The Financials Behind Solar
“If saving money is wrong, I don't want to be right!”William Shatner
Understanding the dollars and cents of solar goes a long way in helping to ease some of the anxiety associated with a large home improvement project like this one. Most people assume that a home improvement like solar is a large upfront cost like a kitchen upgrade or new bathroom renovation, but that’s actually not the case. Let’s go over the financials of the only home improvement that makes you money.
Private, State and Federal Incentives Available For Solar
As we discussed in the last chapter there are financial incentives that the government offers to help owners make the switch to clean renewable energy. Now most of these incentives are only available when you own or finance your system and thus those who are on a solar leasing model might not benefit. Let’s take a look at some of the available incentives:
• Federal Income Tax Credit - Helps reduce federal income tax liability (Generally available to those paying taxes, ie not retirees living off social security)
• State Tax Credits - Similar to federal tax credits but at the state level
• Solar Renewable Energy Certificates - (Not available in all states)
• State Level Incentives - Visit dsireusa.org for your specific state incentives
• Low Interest Loans - These can come from state, local utility, and other non-government sources
• Property Tax Relief - Some states exempt solar systems from property taxes
• Performance Based Incentives - Some utility providers provide flat rate payouts for each kilowatt of energy created
These are just a few of the top level financial benefits that are available to those that go solar. Check out dsireusa.org for a specific list for your state.
The Dollars and Cents of Going Solar
Now, let’s take a thorough analysis of the actual value that a residential solar system can provide to your finances day in and day out as sure as the sun rises and sets.
• Monthly Energy Savings - This is the difference between what your current energy payment is and the monthly financing cost of paying for your residential solar panels.
• Savings of Fixed Pricing - You no longer have to worry about the annual 4-9% electric increase.
• Increase in Property Value - Your home will increase in value anywhere from 4-6% of total value.
• Ability to Put Money to Work - If you invested the monthly savings in a simple index fund for the next 30 years, that $50 a month you might save could equal almost $60,000. That’s $60,000 at no additional cost out of pocket.
• Faster Sale of Your Home - Houses with solar sell faster, which can make an enormous difference in competitive markets.
• Turning a Bill Into an Asset - No matter what you will need to power your home for the next 30 years, but what if instead of giving that money to the electric company each month, you invested it into the equity of your home? In 30 years, you could have either spent $60,000 with nothing in return or saved $60,000 PLUS increased the equity in your home? That’s a major swing to your total net worth.
• Peace of Mind - Having a fixed monthly payment means you can set your household budget more accurately and instead of accounting for increases in energy costs for the year, what if you could use the extra money on vacation?
• A More Comfortable Living Environment - You will never again need to worry about not keeping the temperature of your home where you want it. When you design your system, you can account for the energy you want to use, rather than the energy you currently use.
• Protection from Inflation - No matter what happens in the economy, your price is locked in and will not adjust from inflation. This means each year you are paying the same fixed amount even if inflation is 10% a year. Your money will go farther, while those paying for energy will continue to lose money.
Let’s use some real world numbers to illustrate the actual return on investment that you might expect to see with a residential solar system.
Your Typical Monthly Energy Costs $250 per month ($3,000) per year. Let’s assume a 5% utility increase each year:
• Year 1 = $3,000
• Year 2 = $3,150
• Year 3 = $3,308
• Year 4 = $3,473
• Year 5 = $3,647
• Year 6 = $3,830
• Year 7 = $4,021
• Year 8 = $4,222
• Year 9 = $4,433
• Year 10 = $4,655
Total Rented Energy for 10 Years = $37,739
Your bill went up over 50% using no additional electricity and that yearly inflation increase will continue.
Now let’s compare this to a family that invests $30,000 in the solar energy system paid for over 10 years.
• Year 1 = $3,000
• Year 2 = $3,000
• Year 3 = $3,000
• Year 4 = $3,000
• Year 5 = $3,000
• Year 6 = $3,000
• Year 7 = $3,000
• Year 8 = $3,000
• Year 9 = $3,000
• Year 10 = $3,000
Total Investment = $30,000
Now you own your own clean renewable energy rooftop solar plant that will continue saving you money for decades to come.
When comparing the two, you can see the payback period is around 8-9 years assuming only a 5% yearly increase and no additional fees (both are unlikely). Once the system is paid for, you can expect to save $30,000 to $40,000 every decade on energy costs that otherwise would not have been a bill. That could be retirement savings, college fund, or simply a take amazing family vacations every year paid for with your roof.
When you compare the cost of renting energy to the cost of investing in your home and future, it becomes less of a decision and more of an IQ test. I am passionate about helping families take control of their financial future and one of the easiest ways is solar. No matter how financially savvy you might be, I would challenge you to name one other investment with a 100% risk-free return over 10 years. It simply doesn’t exist.
P.S. - In the 10 year example above, I didn’t include any federal or state tax incentives nor Solar Renewable Energy Certificates that sometimes might pay for most of your entire system on their own.
I believe solar power can be both a monthly money saver and a consistent passive income generator. It depends what state you live in, if you are intentional about making your savings work for you, and you remember that even while doing nothing you are building equity month after month.
Solar lets you turn a necessary bill into an equity savings account that sits on top of your home and generates savings for decades.
Hopefully, now you can see why so many households are taking advantage of the amazing opportunity that solar power offers to build wealth and take control of your financial future with no risk to you!
Let's discuss your energy goals and find out if solar makes sense for you with a short virtual meeting.
- Solar for $0 down
- Save up to 50% on your energy bills
- Increase your home value
- Get clean renewable energy
- Get a 30-year warranty
- Customized proposal and best value
Let's talk about going solar!
Jon Nelsen | Solar Consultant