchase the solar panels, you’ll be paying 11.8cents/kWh. If you own the panels who are you paying? I thought the point of getting the panels is that you don’t pay…or is that just the coat of ownership?

Kevin
Kevin
5 years ago
Reply to  Kevin

Whoops…cost of ownership

jestjack
jestjack
5 years ago

Had a similar experience here. And the SREC’s are like going to Vegas and throwing the dice. There is a very limited market for these credits at present. Instead of buying the solar panels we chose to go with a new efficient fridge and very efficient “heat pump” hot water heater which so far have been excellent choices. I would agree with others that what you pay for electric is a bargain….we pay about 12.5 cents per KWH. Your electric does seem a bit high…we heat with wood and despite having an all electric house our bill many months is… Read more »

Vawt
Vawt
5 years ago

I think your analysis of purchasing solar panels is missing some important things. First, you could finance it through other means. Second, since the loan payment would be fixed, in a short time energy increases would mean your overall payment with solar would be lower than if you did not install it. I do agree that leasing has risks. It can save you some money, but may be a barrier if you move. I did an in depth analysis before I installed solar about 8 months ago. My net cost for purchasing ended up at $15,000 after tax rebates and… Read more »

Jimmy
Jimmy
5 years ago

Hey Honey,

This kinda or story is dying for a table. It’d be a lot easier to follow if you included two tables, one for buying and one renting, with all the rates and down payments and such in it. You could even do cool stuff like calculate the total expense over 30 years for all the options.

Cvanz
Cvanz
5 years ago

We installed a wind turbine in 2012. It has the ability to make 18,000 KWH per year, that is roughly 90% of our yearly usage. The first year we saved $2000 on electric bills. The next year we barely broke even, this year we will lose money. We are still attached to the grid. We paid $46,000 for the wind turbine. We own it outright. We pay $16.00 per month to have an electric meter and still be hooked up to the grid. If we lose electricity the turbine shuts down for 30 minutes after electricity is restored. Our electric… Read more »

Gillian
Gillian
5 years ago

Brilliant post and so interesting- here in the UK solar panels aren’t tremendously popular in the majority of areas primarily as of course we don’t have much sun- renewable wind energy seems a slowly rising option but it is definitely interesting to read how solar installations work (I’d never come across solar leases before!)

claire
claire
5 years ago

buy small and stay small and enjoy life. I remember i was shocked when a family of 7 moved to a smaller house and on a beautiful location- she said “my older kids will be going to college in 3 years and we won’t need the room and now we love where we live”. I know I shared a room with a brother till he became “of age” – our society thinks every child has to have their own space- let one of them take over the garage or the attic – they’ll have fun that way. solar heating- open… Read more »

Bill in NC
Bill in NC
5 years ago

I’m afraid utilities will win their argument that grid-tied solar systems pay a monthly fee.

I’d expect to pay $20/month even in solar-friendly states like California.

JB
JB
5 years ago

I’m having panels installed at my house on Long Island next month. Here we pay 23 cents per kwh and the power company has announced a plan for a 4% increase every year for the foreseeable future. They also charged a fuel surcharge this year, when fuel prices were at their lowest in 8 years. We tried to lease with three different companies, but the terms were horrendous. A representative from Solar City broke down into yelling at me after I asked why they were offering me 17 cents/kwh, but my friend in lower NY was offered 10 cents/kwh. The… Read more »

j hill
j hill
3 years ago

if you ‘invest’ $28500 in a 6 or 7kw solar system and it saves you $2100 a year in power bills you would have to find a bank paying about 7% on CD’s to make a return like this…… Hmm , then you get a 30% fed tax rebate , that is about $8500 extra back on my fed tax return in the year after the system gets on line… what bank pays a kick back like that…. and then the CO2 avoided: Approx. 63.9 tons per year , you could fill a truck with coal with that kinda load….so… Read more »

shares