When you install a solar system in your house, the utility company installs a new electric meter in you residence. This new meter is a net meter — meaning that it transmits the amount of electricity that is created by the solar panels which is used to offset the electricity you are using at the time in your house. If you create more electricity than you use, the extra electricity is returned to the grid and passed along to neighbors who demand electricity. In this way, on your monthly bill, you are billed to the “Net” electricity that you use over and above what you create with your solar panel system.
When you first install a solar system, depending on the time of year and if you have added enough panels to cover your overall requirements for electricity, you may be billed a small amount from the utility company. As the year progresses and you have a lot of sunny days, you will then bank electricity for future use. Most utility companies will then pay you for an overage of electricity created by your panels on an annual basis — paying at the wholesale electric rate level.
If you are thinking about adding solar power to your home, there is one major decision on financing the solar panels. There are many solar panel installers in the market place that are offering to install solar panels on your roof “free of charge” that will reduce your electric bill. What they are really selling you is a solar power “lease” arrangement whereby the solar company installs and owns the panels on your roof. They then lease the panels back to you for a fixed rate per kilowatt hour (kWh) which is lass than your current utility bill.
The term of the lease arrangement is generally 25 years which is the effective life of the solar panels. The solar company covers everything and all you pay is a monthly fee. This sounds easy enough, but when you look at many of these lease arrangements there is also a cost-of-living adjustment to monthly lease fee. For example, if the lease payment for the solar panels is $0.10 per kWh, there will be an annual increase of around 3%. This means you are paying $0.103 per kWh in year two, $.1061 in year three, and so on.
What is also missing in this transaction are the solar energy credits (SRECs). States offer solar energy credits for every 1,000 kilowatts created by your solar system. If you have a lease arrangement, the solar company gets the SRECs which they can sell on the open exchange. Depending on where you live, these SRECs can be very lucrative. In New Jersey, SRECs sell for approximately $215 at this writing. In Pennsylvania, they sell for $10. The length of time that you can sell SRECs varies from state-to-state also. Currently, SRECs can be sold for the first 10 years the panels are placed in service. Let’s assume that your solar system can create 10 SRECs per year and the average net sale for SRECs is $180 on average over the 10 year span — that’s $18,000 that comes to whomever owns the SRECs.
Now, if you purchase the solar panels instead of leasing them, there is also a 30% energy tax credit that accompanies the purchase of your solar panel system. That would be $6,000 on a $20,000 solar investment.
These are the factors which you should consider before installing a solar system in your home. If you look at the payback and the return on investment, the purchase option may be the way to go.