Here is my perspective… First, you need to figure out if you are going solar primarily to reduce your carbon footprint and be a good citizen of the earth… If that is your primary motive, then you probably already have your answer… Yes, it’s probably a good thing, regardless of cost… Though you still need to factor in what it takes to manufacture, deliver and install your panels to net out all of the various factors…
However, if you are thinking about this from a financial perspective, a lot of the ROI depends on the cost of the electricity you are trying to offset, and the investment you need to make on your panels and determining your breakeven point.
Generally speaking, I would avoid leasing panels or renting your rooftop so a company can sell you energy. The biggest most attractive ROI is typically when you purchase and own your solar system outright.
For California (which is where I am located), the ROI is pretty compelling for several reasons (some California specific, some not):
- Electric rates are high and are threatening to go even higher with inflation, lawsuit settlements, wildfire costs, etc…
- High percentage of daylight hours throughout the year
- Net metering is still in play in California
- Federal solar credits are still very attractive (26% this year, and 21% next year)
With the above, most people that I have talked to in my social circle claim that they breakeven in 6-8 years after considering all of the above factors.
If any of the factors above were eliminated, it would greatly impact the ROI.
Electricity Rates - This is a HUGE factor. Californians generally pay a blended rate of $0.24 per kWh. If you get into the tiered details, an incremental kWh can cost Californians nearly $0.50 per kWh in the most extreme cases. I have talked to friends of mine in Ohio, and they pay $0.05 per kWh. The electricity is so cheap, they are not really avoiding substantial utility costs if they implemented solar.
High Percentage of Daylight - Pretty obvious, right? Not sure I need to spend a lot of time talking about this one. If you don’t have the daylight hours, or the sunlight intensity, your production per panel is going to be a lot less than compared to an area that has a high percentage of intense daylight (and by daylight, I do not mean heat… Intense heat actually makes solar panels degrade in performance).
Net Metering - Net Metering is almost too good a deal to be true. Generally speaking, Net Metering allows solar customers to “sell” over production during the day back to the grid for full retail credit towards energy that you will consume when the sun is not out. In effect, the grid becomes your backup battery. This is such a great deal that many states have elmininated net metering (I think Nevada and Hawaii have eliminated net metering if I recall correctly). And there is currently huge pressures to eliminate it in California. The good news is that if you get under the wire, most Net Metering contracts lock you in for a substantial time period. In my case, I am locked into my net metering contract for 20 years.
Federal Tax Credit - Again, not a lot to say here… The Federal Tax Credit is huge… It’s not a deduction, it is a dollar-for-dollar credit towards your tax liability… Subtract this credit from your total investment to determine your ROI/Breakeven. This credit goes to the purchaser/owner of the solar system. So if you lease your system, you won’t get the credit.
Sizing Your System - And when you think of sizing your system, think about it as pre-purchasing a set amount of electric capacity every year. As an example, my solar system is forecast to generate around 5,500 kWh per year. You should think about this capacity like you would a Health FSA account… You’ll want to try and use it all before the end of the year is up. If you have too much left over, then you probably over-invested in your panels and could have received the same benefit for less cash outlay. It’s better (financially) if you are either even, or if you are paying a little more for energy from the grid… It basically ensures that you used every last drop of your solar consumption…
I hope this helps… Let me know if you have any questions…