You’ve probably heard that solar panels can save money on your electricity bill, but there is a lot of confusion about what they do, how much they cost, and how much you can save. So, let’s break it down.
What Solar Panels Do:
Solar panels can absorb sunlight and convert it into electricity. One of the myths about solar is that it gathers heat, so hotter climates produce more energy. Solar actually works by gathering sunlight, not heat. In fact, extreme heat or cold can make the panels less efficient; solar panels work best on colder sunny days. Of course, however, in the winter there are less hours of sun, and it can be cloudy often. In general, March through September is when you will have the biggest output of sunlight.
Solar panels absorb the sun’s light throughout the day and convert it into direct current (DC) electricity. It then passes through an inverter that will convert it to alternating current (AC) electricity, which our homes use. With the energy it saves it can reduce your electric bill dramatically; some months you may pay a few dollars. Other months there may even be extra energy that can be used as a credit to rollover to the next month. With a system that is designed to offset 100% of your electricity, you can pay your electric bill during the winter with the energy saved over the summer.
What it costs:
There are three options with getting solar panels
Solar panels can cost between $25,000 – $45,000 depending on how many panels you want to install. The quantity of panels you should install depends on how much of your roof receives proper sunlight. There are incredible rebates available from the government to offset these costs as they like to encourage renewable energy.
- First off, there is a 26% federal tax credit for the solar panels, which will be decreased to 22% if you buy panels in 2021, and 10% in 2022. With solar becoming more popular, the federal government will cease all tax credits within the next few years. If you do not have a large enough tax liability to claim your entire credit, it can be rolled over into the next year.
- In New Jersey you are also eligible for Transition Renewable Energy Certificates (TRECs) which can pay around 45-65% percent of the cost.
- In New York you can receive a credit equal to 25% or $5,000 (whichever is lower) of your qualified solar energy system equipment expenditures. If you do not have a large enough tax liability to claim your entire credit, it can be rolled over into the next year. In certain areas in NY, you are eligible for a NYSERDA credit which is between $2,000-4,000.
- In NYC you can get a Property Tax Abatement which is 20% of the total system cost (after rebate) for 4 years.
For example, assuming one has an electric bill of $3,000 a year and a roof with good sunlight. He can get a solar system that costs $40,000 and will cover $3,000 a year worth of electricity.
With the federal tax credit of 26%, you will get back $10,400 of the system.
In New Jersey, with the TREC program you get back $27,000 over 15 years, your total will be $2,600.
In NY state, with the $5,000 fixed rebate, the total will be $24,600. In NYC, with the 20% Property tax abatement of $8,000 divided over 4 years (which will expire at the end of 2020), the total will be $16,600, before the NYSERDA credit.
In some cases leasing may be the right fit for you. This may be the case if you have a lower income tax liability. The lease provider will acquire the federal tax credit on your behalf and in exchange give you a reduced monthly rate, which will end up being cheaper then what you are paying for your electricity. Leasing terms are usually 20-25 years, after which point you will be able to buy or negotiate new lease terms.
Even when leasing, you will still be eligible for the NY and NYC rebates.
In addition, there is also a guarantee that the system will produce as expected, and if it falls short, you will be reimbursed.
How much electricity will your solar system save?
To know how much it can save, we need to understand a bit about electricity.
Electricity is measured in kilowatts per hour or kWh, for example, if a light bulb is 60 watts, then every hour it uses 60 watt hours, and 1,000 watt hours is 1 kWh. The solar panels produce energy that is measured in kWh. Should you produce as much energy from your solar panels as you consume through electricity, your bill would be $0.
In addition, your average electricity company charges per kWh used and in tiers. Tiers are marked by a certain amount of hours that you use electricity in your home, for example after 500 kWh you will enter tier two. The difference is that in tier 1 you pay between $0.13 – 0.16 cents per/kWh, in tier 2, you pay around $0.20/kWh. Next time you get your electric bill you can see exactly how many kWh you are being charged for and how many of that is in tier 2. Now with solar panels by saving you power which is, they not only save on your bill but also bring your total kWh you used that month into tier 1, which will simply save you money by not paying the higher tier 2 price you are charged after a certain amount of energy consumption.
