Saturday, June 9, 2018

Background

I had been interested in converting to solar energy for a number of years because I wanted to do my bit to lower our dependence on fossil fuels.  I have a 1938 sq. ft. townhouse and in Feb. 2013 I signed a solar lease for 20 years. I was a good candidate for solar. My backyard faces south by southwest and I have both a second-story roof and a first-story roof, where my kitchen and family room extend into the backyard.  At that time, the purchase price was close to $35K and it just did not make financial sense to buy.  The company I signed the lease with, told me that the solar array would cover 85% of my current usage.  Their design put 18 solar panels on my second-story roof and 9 on my first-story roof (see below).  Approvals by the utility and my municipality occurred without incident, but my homeowners association (HOA) decided that solar panels on the first story were ugly and that I could only have them installed on the second story.  Since this would only cover a little over half of my electricity usage, I decided not to go forward with the project at that time.   The company I signed the lease with did not want the hassle of dealing with my HOA further and we parted ways with no harm to either side.




Fast Forward to September 2017

I was approached by a sales rep from a large solar company one evening when I was out in my yard.  He talked about the advantages of signing a solar lease (no money down, not responsible for repairs) and said his company was looking for homes like mine (with southern exposure in the back).  He did inform me that panel efficiency had improved to the point that all my electrical usage could be covered by installing panels only on the second story.  With this information in hand, I re-opened my online investigation into solar energy. I found that the price of purchasing a solar array had decreased significantly in the intervening four and a half years.  The advantages of owning your own solar array are:


·    Increases the value of your home
·    You get the 30% federal tax credit (Note:  the 30% tax credit is only available through 2019 for installed solar systems; in 2020, it’s 26% and in 2021, it decreases to 22%, then it’s gone)
·    In NJ, for every 1000 kWh that your system produces, you generate one solar renewable energy certificate (SREC) [In Sept. 2017, one SREC was worth $175]


For what it’s worth, I have since become of the opinion that signing a solar lease can have some significant downsides. When you go to sell your home, the next buyer is unlikely to view the lease as an advantage as there is no guarantee that they will get a good deal when the lease is renewed.  If they opt to have the panels removed, will the leaseholder really be careful with the roof?  If there’s damage, who will pay for it?  I have also read of some leases preventing the homeowner from refinancing because the solar leaseholder demands to be the first lienholder and the financial institution that would be refinancing the mortgage, refuses to be a second lienholder (perfectly reasonable as they’re usually the ones lending you the most money).

Considerations for Rooftop Solar Installations

So if you’re considering solar panels, what’s the first step in the process?

Step 1: Look at the orientation of your home.

Look up your address at http://www.googlemaps.com or other map website.  Locate the south-facing side of your house.  If it’s the front of the house, ask yourself if you would be willing to put solar panels there or if you’re a member of a HOA, if they would be allowed.  In the northern hemisphere, the south side of your house is best for a solar array, but an east-west orientation can work as well.  This type of easy analysis can give you a rough idea of whether or not your home would be a good candidate for solar panels.

Step 2: Assess the age and condition of your roof.

If your roof is five years old or less, then you can put a solar array on your roof and by the time the roof needs to be replaced, it will probably be time to think about replacing the panels as well. If your roof is approaching the end of its useful life (as mine was), then you also have an easy scenario. Replace the roof and then install the solar panels, and hopefully they will age together on a reasonably close timeline. On the other hand, if your roof lies somewhere between these two extremes, you have to consider carefully if you would be willing at some point in the future, to spend the money to have your solar array removed, allow the roof replacement to proceed, and then have the solar panels re-installed.  The costs for this procedure are certainly something to discuss with any solar company you are seriously considering.

If you’re still interested after steps 1 and 2, then you’re going to need some info on what it would cost for your particular situation.  Which leads us to step 3.

Step 3: Research solar companies in terms of their customer satisfaction.

