Natali Morris Blog

July 26, 2016

Making Cents of Solar Panels

We are considering putting solar panels on our new home and I am trying to work out the arithmetic of costs/benefits. I decided to blog through the process so that we can learn together, dear reader. As always, I welcome any expertise you already have!

There are two options for solar panels on your home: purchase them or lease them. Let’s discuss the distinction.

Leasing Solar Panels

Leasing panels is the easier of the two options. It means you do not own the panels and you do not own the power they produce. You still pay for power but you pay a lower price per KWH (kilowatt hour) than you would with your traditional power company. This savings could be anywhere from 2 to 10 cents per KWH, which can have a significant impact on your bill.

Since you do not own these panels, you also do not typically pay for installation and maintenance. That is a perk for anyone that does not want to invest money in the system but it can be problematic if you plan to move or sell the home because new buyers do not necessarily know/want/understand solar. You would hope they do but I have heard of this being a sticky situation with selling properties so keep that in mind.

Another major drawback of leasing panels is that you do not reap the tax benefits from solar energy, which include a tax credit and solar credits. The company that leases you the panels gets these benefits, which is how they make a significant portion of their money. I will explain both below but just keep in mind this can be significant.

Purchasing Solar Panels

If you’d like to purchase solar panels for your home, then you do in fact own the panels. They are yours to bask in and so is the power they produce. They are also yours to maintain so make sure your equipment has a strong warrantee.

Installation of the panels is NOT CHEAP. We were quoted about $45,000 to purchase and install. Choke! That is $45,000 for a 13,000 kilowatt system, which we estimated would power our entire home, including my husband’s electric Nissan Leaf.

If we own the panels, we are eligible for a tax credit of 30% the installation cost. This tax credit was extended through 2019. Remember this is a CREDIT, meaning you take it off the bottom line of what you owe the government, dollar for dollar. For our $45,000 install bill, this would mean a $13,500 tax credit. Nothing to sneeze at!

In addition to the tax credit, we are eligible for SRECs, or Solar Renewable Energy Certificates. One SREC is equal to 1 megawatt hours of solar electricity. Our 13 kw system would give us 13 SRECs, which we could sell to the government every year for 15 years at market rate, much like a stock. Current SREC values are around $250 in New Jersey. So if we get up to 13 SRECs per year and sell them at current value, this gives us back another $3,250 per year. If we get this for 15 years, this would total $48,750, which is MORE than the total install cost. So that math alone works out!

Next we add up the cost of having NO electric bill each month since we are not paying the power company for energy any longer. We have only been in this house for 3 months but these are the hottest months where we run the air conditioner A LOT. (I would make apologies for this but I am 8 months pregnant and it is 100 degrees outside which is a special kind of HELL!) Our electric bill has been about $175/month for the last three months so assuming that average for the year, this is $2,100 per year that we do not spend.

So let’s add up the savings in the first year alone:

Item Explanation Savings
Tax Credit 30% of $45,000 installation $13,500.00
SRECs 13 SRECs per year at $250/SREC $3,250.00
Energy Bill $175/month for 1 year $2,100.00
TOTAL: $18,850.00


According to my math, we would save $18,850 in the first year and then continue to save $5,350 per year for the next 14 years assuming SRECs remain at the same approximate value and we pay nothing more for our energy bill.

Okay, two more costs to consider!

If we do not use the amount of energy we produce with our panels, the power company harnesses that energy with an inverter that puts that energy back into the power grid. The company can sell that to our neighborhood and we get a check for the amount at current value per KWH. I am not going to add this into my equations because I can’t be sure we will have extra and how much it would be but it is possibly a big perk! That money comes in the form of a check every month from the power company!

Now about the thing that can make this potentially very costly: financing the installation!

The company that quoted me the install offers financing packages with interest rates of 5.99% for 20 years. Hm. That’s not terrible but it is not awesome. We could also use our Home Equity Line Of Credit which is currently at 1.99%. I am going to experiment with financing but let’s assume I use the worst option for financing, which is the company’s package. According to my trusty loan calculator, this means I pay over $32,000 in interest over the life of the loan. Let’s work out how this would shake out in the span of the 20 year loan.

