How to Calculate True Solar Panel Cost For Your Home
You’ve looked at going solar for your electricity for a while now. You’ve used tools like Google’s Project Sunroof to see if it’d work for you. You may have even worked through our other articles like 5 Types of Home Solar Electric Systems and Choosing the Right One or How to Use a Battery Bank to Protect Your Home From Outages . You know what you want and probably how much it will cost upfront.
You already know that solar power systems have a much better payback time and that the price of solar panels is always going down. You know you’re going to add value to your home and secure your family, so what’s holding you back? Sticker shock? Perhaps you need to figure out what the cost will be after you access the various federal, state, and municipal incentives available to you?
Let’s take a look at how to figure that out.
Find the Incentives
Most people save this step for last when calculating the cost of a solar power system. Don’t.
There’s a very good reason to find your local, state, federal or other incentives first. Knowing that there are incentives will help you get through the parts of the calculation that make it look like solar electricity isn’t doable . You’ll be thinking in the back of your head, “Yeah, that seems like a lot, but I’ll get 30% of that back in income tax credits.” Or, “Seems expensive, but I can’t forget that there’s a $1,500 rebate for this, too.”
For readers in the US, check out the Database of State Incentives for Renewables & Efficiency. If you’re in another country, a quick web search will get you the information you need. For example, Australia has the Energy Matters Solar Panel Rebate & Renewable Energy Subsidy Information site. Many countries, states, and provinces have similar sites that can help you find incentives for your area, too.
The US Federal Solar Investment Tax Credit (ITC)
In the US, there is currently a federal tax credit of 30% of the cost of your system, with no upper limit. That means that you can get a non-refundable tax credit worth 30% of the cost of your solar energy system , regardless of how much the system costs. Check out the Energy Star federal tax credit page for more specific details.
Now, that doesn’t mean that you can take 30% off the cost of your solar energy system. According to the Solar Energy Industries Association, it’s, “…a dollar-for-dollar reduction in the income taxes that a person or company claiming the credit would otherwise pay the federal government.” The U.S. Department of Energy says, “If the federal tax credit exceeds tax liability, the excess amount may be carried forward to the succeeding taxable year.”
To really get a handle on that number and what it will mean to you, you should talk to your tax or financial planner , or the IRS. For the sake of simplicity, let’s say your system costs $25,000 to install. Your tax credit, in dollars, would be $25,000 times 0.30, or $7,500. You would pay $7,500 less in federal income tax because you went solar.
Your $25,000 system is now down to $17,500. Not bad. But keep in mind, the percentage value drops from 30% to 25% after 2019, and then down to 22% after 2020. Yet another reason to do this sooner than later.
State, Municipal, and Utility Provider Incentives for Solar PV Electricity
Most states, or provinces, have some sort of incentive for people to use renewable energy , like solar. These incentives can come in the form of rebates, income tax credits, sales tax incentives, feed-in tariffs, energy credits, or any combination of those. There are far too many regions and programs to take a look at them all, so let’s take a look at a few from around the US. We’re also going to pretend that you can get each of these incentives on your project.
Solar System Installation Rebates
Connecticut’s Clean Energy Finance and Investment Authority Rebate program will rebate you up to 51.3 cents per watt of grid-tied power you’ll be replacing, based on a thorough examination of the design of your system. Connecticut’s calculation can get a little complicated, but this sort of rebate is common and can be estimated by multiplying the watt output of your system by 51.3 cents.
That equation looks like 6,000 w X $0.513/w = $3,078. Let’s call it $3,000 for easier math. Your $25,000 system that became a $17,500 system is now down to a $14,500 system. Sweet. You’ve knocked off $10,000.
Renewable Energy Credits
Renewable energy credits are the result of making a perceived benefit into a commodity that can be bought and sold. Typically, the state or a power utility will pay you a lump sum per kW of production capacity for a certain number of years worth of the RECs that you would have received. Delaware’s Sustainable Energy Utility Solar Renewable Energy Credit(SEU SREC) program gives you, “…an upfront payment of $450/kW in exchange for the first 20 years of SRECs created by a solar system.” For your 6,000 w or 6kW system, you could get $2,700.
