The installation of solar panels has been increasing for over a decade. The graph below shows total solar capacity* in California over time. According to surveys, a majority of homeowners choose to “go solar” to save money on energy bills and reduce a home’s carbon footprint.

 

source

 

Have you considered installing solar panels on your home or purchasing a property with solar panels? If so, it is important to understand how solar panels work, how they can save you money, and what to consider before going solar.

 

*Capacity generally refers to the maximum output (generation) of a power plant. Capacity is typically measured in a kilowatt (kW), megawatt (MW), or gigawatt (GW) rating.

 

How (and How Long) Solar Panels Work

 

When installed on your house, solar panels are apart of a photovoltaic system. The word “photovoltaic” combines two terms – “photo” means light and “voltaic” means voltage – so this term covers the conversion of light energy to electricity using semiconducting materials. If you want to learn how solar panel cells do this, take a look at this short video:

 

 

Typically a photovoltaic system consists of:

  • solar panels, to absorb and convert sunlight into electricity,
  • a solar inverter,
  • other electrical accessories to set up a working system,
  • a tracking system to monitor the system’s production,
  • at times, a battery solution to store unused electricity.

 

After about 25 years solar panels will produce 80% of their usual output, which is why warranties usually last for this long.

 

Inverters change Direct Current (DC) to Alternating Current (AC) and work best when the input is relatively constant. On average, grid connected inverters have a lifespan of about 10 years and most have warranties ranging from 5 to 12 years with an increasing number of manufacturers offering pay-for-service warranty extension.

 

How Much Do Solar Panels Cost?

 

Homeowners will buy their solar system outright, take a loan out to purchase the system, or lease it. A majority of the local companies that we spoke to asserted that buying one’s system, whether all cash or through a loan, is usually more profitable because of the benefits associated with the federal tax credit (we’ll talk more about this below). With that said, each home and situation is different, and so we will leave it to you to determine which option is better for your property.

 

Purchasing a solar system with cash or through a loan is typically a better option when you

  • Want to maximize the financial benefits of installing a solar panel system, rather than solely benefitting from the system’s environmental benefits;
  • Are eligible to reduce your federal and state tax liability through the federal investment tax credit;
  • Are a business, and can realize tax benefits by treating the solar panel system as a depreciable asset;

A solar lease is a good option when you

  • Are primarily interested in using electricity generated from renewable resources;
  • Want to avoid the responsibility of maintenance or repairs for a solar panel system;
  • Are ineligible for federal or state investment tax credits resulting from your investment in a solar panel system;

 

If you decide to buy, you will be able to claim solar tax credits on your federal return. However, the amount of tax credits that you can claim will begin to drop over the next 4 years:

 

  • 2016 – 2019: The tax credit remains at 30 percent of the cost of the system. This means that in 2018, you can still get a major discounted price for your solar panel system.
  • 2020: Owners of new residential and commercial solar can deduct 26 percent of the cost of the system from their taxes.
  • 2021: Owners of new residential and commercial solar can deduct 22 percent of the cost of the system from their taxes.
  • 2022 onwards: Owners of new commercial solar energy systems can deduct 10 percent of the cost of the system from their taxes. There is no federal credit for residential solar energy systems.

 

Another federal regulation may increase the cost of solar, though according to our research, not by very much. On January 22nd, 2018, the Trump Administration levied a 30% tariff on solar imports to the United States. The tariff covers both imported solar cells, a key input to manufacturing solar panels, and solar modules, otherwise known as solar panels. According to a fact sheet released by the U.S. Trade Representative, this tariff will last for four years and will fall by 5% annually, dropping to a 15% tariff in 2021. After discussing this issues with numerous Santa Cruz County solar system providers, we concluded that homeowners can expect costs to go up by $500 – $1000 at most.

 

The overall cost of solar panels will depend on the size of your system which depends on your home’s energy usage. This is why its important to focus on improving the energy efficiency of your home before going solar. Small improvements may translate into big savings.

 

The data in the table below draws from real quotes submitted to homeowners on the EnergySage Solar Marketplace over the past year and represents the discounted price for a solar panel system in Santa Cruz after a federal tax credit was taken into account.

 

SYSTEM SIZE AVERAGE SOLAR SYSTEM COST
(AFTER ITC)
3 kW  $8,337
5 kW  $13,125
7 kW  $17,934
10 kW $23,100

 

source

 

Keeping in mind the typical system size for a U.S. homeowner is 5 kilowatts (5,000 watts), a solar panel system would have cost just over $13,000 in 2017.

 

Maintenance

 

The chart below of outlines the average maintenance and cleaning cost for a 5 kWp solar PV system:

 

OPERATIONAL COSTS FOR: FREQUENCY AVERAGE AMOUNT PER YEAR
Solar power inverter on average every ten years 1.5% of investment costs
Electricity of inverter annually $50
Maintenance annually $200
Solar panel cleaning every 1 to 3 years $125 to $150 (5 kWp)
Liability insurance annually $50
Photovoltaic-insurance annually $200
Total operational costs per year for 5 kWp $700 to $800

(source)

Be sure to ask your solar system provider if they cover any maintenance or cleaning services.

 

How Does Solar Impact Home Values?

 

According to this synopsis of recent research on the topic, homeowners who own their solar system outright tend to recoup the full value of the system at the time of the sale of their property. This is a 100% a cost recoup, which is comparable to a majority of home improvement projects on the West Coast:

(source)

Additionally, the article reports that leased systems do not have a significant negative impact on a real estate sale.

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