Item Explanation Cost
Tax Credit 30% of $45,000 installation +$13,500
SRECs for 15 years 13 SRECs per year at $250/SREC +$48,750
Energy Bill for 15 years $175/month for 15 years year +$31,500
Cost of Loan for 20 years Interest on $45,000 financed at 5.99% for 20 years -$32,312
Cost of Panels Panels + Installation -$45,000
TOTAL SAVINGS: +$16,437.74

A Few Other Considerations

Clearly the math still works in our favor given the life of the benefits! So now I have to play around with our finances to see how much we can put down and what our best option is for financing. I doubt I’ll use a 20 year/5.99% loan but I want to be prepared for worst-case scenario.

There are a few other things we are still contemplating. One of my husband’s concerns were whether or not the panels would ugly up our house. Fortunately our house faces in a direction where the front side of the roof is unsuitable for solar panels so the back side is where the panels would reside. They would not be in the line of sight for the house whatsoever so this is not a concern.

Also, consider that you can buy a battery to connect to your system that acts as a generator if the power goes out. The Tesla Powerwall is one such product that converts and stores your solar energy to run your house sustainably if the power goes out in a storm (like it did yesterday in my house). This is an added cost of around $5,000, which I kept it out of my equations for simplicity sake.

And this goes without saying: solar energy is sustainable and clearly better for Mother Earth! And for a hippy like me, this should be reason enough but clearly the math helps!

Okay so anyone who has done this research, what did I miss? And for anyone who has not, what are your lingering questions? I’d love your thoughts!


39 responses to “Making Cents of Solar Panels”

  1. Jack says:

    What is the math on the leasing option? Normally I don’t like to lease anything, but you figure the system will only last so long and if you finance it for 20 years it will likely need to be replaced by then (if not sooner). So leasing may be a viable option.

    • Jack, typically leasing costs you little to nothing up front. The company eats the bill for that because they want your power and SRECs if your state offers them. The advantage to you is in the difference you pay in KWHs. You will have to ask the company’s representative what rates they offer and then compare them to what you are currently paying. Since we are paying pretty little per KWH right now, we would only save 2 cents per KWH if we leased the panels, which would hardly make sense. But if you are paying high rates, it is worth looking into! I know Tesla just bought Solar City and they push the leases pretty hard so maybe call them?

  2. Chris says:

    Talk to your realtor about the home-resale issues that go with leasing. It is not a good bet to think you’ll still be in that house when the lease runs out. I have a realtor friend who currently advises against leases. It may be different in your part of the country.

    When considering something like a Tesla Powerwall (and competitors), look at how regular use will impact the life of the battery system. A more traditional generator system is the better option if you’re worried about night-time air conditioning and refrigeration if there is an extended power outage.

    My power supplier is currently the 2nd cheapest in the country, so solar isn’t good financially. They’ll even willing to sell me a portion of the solar farm they’re putting together, but that would raise my costs by almost 50%. It would take a lot of years of rate increases to get us to that level.

    I’m very interested to hear what your final decision is. Good luck!

    • Exactly Chris! That’s why I said that it can get sticky if you want to sell your home.

      I had not considered the use and life of the battery issue with a Powerwall. Great point! I wonder if we could run it occasionally manually to keep it in shape.

      As for power rates, my supplier is really cheap too. We figured that we are paying 11 cents per KWH and if we leased the panels, we would only save 2 cents per. That hardly makes it worth it. The tax credit and the SRECs however, change the game altogether. That’s why I’m considering this so seriously.

      Thanks for your comment!

  3. Chandrakant says:

    If your monthly bill is $175 then your consumption will be 1590 units per month @ 11cents/kWh and your yearly consumption will be 12×1590= 19080. If your actual yearly consumption is less than 19080 units, then you may consider solar panels with lower kW instead of 13kw.
    Selling electricity at 2 cents/kWh to utility company is not economical considering investment cost.

    • Sorry, trying to make sense of what you’re saying: Do you mean we are ordering too many panels with too much power?

      • Chandrakant says:

        I think 13 kW solar system is too big for single family home. For standard 2 kW solar system , you required 220 sq. ft south facing roof to mount the 8 nos. of solar panels so for 13 kW panels( 52 nos) you required 1430 sq ft of shade free south facing roof(if panels are to be mounted on roof.
        As a thumb rule 1 kW panels will generate 5 kWh (5 units)per day . So if your average consumption per day is between 50 to 60 units(kWh)
        then 13 kW solar panel is suitable for your application. It is good idea to generate sufficient units for your own use instead of selling to utility company due to rate difference between buying and selling rates.

