Residential solar: Are you a leader or a laggard?

The efficiency and cost effectiveness of residential solar is approaching a tipping point where homeowners should be asking themselves why they haven’t yet adopted the technology.

Unlike past eras, when residential solar was an expensive hobby for energy geeks, it has now assumed a place in the housing profile of any homeowner looking for a sound economic investment. The impact is becoming more apparent in the increased willingness of potential homeowners to pay a premium for residential solar when purchasing a home. At the same time, hardware and installation costs have decreased substantially over the last decade. These trends are creating a future for residential solar where the longer a homeowner waits to adopt the technology, the less likely they will be to reap the benefits available to early adopters.

Solar in the past 

The oil shortage during the 1970s kicked off what many people thought would be a prolonged era of high energy prices. We all know oil prices came back down, but before they did, they inspired a generation of homeowners to consider solar panel installation.

The panel efficiency of commercially available systems at the time was abysmal, with efficiency rates in the mid-single digits. Even in smaller homes that demanded less energy, residential solar panels of the time required a lot of space to make a big impact. There were also so few systems, relative to the total housing stock, that it was also difficult to recoup the cost of these system when owners sold their homes.

Back then, the home appraisal and mortgage underwriting industries hadn’t even begun to think about factoring in solar systems as part of the home value. For these reasons, residential solar didn’t make sense at the time for homeowners looking to reduce their energy costs.

Solar in the present

The current era is a totally different environment for solar panel efficiencies.

Today’s solar panel efficiency rates are often in the 16–22 percent range for a typical rooftop-mounted system. System costs have dropped dramatically over the past 15 years, with the average in 2014 just under $4/watt before any federal, state or local incentives. For an average-sized, 5 kW system, that works out to be a $19,000 price tag.

If you factor in the Federal Residential Renewable Energy Tax Credit (set to expire at the end of 2016 if Congress does not renew it), which is an investment tax credit of 30 percent of the system cost, the price is reduced to nearly $13,000. There are also many state and local incentives that bring this cost down even further.

With these added incentives, solar PV systems can now pay for themselves in as little as four years, and homeowners can reap the benefits of lower electricity bills for the next two decades.

Most solar companies now allow you to finance the purchase of a system with little money down and at rates comparable to a new car loan—freeing up cash to be used for other investments. Even taking interest rates into account, financing a system would be on average a better investment than the S&P 500 in 46 out of 50 cities surveyed in the North Carolina State University Going Solar in America: Ranking Solar’s Value to Consumers in America’s Largest Cities study.  

Eventually, as more homeowners adopt the technology, not having solar panels will become more costly than actually owning them. In early 2015, the adoption rate for residential solar is still on the upslope, at a time when the panel prices continue to drop. This sweet spot is reducing the length of the payback period for early adopters and inspiring greater adoption for other homeowners.

Does an investment in solar PV make sense for your home? Here are some quick ways to find out:

  • See if your home is a good candidate for a solar PV system. There are several solar mapping tools available online that can give you a good idea of your home’s solar potential.
  • Contact your state energy office to get a list of reputable solar installers.
  • Check the Database of State Incentives for Renewables and Energy Efficiency to see if there are any state, local or utility incentives for solar PV systems where you live.
  • Get quotes from at least two installers, and ask them if they will allow you to finance the total cost of installation. Most companies should at least work with another financial entity that will allow you to finance the system. 
  • Financing is usually better than paying cash up front. Make sure to check the finance interest rate and run the numbers based on a 25-year total system lifetime. If you have access to money through a Home Equity Line of Credit (HELOC), the rates tend to be more favorable.

Leasing is not the same as financing. When you lease, you put zero money down, but you do not own the system. Therefore, you cannot take advantage of most financial incentives, especially the federal tax credit. You are essentially just buying the power the panels produce, often at a cheaper rate than your utility. Leasing should still save you money in the long run, but probably not as much as buying or financing a system outright.