Solar panel use heats up as installation costs fall

By Michele Lerner,

When Mike Rain and his wife purchased their new house from Tri Pointe Homes at Bloom at Green Valley in Fairfield, Calif., in April 2020, they went from paying $50 to $80 per month for electricity at their previous home to paying nothing for a year. That’s because their new house came with a mandatory array of solar panels on the roof.

“Our only choice was whether we wanted a system that generated three, four or five kilowatts of electricity,” Rain says. “We’re empty-nesters with a 2,400-square-foot house, so we went with the smallest and less-expensive option. Our bills were always low in our old house because we lived in an area with mild weather and didn’t use air conditioning.”

Solar power seems like a natural fit in California, known for its sunny skies and liberal policies on environmental issues. In 2020, California became the first state to mandate that all newly built homes, with a few exceptions, must include a rooftop solar system.

Several factors came together in California that made a mandate unsurprising, says Kevin Wilson, national vice president of strategic sourcing and sustainability for Tri Pointe Homes in Los Angeles.

“The biggest factor is the extreme decline in the cost of installing a solar panel system,” Wilson says. “At the same time, the cost of electricity is extremely high in California. Those two factors coupled to accelerate homeowner interest in solar panels. In addition, as they become more common, there’s less pushback on how it looks. That’s a nonissue now, but in the past some homeowners only wanted them in the back of the house where they couldn’t be seen.”

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Wilson says architects in California are now designing homes to be aesthetically pleasing while easily accommodating solar panels.

Whether the rest of the country will follow California’s lead remains to be seen.

“California has always been a leader in green building,” says Elizabeth Beardsley, senior policy counsel with the U.S. Green Building Council in Washington. “This mandate normalizes the idea of solar power as acceptable to regular homeowners, but it will be a long time before mandates are considered by other states except for the most progressive ones.”

Some larger national builders that add solar power to their California properties may see the market advantage of offering solar panels and bring it to other states, Beardsley says. Many states offer incentives to consumers and to third-party companies to subsidize the initial cost of installing solar panels.

The Database of State Incentives for Renewables and Efficiency provides updated information for consumers about tax credits and rebates for solar power systems. The federal residential solar energy tax credit allows homeowners to claim 26 percent of the cost of installing a solar panel system in 2020 and 22 percent for systems installed in 2021. Extended renewable energy tax credits have been included in the $1.4 trillion federal spending package alongside a $900 billion pandemic relief spending bill.

D.C. set a goal to have 10 percent of its electricity provided by solar energy by 2041. Approximately 1 percent of electricity in D.C. is supplied by solar panels, says Tommy Wells, director of the Department of Energy and Environment (DOEE) in the District.

“We’re the most generous jurisdiction in the country for providing incentives for solar energy,” Wells says. “If you have a roof and sun and don’t have solar panels, you’re turning down money.”

In D.C., consumers can receive up to $500 per megawatt of electricity generated by solar power through the Solar Renewable Energy Credits (SREC) program, according to the Database of State Incentives for Renewables and Efficiency. Nearby in Maryland, SRECs are capped at $50 per megawatt, and Virginia has yet to implement SRECs.

“Over a 20-year period, a six-kilowatt solar panel system can generate $25,000 in electricity,” Wells says. “Then you add to that the lower costs on your electric bills and the federal income tax credit for solar panels and that’s a serious financial incentive for homeowners.”

The number of people who requested permits to install solar panels rose 71 percent last year in D.C. compared with 2019, Wells says. The city’s “Solar for All” program, which was signed into law in 2016, pays for solar panel installation for low-income households who make 80 percent or less of area-median income, which is $100,800 for a family of four.

“One issue we had that slowed adoption of solar panels in the city was that the Historic Preservation Review Board could deny panels for homes in a historic district, but we worked with them so that now solar panels are allowed,” Wells says. “Homeowners just need to try to cover the solar panels a little with something that looks like their roof.”

Cost-effectiveness

For home buyers and homeowners throughout the country, the decision to install solar panels on a new or existing home is often based on a financial calculation. While some homeowners choose to add solar panels because of their commitment to environmentally friendly practices, many are interested in saving money on their utility bills.

“You can calculate the payoff time for installing solar panels by looking at incentives, utility bills and how much you may get paid for excess power that your home generates,” Beardsley says. “For example, where I live in Virginia it would take 20 years for the installation to pay for itself but if I lived in D.C. it would only take six years because of their incentives.”

A study last year by the Home Innovation Research Lab on behalf of the National Association of Home Builders found that the cost-effectiveness of solar panels depends on several factors such as the local price of electricity, the price utility companies pay residents for excess electricity generated at their home, the cost to install solar panels, the amount of sun the panels receive and the orientation of the panels. For example, solar panels that face south, southeast or southwest generate more electricity than those facing other directions. Panels in Phoenix generate more electricity than those on homes in Seattle because of the amount of sunlight in those locations.