  4. ED says:

    This idea of solar power is very intriguing and something we have been discussing where I work. Could you take the fed tax credit and first years SREC, so say a total of $15k and apply it towards the loan and then refinance? $30K over 20 years instead of $45K. Also does the power company charge you a fee to stay connected even if you are not drawing power? I would imagine they would need to charge something for line maintenance and meters. Great job breaking this all down.

    • Oh that’s a good idea, Ed! To re-apply your credits back to your loan. I doubt the loan has pre-payment penalties.

      As for the power company fees, I honestly don’t know. I wonder if each company has a different policy on that.

      • John DiCapua says:

        Each utility has something they call either a customer charge or basic service charge.

        Here in NJ it is fairly nominal JCP&L in particular is $1.92 monthly. PSE&G is $2.43 last I checked.

  5. Colleen McHugh says:

    Natali, I love, love, loved this post about solar power units and the research you did and sharing your process!!!! Tom and I are still renting but one of our primary goals in home ownership is to install solar panels in conjunction with the Tesla Powerwall. I sent this post to Tom and he loved it as well. Elon Musk recently tweeted out this article about his merger and I think you’ll find it particularly relevant:

    Keep up the amazing work. You and Clayton are who Tom and I are trying to grow up to be! 😉

    • Oh that is great information! I had not seen that post but it does make sense that the power companies would not be happy to see mass adoption of this system. I love the idea of being totally sustainable from your own inverter! Wow, that would be amazing! I wouldn’t have to worry about the zombie apocalypse AT ALL! Except for the fighting of the zombies part…

  6. John DiCapua says:

    Finally something I can help with!

    I have been in Solar for the last 3 years in New Jersey and I can tell you as far as an investment it doesn’t get much better than purchasing a system. If you need financing the home equity line of credit always beats an unsecured solar loan. Usually the HELOC has better fees and interest rates and typically I believe the interest paid on the HELOC is tax deductible.

    In NJ there is nothing wrong with leasing as long as you take a few very important things I to consideration.

    First, make sure that you are using a reputable company that is using quality products. If your solar sales person can’t tell you exactly what they are putting on your roof it is more than likely JUNK.

    Second, I do not recommend that you agree to a lease without a full years consumption history. If you have a home that uses 15000kwh and your system produces 14000kwh that’s fine you will have to buy a little extra from your utility (I’m guessing PSE&G or JCP&L) However the opposite is much worse. Say you use 10000kwh and your leased system produces 14000kwh and your lease rate is $0.10 per kwh well you just bought $1400 worth of energy with $400 that you didn’t need! You might be thinking to yourself “Hey that is no big deal now I have a $400 credit.” and you would be unfortunately incorrect. Once a year your utility is going to “true up” your account and give you wholesale rates for your over generation. Wholesale rate in NJ is something like a nickel per kwh so your $400 worth of electricity you bought from your own roof just net you a $200 check.

    On a purchase this isn’t as big a deal because your extra generation means extra SRECs which more than makes up for the loss to the utility and you aren’t paying per kwh on your purchase anyway.

    I just typed all that on my phone and now I have some serious texting thumb lol.

    Feel free to pick my brain all you want!

    • Oh wow, great information! Thank you John! Question: How do you know what is a good price and quality from a company? We were looking at Trinity Solar. Do you know anything of this company? I think I need to shop around a little but don’t know how to tell when we are getting a quality product.

      • John DiCapua says:

        Doing research on solar might be more difficult than almost any other consumer purchase.

        There are so many companies and the quality of products and service can vary greatly.

        I quick search from yielded 2.33 out of 5 stars for Trinity Solar.

        A few things to look out for when choosing a company off the top of my head.

        Does your solar salesperson know what manufacturer’s panel they are selling. I know this sounds crazy but most companies purposely keep their sales staff in the dark so that they don’t have to talk about the quality of the product. This is a huge red flag. Solar modules are a serious long term investment. If the person trying to get you to spend $40k+ on something that you are going to attach to your home for the next 30 years can’t answer specific questions about the equipment they are selling then you should reconsider your business relationship.

