Solar Power for Your Home
If you want to use solar power for your home, you have options. You may be able to buy or lease a system or sign a power purchase agreement. Your choice can affect how much you spend up front and over the life of the system, whether you get certain tax breaks or not, and your responsibilities when you sell your home. Evaluate the company, product, costs and your obligations before you make a commitment.
If you use a solar panel system — also called a photovoltaic or PV system — to produce electricity, you buy less electricity from the utility company and enjoy the benefits of renewable energy. The Department of Energy says most homes with solar panels get at least 40% of their energy from solar; that varies by house. Whether solar power will fill all your power needs depends on how much your system produces and how much you use.
If you buy a solar panel system, you may be eligible for tax credits or other financial incentives that offset the initial cost. If you lease or have a power purchase agreement (PPA), you can pay less up front and may have lower monthly payments, but you usually won’t get tax credits or other incentives — the company that owns the system will. Whether you buy, lease or have a PPA, you’ll probably still buy some power from the local utility.
If you’re thinking about using solar power in your home:
- Start by reviewing your utility bill to see how much energy you used in the last year and what it cost. See what part of the total bill is for “metered” electricity or kilowatt-hours (kWh) and what is for other items such as delivery costs. Even if you reduce the number of kilowatt-hours you buy from the utility, you’ll still need to pay the utility’s fixed charges, like delivery or administrative costs.
- Evaluate how you use energy, and look for ways to reduce your home's electricity use. Make your home and appliances more energy efficient and ensure your home is properly weatherized to reduce your energy needs.
- Consider how long you plan to stay in your home. A residential solar system is designed to stay on a home for at least 20 years. Leases and PPAs generally are long term; some last 20 years. If you think you might move in that time, find out how installing a system will affect your ability to sell your house. Ask the solar company about its policy on transferring the contract to the new homeowner after a sale, and confirm that what it tells you is the same as what is in the contract.
- Figure out what size system you need to meet your average energy usage. Learn about the different products available in your area that will work on your house. The customizable calculator from the Department of Energy uses your address and details you provide about a system to help you estimate how much energy it will produce.
- Solar systems use one or more inverters to convert direct current (DC) electricity from the solar panels into alternating current (AC) electricity used by your appliances and outlets. The amount of power you get from a solar panel system depends on:
- the average number of hours of direct, unshaded sunlight your roof gets annually
- the pitch (angle), age and condition of your roof, and the compass direction it faces
- the size and strength of your system
- environmental factors such as snow, dust or shade that may cover the system
- Contact your utility to see what arrangements it makes with homeowners who produce solar power. Your utility may use “net metering,” which pays you or gives you credit for excess power your system produces during the day and returns to the grid.
- If you have a homeowner’s association, find out if you need its approval to install a system.
If you buy solar panels, you pay the cost of the entire system. Costs vary depending on the system’s size, but can typically add up to about as much as a new mid-size car. You might pay for your system with a home equity loan, or get financing through the installer, a bank, a credit union or a finance company. There may be a state or local financing program you can use (like a Property Assessed Clean Energy program, or “PACE,” where you repay a loan through your property tax bill). If you shop for a loan, ask:
- what will you pay upfront?
- what annual percentage rate will you pay?
- how are your payments calculated?
- will payments change during the loan term?
- is there a balloon payment?
- can the lender put a lien on your home or system?
Incentives & benefits
If you buy a system, you may be eligible for federal, state or local tax credits or other incentives. The federal renewable energy tax credit for homeowners is equal to 30% of the cost of the system. The credit is scheduled to expire at the end of 2016. The Department of Energy has information about state-specific incentives for using renewable energy.
You may receive other benefits from having a solar system. Depending on local net metering rules, your utility may pay you for power your system returns to the grid. You also may be able to sell or get credit for renewable energy certificates (RECs) related to the electricity your system produces. A REC is separate from the actual electricity produced; it’s a certificate that proves you generated a certain amount of renewable energy.
If a business, including a home business, has solar panels and sells away all the RECs, it loses the right to tell customers it’s using renewable energy. That’s important to keep in mind if you have a home business and want to claim you use renewable energy.