Choosing the right solar company is critical to the success of this major home improvement project.  Ideally you are looking for an honest, reliable dealer who is competent and committed to the success of the solar industry.  Unless you have some kind of “in” with the solar industry (I did not), the best way to find a good solar company is to look for lots of satisfied customers.   I found the reviews on http://solarreviews.comhttp://energysage.com, and http://angieslist.com (you have to register to look at reviews, but it’s free) to be very helpful in this regard.  You can sign up on energysage.com (you need to input your address and your latest electrical bill, which should show your usage for the past year) to receive quotes for your particular house.  I found my solar installer on energysage, but I also contacted a couple of companies myself based on their excellent reviews.


Step 4: Run an internet search on “optimizers vs microinverters in current year”

Solar panels produce direct current (DC), which must be converted into the alternating current (AC) that can be used by the appliances in your home.   A system using either microinverters attached to each panel, or a central inverter with optimizers attached to each panel, can accomplish this process.  Both systems will allow each panel to operate independently, so if one panel becomes shaded during the day, it does not affect the rest of the solar array.  You should do your own analysis of which system works best for your particular situation.  [After two of the solar reps said that microinverters had a tendency to burn out after several years, I focused on systems with optimizers.] 

You can also do a search on “best solar panels in current year” to get an idea of what are the top manufacturers.  Once I had offers from solar companies, I ran searches on the solar panels they were proposing to use (“XYZ” solar panel reviews) to see if I could get any feedback from actual owners of the panels.


Step 5:  Consider your financing options

If you can pay for your solar system out of savings, paying cash upfront will certainly simplify things.  If that is not an option, most solar companies will offer you a solar loan that is equal to 70% of the total cost, with the requirement that you pay the remaining 30% when you receive your federal tax credit.  If the tax credit turns out to be larger than the federal income tax that you have due, you can’t use it to get a bigger refund. Instead you can carry over the remaining amount of the tax credit to the following year.  For example, if you had a solar-powered system installed at your primary residence in June 2017, and you filed your federal tax return for the next two years in April 2018 and April 2019, it might be June 2019 before you received the complete 30% tax credit for your solar energy installation. 

You will need to have good credit in order to qualify for a solar loan, but one advantage is that you don’t need to tap into the equity in your home.  Of course, the solar company will build the cost of financing the 30% for whatever length of time it turns out to be into the total price of the solar project. They won’t say that, but they will pass the financing charge for the 30% on to you.  In September 2017, I was offered solar loans with interest rates of 5.49-6.49%.  The solar loans were offered in either a 15- or 20-year term (the consumer’s choice).

For that reason, it’s worth considering taking out a home equity loan to pay for your solar system if you have sufficient equity in your home (many lending institutions will lend you up to 80% of the loan-to-value (LTV) ratio [to get a rough idea of your home’s value, you can look up your market value on https://www.zillow.com or some similar site]).  The advantages are that the interest is tax-deductible (because you are using the money for a home improvement) and the interest rates are lower than for solar loans. From the solar company’s point of view, you are paying cash, so ask them what kind of discount they will give you if you arrange for your own financing.  In September 2017, I was offered discounts of $2-3K for arranging my own loan.  I did an internet search on “best interest rates for 15 year home equity loans in NJ”. In October 2017, Kearny Bank was offering the lowest interest rate (4.125%) that my quick, non-exhaustive search produced, so I applied for a home equity loan at my local branch office, taking copies of all the documentation they require with me.  As a townhouse owner, I did have to pay $20 to obtain a copy of my HOA’s certificate of insurance (available at https://eoidirect.com) It took about five weeks to close on the home equity loan, which provided me with the financing I needed for the new roof and solar installation.

Of course, you can also look into getting an unsecured loan, but make sure the terms (interest rate, etc.) are better than what you would get with the solar loan option.


Step 6: Decision time

A rooftop solar system is a long-term investment, and for most of us it requires that we arrange for some type of financing. Consider carefully if this major home-improvement project makes sense for you financially.  As with all contracts in New Jersey, you have three business days to cancel the contract by submitting a signed cancellation form (should be part of the original contract) if you have second thoughts.  However it is best not to sign any contract until you are sure you want to move forward with it.  Note:  make doubly sure that any solar contract you sign conveys ownership of the SREC’s to you.  The SREC’s are an important component in financing the installation of the solar array.

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