        You want to research the actual equipment going into your system from the modules (solar panels), to the inverters, all the way to the mounting equipment. You are going to want to know specifics about the warranty for each of these items. Most salespeople will throw out a blanket statement such as “Don’t worry everything is covered for 25 years” most of the time this is very misleading. On a lease you typically don’t have to worry about any of these things for the most part however quality equipment still means that you should have less headaches.

        Almost every module manufacturer offers a 25 year warranty but what is covered by that warranty is varies greatly during that 25 years. Many of the lower end modules only really guarantee a reasonable (in my opinion) amount of power for 15 years and then there is a precipitous drop at the 15 year mark. Almost none of these warranties cover labor costs.

        Take into consideration the company that you are dealing with as well. Have they been in business for awhile? What are their ratings like? This isn’t something to take lightly because these are the people who will be taking care of you and your system.

        I am obviously going to be bias here because I work for a company that has been in business for 13 years (a rarity in solar) and has stellar ratings across the board no matter which way you look.

        Either way you aren’t the type of person that wouldn’t do their research (obviously) but solar is still so nascent that people just don’t seem to know the difference.

        • Chandrakant says:

          I agree with Jonh’s blog. Solar panels and inverters are the backbone of “on grid solar system”.
          I am planning to install modular solar panels with Enphase micro inverters(with 20 years warranty).
          Micro inverters are more efficient than string inverters.

          • John DiCapua says:

            Enphase are definitely good products. I believe the warranty should be 25 years. I had to stop using them because they only work for lower wattage modules. Enphase micro inverters can “clip” power if you use modules that are over 270 watts and I mostly use 327w to 360w modules now however the modules I use have integrated microinverters so everything mates up nicely.

            Enphase is definitely great if you are using lower wattage modules in a project with some shade it is a combination that is hard to beat.

  7. Chandrakant says:

    I will be using Enphase 250 w Microinverters with 60 cell panels 250-300 w as recommend by Enphase.
    As cost of panels is on watt basis I required more panels as compare to 300w+ panels(72 cells).
    I think only Enphase is giving 25 years warranty for Microinverter . Which make panels and Microinverters are
    You using ?

    • John DiCapua says:

      I use SunPower primarily but I also use SolarWorld, Panasonic, LG, and Trina.

      Make sure that the modules you are using are of good quality and have a good warranty.

      While the inverter is certainly important I wouldn’t start with a good inverter and just throw the cheapest panel I could find on it. I would truly rather have a high quality module with a string inverter (shade permitting) rather than a low quality panel with a good microinverter.

      Inverter problems are easy to fix, panel problems can be catastrophic.

      • Chandrakant says:

        Thank John for your technical advice on solar panels andi inverters , I will definitely go for best panels available in the market with
        Enphase Microinverter.

        • John DiCapua says:

          Good luck!

          Feel free to ask if you have any other questions!

          • This is great info! I haven’t looked into SolarWorld but I did call Solar City and they have a MUCH better financing program, which is 2.99% for 10 years. Hello!? WAY better than a 6% for 30 years. What is your opinion of Solar City? They say the PowerWall is on back order for like 2 years or something insane like that!

          • John DiCapua says:

            A quick search for SolarCity on yields 2.51 out of 5 stars.

            Ugh it’s so hard I want to like SolarCity, I want to like the idea of the powerwall.

            SolarCity (as of right now) uses low quality generic pv modules. When they open up the Gigafactory and start making their own I am sure it will be much better quality. In fact I think once they control their entire supply chain they might put the rest of us out of business.

            If you are looking for the powerwall for backup power during outages it’s my personal opinion that they are just too expensive when you compare them to a natural gas generator. If you are dead set on having an awesome green backup option I would probably wait until prices come down which won’t be a problem with a two year backlog or take a look at something like these ship non hazmat and run on salt water which is much more stable than Li-Ion at the freezing temperatures we get here in NJ.

            Also when people ask me why they should go with a company like mine versus someone huge like a SolarCity I would say that a smaller company like mine relies on customer satisfaction over investor satisfaction. A company like mine stays in business for 13 years because we have over 3000 happy customers in NJ/NY and those are the people that we are responsible to, a handful of unhappy customers can sink a small business through bad reviews. All the solar companies that are publicly traded are struggling and I personally think it is because the put everything else first and the customer comes last.