Compare detailed bids from several companies. Bids should have specifics about the system, including:
- the expected performance of the equipment and size of the panels
- the full cost of installation, including any building or electrical permit fees
- whether it’s guaranteed to produce a certain amount of energy
- what warranties apply to the equipment (such as the panels and inverters) and the installation workmanship
If you own the system, you need to maintain — or pay someone to maintain — the panels and equipment, unless the seller includes that in the contract. Maintenance could include repairing or replacing the inverter or cleaning the panels occasionally if it doesn’t rain often. Your equipment may be covered by a manufacturer’s warranty for the initial period you have it.
When you look for a company, ask friends, family and neighbors for references. Check a company’s history with your state and local consumer protection agencies and state contractors licensing board. Ask if the company has the licenses, certificates or bonding required by your state, county and city. For example, your state may require an installer to have an electrical contractor’s license. Also, search the company name online and see what you find.
If you want to use solar power but not buy a system, you may be able to lease a system or sign a solar power purchase agreement. In either case, you’ll have a solar power system on your home. If you lease or have a PPA, you usually can’t claim RECs and aren’t eligible for tax credits or financial incentives, because those go to the system’s owner.
If you lease, a company installs a system on your house and you sign a contract to use the system. Contracts are long term; some last 20 years. During that time, you’re entitled to use all the power the system produces, and you’ll probably reduce the amount of power you buy from your utility. If the system produces more power than you need and your utility uses net metering, the utility may pay you or credit your account for power the system returns to the grid. Your contract may allow your monthly payment to increase over time. The leasing company will probably be responsible for system maintenance.
Power purchase agreement
If you have a PPA, a company installs a system on your house, and you sign a contract to buy power the system produces. Contracts are long term and can last 20 years. Unlike with a lease, you don’t pay to use the system, and don’t automatically get all the power it produces. You pay for the power the system generates, at a price the PPA provider sets. Some PPA providers say they charge a reduced rate for power because they get the tax credits and incentives.
Before you lease a system or sign a power purchase agreement:
Get detailed bids from several companies. Bids should give specifics about the system, including its brand, size and performance. You can use the Department of Energy’s customizable calculator to estimate how much energy a specific system will produce.
A company may show you a comparison of what you might pay for energy over the next several years with and without using its system. It may estimate how much utility company rates will rise annually, and suggest that you’ll pay less for energy if you use its system, because you’ll buy less power from the utility. But it’s hard to predict future utility rates because they’re affected by many factors.
Read through the bids. Compare what they say about:
- costs, including installation and monthly fees
- the minimum power a system will produce, and what happens if the system doesn’t produce that amount
- what happens if a power failure affects the rooftop system; is there backup power?
- the warranties and repairs included, and how long they last
- what happens if you need to repair your roof after the system is installed
Read the contract
Before you choose a company, read the contract. Be sure the terms match what the company’s ads, proposals and sales people told you. Understand:
- how long the contract lasts
- how much you’ll pay per month (with a lease) or per kilowatt-hour (with a PPA)
- whether payments will go up during the contract term. If they will, find out when they increase and by how much.
- if you have to pay any other costs or fees
- if the contract includes a “performance guaranty” and how the company will pay if the system doesn’t produce the minimum amount of power
- who will provide maintenance and repair service, and any fees for those services
The contract also should say:
- who will get the tax credits or other incentives related to the system
- who will keep the RECs generated by the system
- what you must do to keep the contract in good standing, such as paying your bill by a certain date, or notifying the company if you plan to sell your house
- what happens if you want to end the contract early. Are there early termination fees or other charges?
- what happens to the system when the contract ends. Can you renew your lease or PPA? Buy the system? Have it removed? How much do those options cost?
If you sell your house
Find out how the contract will affect your ability to sell your house. Does the contract:
- let you move the system to your new home? What will that cost?
- let you transfer the contract to the buyer?
- require you to give the company written notice if you want to transfer the contract to the buyer?
- require the buyer to meet credit requirements or pay any fees before taking over the contract?