When you talk about “going solar,” people immediately think they have to get solar panels on their roof. But there are three different ways you can support solar energy.
- Rooftop Solar Panels. Install rooftop solar panels on your home, often requiring financing, local approvals and a new meter installation. This approach is more successful in certain areas of the country due to incentives and the price of electricity. But we will show you how to calculate the ROI for your solar panels.
- Community Solar. Invest in local solar power projects in your community. In community solar, you buy “shares” in a solar project to offset your usage of carbon-based power.
- 100% Renewable Energy through RECs. Select an electricity plan that includes purchase of renewable energy certificates from solar power projects in your area.
Below, we’ll explain in more detail, from the most expensive to least expensive approach. But first, how does solar actually work?
How Does Solar Energy Work?
Solar panels work by absorbing sunlight with photovoltaic cells in the solar panel, generating direct current (DC) energy and then converting it to usable alternating current (AC) energy. AC energy then flows through the home’s electrical panel for immediate use. Or it can be stored in a battery or fed onto the energy grid.
This diagram shows how a solar panel works for your home:
Option 1: Rooftop Solar Panels for Your Home
Buying solar panels for your home can be an expensive proposition, usually with a long term financing deal. So if you are considering solar panels for your home, there are probably three questions on your mind: (1) how much will it cost (2) are solar panels worth it for my home and (3) can I make money with solar. All three questions are answered below.
How Much Will Solar Energy Cost for My Home?
The cost of solar for your home will depend on the size of the system you install. System size will depend on what percentage of your power needs you want to satisfy, the size and type of roof, and the type of solar panels you select.
The Center for Sustainable Energy notes that the average residential size system (5kW) costs between $3 and $5 per watt generated, or $15,000 to $25,000, before tax credits and incentives.
Energy Sage has a calculator tool to estimate your solar installation costs. They will also connect you with local solar companies.
Is Solar Energy Worth It For My Home?
Whether solar energy is right for your home depends a lot on where you live. And it’s not just because some states are sunnier than others!
Where you live determines the cost of electricity, which is a big factor in calculating your return on investment. It also determines the amount of incentives available, like tax credits and rebates. And lastly, where you live determines whether you can sell excess power back to the electrical grid (known as “net metering”), or sell Solar Renewable Energy Certificates.
No matter what state you live in, the Residential Renewable Energy federal investment tax credit for solar home installations is being phased out after December 2019. Systems installed prior to that date had an available tax credit of 30% of the total system cost. But systems installed in 2020 will have only a 26% tax credit. Systems installed in 2021 will have a 22% tax credit. The federal tax credit opportunity disappears completely after December 2021.
Time needed: 5 minutes.
How to calculate ROI for solar panels on your home.
- Total Cost of Solar Panel Installation
Your solar panel installation size will be based on the size of your roof and the amount of electricity you use. A typical home solar energy system is 5kW, and costs around $20,000.
- Minus Federal Tax Incentive
Systems installed in 2020 will have a 26% tax credit. For our typical home, that would be $5,200.
- Minus Local Incentives
Local solar energy incentives vary by state. For our example, we will assume $1,000.
- Calculate Net Solar Energy System Cost
Total Cost of Solar Panel Installation minus Federal Tax Incentive minus Local Incentives. In our example, $20,000 cost – $5,200 tax incentive – $1,000 local incentives = $13,800 net solar energy system cost.
- Calculate Electricity Cost Savings
Amount of electricity you will use from your system, multiplied by your rate per kilowatt hour.
1) Unless you have a solar battery or a net metering agreement, any power you generate during the day that you don’t use immediately is wasted. Make sure you take your time of use into account!
2) The current price you pay per kilowatt hour of power may change over time. To be conservative in your return on investment estimate, use your current price of power.
- Calculate Selling Power to the Grid
Any excess solar energy that you generate can be sold onto the grid through net metering, or through an agreement with your retail energy provider.
- Calculate Payback Period
(Total net cost of solar energy system) divided by
(Total annual value of electricity cost savings + Sale of power to the grid)
Hate math? Most local solar installation companies will work with you to calculate the payback on your solar energy system. Just make sure to review their assumptions to make sure they are realistic.
Want to see the sun exposure opportunity in your area? Google it. No, we mean it! Use Google’s sunroof tool to estimate the solar opportunity in your neighborhood, based on rooftop sizes and sun exposure.
How to Sell Solar Energy Back to the Grid (Net Metering)
If you set up a solar panel system at your house, chances are that you will generate more electricity than your home uses during daylight hours. According to the Solar Energy Industries association, 20-40% of your solar power could go back to the grid.
Think of it this way. The sun is shining all day when you are away from home, at work or school. Then when you come home at dusk, you are turning on the TV, dishwasher, and air conditioning. So you are generating most of your solar power during the day, when you aren’t home to use it.
Unless you have a battery storage solution at your home to store excess solar energy, the power would be wasted! By participating in net metering, the excess power flows onto the grid and produce generates credits on your electricity bill.
Net Metering is the billing mechanism that credits you for any solar power that you add to the electrical grid. Customers are only billed for their “net” electricity usage. You receive credit for your electricity at the same rate you purchase electricity from the utility.
