Should you add a solar panel system to your home?

Solar PowerSolar power is becoming more and more popular in Arizona.  With an average of 296 days of sun and probably the sunniest state in the US, it seems like a no brainer for everyone to jump on the solar bandwagon.  In fact most of us wonder why don’t more people have solar panels on their homes?  

Well for starters solar panel systems are not cheap.  While they do lower your electric costs, the initial purchase and installation is a pretty hefty upgrade for most homeowners.  

There are many factors to consider when determining the price of purchasing a solar system but the typical home installation ranges from 3 to 7 kilowatts and costs between $15,000 and $40,000.  The average for 5KW of system typically costs around $20,000.  The price can increase if you have to modify an older home with a roof that can’t handle the weight.

There are some ways to decrease the purchase and installation price through tax exemptions, tax credits and rebates. 

  • The Solar Investment Tax Credit is offered through the federal government.  According the the website www.seia.org this credit is a 30% tax credit for solar systems on residential homes.  Under the current law it remains in effect through December 31, 2016.  

  • Arizona’s Energy Equipment Property Tax Exemption allows homeowners to not pay tax on the value added to the property by the energy system installation.  There are some restrictions so speak to a tax expert to learn more.  And make sure to update the county assessor when you install the equipment, you will need to provide the county assessor with the documentation of the purchase and installation within 6 months.

  • The State of Arizona also offers homeowners complete sales tax exemptions on the purchase of solar power equipment.  Make sure the solar company is registered with the Arizona Department of Revenue prior to purchasing the system. 

  • Some utility companies offer a rebate when you install a solar system so check with your utility company and your solar company to verify if you are eligible for any incentives ro rebates.  

Solar PanelIn addition to the tax exemptions, tax credits and rebates, purchasing a solar panel system could add value to your home.  Like most upgrades you won’t get dollar for dollar return.  Solar panels that are owned by a home seller add 4 to 6 percent to the value of a home.  This is often less that the cost of the panels and the installation.

Financing is available thru third-parties.  A power purchase agreement (PPA) allows the homeowner to pay a specific rate for the electricity that is generated each month.  An installer/solar company builds a solar energy system on a property at no cost.  This solar system offsets the monthly electric bill and the solar company sells the power generated by the system to the homeowner at a fixed rate that is lower that the local electric company.  When a PPA ends the homeowner can extend the contract or buy the solar system from the company.

For those that don’t want to or aren’t able to purchase or finance a solar system, there is an alternative to forking out that amount of cash, you can lease the system from a solar company.  Some solar companies even have a zero down payment option.  This leasing option is a great way to start saving money on electricity without having to pay for the solar system up front.

There are some important things to think about before you lease a solar system.  Houses with solar leases can be difficult to sell and leased solar panels do not necessarily add value to a home.  For some buyers it may decrease the value in their mind or skip the home all together.  The buyer must take over the solar panel lease and the buyer has to qualify with the solar company.  Solar companies typically require a higher credit score than most lenders do for qualifying. Some companies that offer a zero down payment lease can make it very difficult for you to transfer the lease to a new buyer to assume the lease.  In addition, the lease payments are figured into the debt to income ratio of the buyer and could cause them not to qualify.  

There are many other factors to consider when purchasing a solar system.  It's important to do your homework and investigate your options as well as the solar companies that you are considering working with.

Before you purchase a solar panel system speak to your accountant about the tax benefits.  Before you sign a solar panel lease make sure to read the lease carefully.  You should also weigh the pros and cons making sure to include the issues you may have when it’s time to sell the property.