That’s a good amount of money for anyone. But you might not want to leap at it either. These credits are a commodity, after all. You may want to do some more research on these RECs as they might be worth more than that in the long run. Just something to think about.
Let’s say you take the $2,700. Now your system is down to $11,800. Cha-ching!
Property Tax Incentive
In some states, you can get a break on your property tax for installing a solar power system . New York has a state law that could give you a property tax break for installing solar power, but have left it up to the local governments to decide whether they’ll honor it or not. If you happen to be in a municipality that does honor it, you could be, “…exempt from taxation for a period of 15 years to the extent of any increase in assessed value due to the system.”
So what does that mean? Well, that might take some figuring out. Let’s say your tax assessment is currently $100,000. Then you install your solar PV system and your tax assessment goes up to $110,000. The increase in assessed value due to the system is $10,000, right?
The average property tax rate in New York state is 1.5% of your property’s assessed value, according to the SmartAsset.com property tax calculator. Since that $10,000 won’t be part of the assessment, you won’t have to pay the extra $150 a year in property taxes for it. You get that by multiplying $10,000 by 0.015. $150 isn’t much, but every dollar saved is three dollars earned, right? Plus, this benefit lasts for 15 years. Assuming your property assessment never changes, that’s $2,250 in taxes you don’t have to pay. Your system is down to $9,950, but it will take a while to get that $2,250 of value back.
This may not seem like the best incentive, but it’s better than none, especially considering that solar power systems are adding considerable resale value to homes now. It used to be that solar power systems were considered to be a liability when selling your home, but the environmental consciousness shift has changed that. According to the Berkeley Lab report, Exploring California PV Home Premiums, people are willing to pay about $15,000 more for a home with solar power over a comparable home without it. Expect that valuation to continue to go up.
Personal Income Tax Credit
Similar to the federal income tax credit, some states will offer an income tax credit too. Oregon’s Residential Energy Tax Credit (RETC) program could net you a $1,500 tax credit per year, for up to five years. The total credit is calculated by multiplying a watt output of your system by $1.50. You can only claim $1,500 of that every year for five years or until the amount is used up; whichever comes first.
Your system is 6,000 Watts, so that’s a $9,000 tax credit. But as you know, 5 years times $1,500 is $7,500. That’s the max tax credit you’ll get in this deal. That’s still a lot of cheese, as the kids would say. Your system is now down to $2,450. Okay, not really, because you’re not likely to get ALL of these incentives, but the point is becoming clear, right?
Feed-in Tariffs and Net Metering
You might be wondering how much feed-in tariffs (FiTs) and net metering will reduce your costs. Unfortunately, it won’t have much effect, if any, on defraying the cost of your system. The best case scenario is that it eliminates your power bill, but it’s likely that you’ll still be paying $30 or $40 a month to stay connected to the grid. Several of these programs also require that you contract to the benefit provider for an extended period of time. It could be as long as 20 years. And you also hand over your RECs for many of these programs.
It also seems that the feed in tariff incentive is dying off. So don’t count on these incentives too much. In other countries, like Canada and Australia, these FiT and net metering tariffs are more likely to be a net benefit.
So What’s the Total Cost?
If all you got was the federal income tax credit and a rebate like the one Connecticut offers and you could have energy independence for about $10,000. Complete energy independence . You won’t be without power during the next big storm, or any storm in the next 20 years or so.
After a year off-the-grid, you won’t even know how much power costs. But you can be sure it’s going to be more than you’re paying now. Between 1960 and 2010, the cost per kWh for electricity rose from about 2.3 cents to just shy of 12 cents. You’re probably paying somewhere around 15 cents/kWh right now, or more. $10,000 buys you a ticket out of that – forever.
Does $10,000 still seem like too much? Well, do you buy lunch out every day? Do you pick up a fancy coffee every day? If you do both of those, you’re spending $10,000 in 4 years with nothing to show for it. If you’d be willing to spend $10,000 on eating out, why wouldn’t you spend that to gain complete energy independence and security for your family? That’s something to think about.
Image Credits:Income Tax Return, Green Home Savings Piggy Bank, Toy House Income Tax Savings, Couple in candlelit home due to Hurricane Sandy massive power outage., via Shutterstock.