Utilities in Connecticut, Ohio and 36 other states are required to offer net metering. However, in some states, the push is on to change net metering, to pay a reduced amount of money for solar generation.
Net metering is not available in deregulated areas of Texas. But some retail energy providers (including Chariot Energy, Green Mountain Energy, TXU Energy and Reliant Energy) offer credit for excess solar power you sell onto the grid. To qualify, you must submit information about your solar panels, and sign up for a specific fixed price plan.
But be careful! Most of these solar buy back electricity plans will charge you a higher-than-market rate for the electricity you do use. The exception we’ve found is Chariot Energy’s Rise 12 solar buy-back plan. Chariot Energy works to make your solar energy price affordable. Plus, they will buy-back your excess solar power at the same price that they sell it to you!
How to Sell SRECS From Solar Panels
Many states, especially in the Northeast, have enacted Renewable Portfolio Standards (RPS) to encourage investment in renewable power projects. The RPS varies by state, but it requires that a certain percentage of power sold/consumed in the state must be from renewable resources.
Some states require that solar energy be a part of that RPS mix. To meet their RPS requirements, electricity providers and utilities must obtain solar renewable energy certificates (SRECs).
SRECS serve as proof that they have either produced solar renewable electricity themselves or paid someone who is producing renewable electricity for the right to “count” that electricity themselves.
That’s where you come in. If you live in Maryland, Massachusetts, New Jersey, Ohio, Pennsylvania or Washington DC, you can sell the SRECs that your solar panels generate. This is a financial benefit to you, in addition to using the electricity you generate.
One renewable energy credit (REC) is equal to 1 megawatt hour of energy produced (1,000 kilowatt hours). A typical home solar installation of 5kW will produce 5 SRECS each year. So if you are in one of the active SREC states, your ROI calculation on home solar will also take into account the value of SRECs you can sell.
Your installer will likely offer to purchase the SRECs from your solar panel system. They will consolidate your SRECs with other SRECs, and trade them on the commodity market. The value of SRECs vary by market, with the best opportunities in Massachusetts, Washington DC and New Jersey.
Option 2: Community Solar Near You
Community solar is a great option for consumers when solar panels don’t make sense (or aren’t allowed by your homeowners association), but you still want to support renewable green power.
What is Community Solar?
Community solar allows you to purchase “shares” in a solar power facility near your home. If you join a community solar project, you receive credit on your electric bill each month for the electricity produced by your share in the project. This is known as “virtual net metering.”
In net metering you receive credit for your excess solar power that’s added to the grid. In community solar, you receive credit for the solar power that your share in the community solar project generated.
For example, if you own a 1% share in the community solar project, you receive credit for 1% of the solar power that was produced.
This visual from Energy Sage shows how virtual net metering works.
Here’s the caveat: Community solar and virtual net metering are not offered everywhere.
Is Community Solar Available Near Me?
Virtual net metering for community solar is available in all New England states (CT, MA, ME, NH, RI, VT), across the northeast (NY, MD, DC, DE), plus California, Minnesota and Wisconsin. Contact your local utility company to find out about community solar projects near you, and whether they support virtual net metering.
Within Texas, TXU and Reliant Energy both offer community solar plans where the power you purchase directly supports a specific solar energy farm in your community.
If your local utility company or retail energy provider does not offer virtual net metering for community solar, check out Arcadia Power. Under Arcadia’s unique model, you designate Arcadia as your billing company and give them access to your utility account information. Arcadia then matches you to a local community solar project.
Each month, Arcadia will apply a credit to your bill for your share in the project. They charge the net amount to a credit card that you put on file with your account. Then they settle everything out with your local utility company, so your account remains up to date.
Option 3: Solar Renewable Energy Certificates (SRECs)
The third way you can get solar energy is by buying a solar-focused renewable electricity plan from your retail energy provider. This is usually done by bundling Solar Renewable Energy Certificates, or SRECs, with your electricity.
What is a Solar Renewable Energy Certificate?
We talked a little bit about SRECs above. But to recap, a solar power installation (whether a home, a community solar installation, or a utility scale project) generates two income streams: Energy + SRECs.
A Solar Renewable Energy Certificate (SREC) is created that corresponds to every 1MWh (1000 kWh) of power generated from that solar power installation facility. This certificate is sold to electricity providers separately from the power generated, making it a financial instrument.
SRECS have taken off in Texas, where installation of rooftop solar has been slow. Reasons for this include the lack of net metering, low electricity prices and lack of local incentives.
How do SRECs Support Solar Energy?
So what does it mean when you buy a 100% solar power plan? It means your retail energy provider has purchased SRECS on your behalf to offset the amount of energy you consume.
While solar power will not flow to your home, consider your purchase of a a 100% solar renewable energy plan as a “vote” for solar energy. An active SREC commodity market is a green light to local developers and encourages more investment in solar resources.
The best 100% solar energy plans we’ve found are from Chariot Energy. Chariot is part of 174 Power Global, which owns large solar farms in Texas. Because of this, Chariot is able to sell solar energy plans significantly cheaper than other major retailers. You can shop all Chariot Energy Solar Energy Plans online.
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Want to learn more about solar power? Here are some additional resources:
- Guide to understanding solar: https://www.energysage.com/solar/
- Solar Explained: https://www.eia.gov/energyexplained/index.php?page=solar_home