Can you really save money by switching to solar panels?
Many people assume they can, thinking that, since they wouldn’t be paying a monthly electric bill, savings would be a given. The truth, however, is a bit more complicated.
While many can indeed save by switching to solar, it might not make financial sense for everyone. In their Best Residential Solar Energy Systems guide, ConsumersAdvocate.org outlines the factors you need to consider to make sure that the investment is worth it.
The most important step is to determine your payback period, that is, how long it’ll take for you to break even on your investment. To do this, you need to assess the “real” total cost of the solar panels— what you’ll pay for the equipment, installation, and delivery, minus any tax breaks or incentives applicable.
You should also factor in costs associated with preparing your home for solar panels, or more specifically, your roof. While all types of roofs (wood, cement, tile, etc) can be appropriate for solar panels, not every roof has the structural foundation to support them. If your roof is more than 15 years old or you already know that it needs repair, it’s important to contact a professional roofer to help you assess whether it’s a good candidate for panels. If it’s not, redoing your roof first is a smart choice.
The next step in determining how long it’ll take you to break even, is finding out how much energy you actually use now and just how much you’re paying for it. When you talk to your prospective solar energy installer, you can discuss these numbers and see how they’ll compare with your total costs.
The final figure you should take into account depends on which financing method you use. If you can’t pay cash up front, you can either lease or take out a loan, both of which will entail additional costs.
How do you pay for solar panels?
There are several ways to pay for a solar energy system. Because the investment is steep (upwards of $10k in many cases), most companies will provide at least two options—borrowing the money or leasing the equipment.
While you could take out a personal loan to buy your solar panels, many solar companies will partner with banks to offer financing options. As with any other loan though, you will have to pay interest on the amount you borrow. While these interests could be low (many companies offer fairly good interest rates), it will still be an additional cost that you’ll have to factor in when calculating your payback period.
Solar power companies will often give you the option of leasing the equipment. There’s quite a few drawbacks to leasing, however. If you lease the equipment, you won’t own it outright and you might not benefit from tax benefits usually associated with switching to solar panels. Also, the leasing company establishes the amount to pay by calculating the estimated cost of energy in your area and the estimated inflation rate. This means your payment might increase as the years pass, making it hard to budget accordingly.
The bottom line is that, in most cases and for most people, solar energy will be a good investment. It isn’t, however, a cheap one. Make sure to analyze your situation carefully and see whether it’s right for you.