It is also important to keep in mind that electricity bills are rising by up to 3% percent every year, so solar is definitely something that should be considered.
Your average home in the US uses 1,000 kWh per month. Depending on where your solar panel is positioned on your roof, it can produce anywhere from 300 watts to 500 watts per hour depending on the wattage capacity, amount of sun it gets, and the quality of the panels. So, for example, if the panel is producing 400 watt per hour, and 4 hours of usable sunlight, every panel can produce 1.6 kWh/day or 48 kWh/month, so with 21 panels you can produce 1,008 kWh/month which essentially gives you free electricity.
Is solar an investment?
You will start saving immediately on your electric bill. Between 5 to 8 years, you will break even on the cost of the system and start coming out ahead. As investments go, you may be able to get a shorter return on your investment elsewhere, but solar isn’t an investment to make money, it is a way to save money. With financing there is little to no out of pocket costs, as the amount saved on your electricity bill because of the solar will cover the financing. Electricity bills will always need to be paid, and with solar you can reduce or eliminate that cost.
Solar panels will also increase the value of your home (as long as they aren’t leased panels) and such homes can sell for 4% more, depending if you financed it and how much you have already paid.
What are the pros and cons of getting solar?
The pros are simple. The system pays off, and the numbers add up. So what are the cons in getting solar?
If you finance it (which is usually the best method, since there are incredible rebates) you get a loan, and many people don’t like having another loan on their name, for something which isn’t an essential like a car or house, even though it makes sense.
Also, keep in mind it will affect your debt-to-income ratio – how much you owe divided by how much income you have. It is important if you ever need to get a loan from your bank. For example, if you pay $2,000 a month for your mortgage and another $1,000 for other debts, your monthly debt payments are $3,000. If your gross monthly income is $6,000, then your debt-to-income ratio is 50 percent.
What is involved in getting solar?
As long as you have a stable roof, whether flat or slanted, it’s pretty straight forward. You need to reach out to a contractor that sells solar panels, and then choose one of the payment plans mentioned earlier.
If your roof is in a bad condition, installing solar panels can save on the cost of fixing your roof, as it will then make your roof eligible for rebates.
There are many specific things involved and a contractor can best advise each person based on what they need. The whole process from signing up to installation usually takes 6-8 weeks, with the installation taking 1-2 days.
What should you look out for when getting solar?
- Financing: There are many financing plans, and this is key when getting solar. Make sure your contractor knows not just about the panels, but also about the financing, with low interests rates, and plans that work for you.
- Quality: Solar panels are basically divided into two types: monocrystalline and polycrystalline. Most panels today are monocrystalline, though there are still quality differences between different manufacturers. It may be more expensive for quality panels, but they will also be more efficient and have less panel degradation, which means that they will take many more years until they become less efficient in harnessing the sunlight.
- Warranty: Solar panels don’t need much maintenance, but if necessary, make sure that you have a good warranty. The warranties differ based on the quality of the panels you buy. Some manufactures also offer service; this will ensure that even if your contractor closes down, you will still get support.
- Inverter: There are two kind of inverters;
- Inverter for the entire system: These are cheaper but if it breaks, then the entire solar system on your roof stops working, and will not be producing energy until it is repaired.
- Micro inverters: Each panel has its own inverter, which can cost more, but the whole system won’t break, and one panel inverter can easily be replaced.
- Layout: Make sure you go with a contractor that understands where to best place the panels to maximize sunlight hours.
- Sub-Contracting: Find out if your contractor has an in-house team, or subcontracts all the work. In-house is prefered, since the contractor will be able to service the product better.
As with everything you buy, reach out to people who have solar, and do a little research about the product and contractor before committing.