“There are many nuances with solar panels that impact their cost-effectiveness,” says Vladimir Kochkin, director of codes and standards for the National Association of Home Builders in Washington. “They may make sense in one market such as California because of the high cost of electricity there but not necessarily be an attractive investment for the same house in another market.”

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Kochkin says the two factors with the greatest impact on the cost-effectiveness of installing solar panels for consumers are the cost of electricity to consumers and the amount the utility company will pay consumers for electricity they generate beyond what they use.

“The average cost of electricity in the U.S. is 12.8 cents per kilowatt hour, according to the U.S. Energy Information Administration, but in California the average cost is on the high end at 20.45 cents per kilowatt hour,” Kochkin says. “On-site solar power is more attractive in places where electricity is more expensive.”

In D.C., electricity averages 13 cents per kilowatt hour; in Maryland, the average is 12.7 cents; and in Virginia the average cost is 11.2 cents, according to the Energy Information Administration.

If your system generates more electricity than you use, the excess goes into the grid. In some states, such as California and Massachusetts, consumers are more generously compensated for their electricity production, Kochkin says. In others, consumers are compensated at a far lower wholesale rate rather than the retail rate they pay. Some states don’t buy the electricity directly, but spin the meter back in what’s known as net metering.

“We receive a monthly statement that shows how much power we generated and how much we used,” Rain says. “At the end of the year, they calculate the difference. If we generate more than we use, they pay us at the wholesale rate and if we use more than we generate, we pay them at the retail rate. Since it costs more to buy a bigger system, you probably don’t want to buy more than you need since you won’t get paid that much for what you generate.”

The solar power study found that it is more cost-effective to install solar panels in Boston than in Phoenix or Tampa, primarily because the cost of electricity is higher in Boston and consumers are compensated at a higher rate for excess electricity.

Owning or leasing solar panels

Home buyers and homeowners can choose to purchase their solar panel system, lease it or enter into a power purchase agreement (PPA) which is similar to a lease. The average cost to install a residential solar system is $20,000, according to the Solar Energy Industries Association.

In California, approximately 63 percent of homeowners own their solar panels and about 36 percent of homeowners lease them, according to California Distributed Generation Statistics.

Approximately 50 percent of Tri Pointe buyers in California choose to lease their solar panels and the other 50 percent purchase them, Wilson says. Leasing covers installation and maintenance costs, he says, plus consumers get the benefit of lower utility bills.

“We opted to buy our system rather than lease it because we could wrap the $17,000 into our mortgage,” Rain says. “We didn’t want to be paying for it over time, and we weren’t sure if it would complicate things when we eventually sell.”

Concern over what would happen to leases when homes were sold was a drawback to leasing initially, Wilson says.

“Now it’s become commonplace to transfer the lease from the homeowners to the buyers,” he says.

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Tri Pointe includes solar panels as a standard feature covered by the purchase price of the home in about 10 percent of their properties, Wilson says. In the rest of their communities, buyers have the choice to lease the solar panels, buy them with cash or wrap the cost into the mortgage like other options.

“When you lease a solar panel system, the company you lease it from pays for all or most upfront costs and takes care of any repairs or maintenance,” Kochkin says. “As the consumer, you benefit from a streamlined process and the support services provided by the leasing company.”

Consumers benefit from lower utility bills whether they lease or buy. Kochkin says leases are typically for 20 years.

“It’s common for the inverter that converts the solar power into electricity to last about 10 years, so an advantage of leasing is that replacement cost would be rolled into the lease,” Kochkin says.

Replacing an inverter costs about $1,500, Wilson says.

Whether solar panels add to a home’s value remains to be seen.

“Some states are working on educating appraisers about the value of solar panels in reducing utility bills and therefore adding to home values,” Beardsley says.

Since California’s mandate has been in effect for just one year, there is no data available about its long-term impact.

“The solar power mandate in California is so new that we don’t really know what happens in 20 years when the solar panels might not produce as effectively as they did in the beginning,” Wilson says. “We don’t know yet how to upgrade the systems as the technology changes or how it will be handled if a leasing company owns your system and it needs to be replaced.”

Homeowners in every jurisdiction should research incentives and costs before installing solar panels.

Tips for installing residential solar panels
The Interstate Renewable Energy Council’s consumer checklist recommends that homeowners:
● Check your roof’s exposure to the sun.
● Decide whether leasing or purchasing panels is best for you.
● Find out how your utility company will work with you and your solar panels, including how much credit you may receive for excess power.
● Check your contractor’s reputation to be sure your system is correctly and safely installed.
● Understand the terms of your agreement, including what happens if you sell your home and who is responsible for maintaining your system.