            But who knows maybe once SolarCity starts making their own modules I will be looking for a new job.

  8. Sheri Kidwell says:

    I definitely believe purchasing is the way to go if you can swing it, which it sounds like you can. We have a general contracting business in California and solar installation has been 99% of our business for the last 6 years. We only sell (and have installed on all of our own properties) Enphase M250 microinverters manufactured in the California plant with the Solarworld modules manufactured in Oregon because long-term quality is so important. Both of those products have a 25-year warranty and the module power production warranty is linear unlike the what was described above where the warranty drops quite a bit after 15 years which is typical on other modules. Be cautious about string inverters if you go that route and factor in a replacement cost, as I haven’t seen a string inverter that lasts longer than 10 years. I’m a huge proponent of the microinverters though for several reasons that I’d be happy to go into further detail by email if you want.

    It sounds like your state has great incentives. That paired with the 30% federal tax credit makes it a great investment.

  9. Hi Natali,

    I came to your blog after listening to Clayton’s podcast and hearing you on Bigger Pockets, and I happened to see this post, which is something that I know a little bit about.

    I would recommend a purchase over a lease for anybody that can handle the upfront cost or get affordable financing, because of all the benefits you’ve already discussed.
    My partner and I run a general contracting business in Northern California and 99% of our business for the last six years has been solar installation. We only sell Enphase microinverters, currently the M250 manufactured in the California plant, paired with Solarworld modules manufactured in Oregon. Both of these products have a 25 year warranty (and the module warranty is linear, not a step-down as mentioned in a post above). I’m a proponent of the microinverters for several reasons, including module level monitoring and better performance under variable conditions.

    If you do decide to go with a string inverter system, factor in a replacement cost. I’ve not seen a string inverter with a warranty longer than 10 years.

    It sounds like your state has great incentives in addition to the federal tax credit.

    • It is so hard to evaluate the type of panel you are getting though! How does someone lame like me even understand what they are getting? The companies just give us a lot of language about warranties.

  10. Sheri Kidwell says:

    Sorry about the double post, I got an error message the first time.

  11. RedwoodCitytoNJ says:

    Great information, I just had SolarCity’s put a proposal together for my house. I noticed your analysis does not factor in an “annual rate increase” in your per kWh, which is important to know if you plan on leasing (SC is using 2.9%). If you decide to purchase the system, you need to factor in maintenance based on your warranty terms (panel replacement, installation charges, etc.).

    • I’m not sure I understand. Do you mean the annual rate increase of power from your power company?

      • John DiCapua says:

        Most of the leasing companies add something called an escalator to which is an annual increase to the initial monthly price. In SolarCity’s case it is typically 2.9% per year. So if first year monthly is $100 the second year is $102.90 per month and it will compound every year.

  12. solarbeliever says:

    Great article Natalie…very informative. In early stages of research to move to solar and this article is a huge help. planning to talk to trinity and momentum solar. any experience with either? and will the 30% tax credit also factor in powerwall cost if installed along with the panels?

    • I had a quote from Trinity and it was almost twice the price of Solar City. But now my husband and I want to wait until those Solar City roof tiles come out in 2017. Have you heard of those?

      • John DiCapua says:

        The roof tiles look very cool but it looks like they are going to cost quite a bit more than a typical PV system would cost today.

        From experience it is hard enough for people to wrap their head around a 35k for a system that gets them energy independence for 30 years. I have little confidence that people are going to be lining up to spend 100-150k to buy these shingles instead.

        The trick is he says they will cost less than a new roof and energy costs combine and he says roof he isn’t talking about the typical asphalt shingle variety.

        Either way I am sure we will sell 1 or 2 a year if they don’t turn out to be vaporware.

    • John DiCapua says:

      The powerwall is not part of the 30% tax credit unless you have a pretty dishonest accountant.

  13. RedwoodCitytoNJ says:

    I decided to go with SolarCity and purchase the system outright. Do not need to worry about transferring any agreements (in case I sell my house) or any escalators in rates. Just waiting for the final design, as the proposal only covers 86% of my energy use.

    • The service and the app is great for Solar City. But now that we have seen that Elon Musk keynote where he released the roof tile panels we’ve decided to wait. I hope they launch sometime this year!

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