Thanks to the falling price of solar panels, tree huggers aren’t the only homeowners seriously considering making the switch to solar power these days.
The price of solar panels fell 12 percent in the past year and has plummeted by more than 70 percent over the last 10. While the installation of panels still requires a sizeable upfront cost for those who purchase rather than lease them, it’s now possible to break even thanks to lower electricity bills in around five to 10 years.
“Solar has gone from being something that you had to pay a premium on to something that is very price competitive with other energy sources,” says Ron Pernick, co-founder and managing director of Clean Edge, a research and advisory firm in Portland, Oregon, that monitors clean energy markets.
Math like that has pushed U.S. demand for solar power to a record high. The amount of solar power installed in the country as measured by gigawatts has increased more than 23 times over the past eight years, and the United States is poised to move from the third to the second-largest solar market in the world, according to the Department of Energy.
The price drop reflects solar power’s unique position as an energy source that’s not in short supply. As demand increases and more panels are produced, the cost to make them falls. “Solar is really more akin to the tech industry than the energy industry that way,” Pernick says.
Ask yourself these questions if you’re thinking about making the switch:
1. Is my home a good candidate? To get the most from solar power, you’ll need to live in an area that gets a lot of direct sun and not have any large trees blocking the light, especially to the south or the west of your roof. “If you have a lot of shade, it’s just not going to work unless you’re willing to cut back the trees,” says Tom Kimbis, interim president of the Solar Energy Industries Association.
The amount that you can save depends more on how much of your current energy usage you could replace than on how much direct sunlight you receive. A 5 kilowatt system in an average home in Boston or Chicago, for example, would actually offset a greater percentage of electricity usage than the same system would in an average home in Phoenix, according to a report by the NC Clean Energy Technology Center.
The less energy you use, the smaller system you need to purchase, so it may be worth conducting an energy audit before installing the panels to see if there are any easy ways you can reduce your energy usage. If you’re going to need a new roof, you should tackle that project before beginning solar installation, since it can get complicated to remove and store the panels for roof repairs or replacement.
Most solar vendors can help you figure out your potential savings, but you can get a ballpark estimate, including how long it would take to break even, from the calculator at EnergySage.com. Even if you move before hitting the break-even point, you it may still be an investment worth considering. A 2014 report by the Lawrence Berkeley National Laboratory found that homes with solar panels sold for a $15,000 premium, and other surveys have shown that buyers are increasingly looking for homes with green upgrades.
2. How will I pay for it? While the savings are significant, the cost of installing solar panels still is substantial. The average cost is around $15,000 to $20,000, and there are several options for paying for it. Homeowners who can cover the cost outright with cash will pay the least in the long-term for the system and get the greatest savings.
Homeowners who can’t afford to purchase a system can borrow money, either by financing from the installation company or with a home equity loan, to cover the cost. As with any loan, you should compare rates and read the terms carefully before financing the system. You’ll generally find two types of loans: unsecured loans with interest rates around 6 percent, and secured loans with deductible interest around 3 percent. The former are easier to get, but the latter is more cost effective. Even with interest, your loan payments plus electric bills may be lower than what you’re paying for electricity now, but you should run the numbers to be sure.
This year, consumers who purchase (with cash or a loan) solar panels can get a tax credit worth 30 percent of the cost of installation on federal taxes, thanks to the Residential Energy Efficiency Tax Credit. Many states also have programs to encourage homeowners to install solar panels, and most installation companies will help you figure out what you need in order to claim them.
Leasing a system will cost you less money in the short-term, and you won’t be responsible for the maintenance or upkeep of the system. Leases typically last for 20 to 25 years, and you’ll save about half as much money on your energy bills as you would have if you’d bought the panels. “Some people like leasing because it’s really simple,” says Vikram Aggarwal, CEO of EnergySage. “All you have to do is sign a paper, and the leasing company comes in, installs the panels, and manages everything for you to make sure it continues working.”
A few companies also now offer power-purchasing agreements, in which they pay to install the energy system and then the homeowner buys electricity from the installer.
3. Who will install it? Just as you would with any large home improvement project, you’ll want to get do you due diligence before selecting a vendor. Get bids from at least three companies that are members of the Solar Energy Industries Association, which means they need to abide by a code of conduct, and that have a decent record with the Better Business Bureau. Look for a system that comes with a 25-year warranty, which is becoming the industry standard, and read the fine print on any loan agreements.