Going Solar can be a great investment for many homeowners. There are great potential short and long term savings, tax benefits and increased property values. However, there are some drawbacks and considerations that homeowners should keep in mind. These are the four things you want to know about before receiving a solar quote. To learn more about the benefits of solar here.
Dealer Fees
Solar Companies and lenders love to tout excellent interest rates. Some as low as 1 percent APR! However, the lesser talked about part of getting financed for solar is the 15%-26% Dealer Fee that is added to the loan. This can add tens of thousands to the cost of your system above the cash cost. A simplified reason for this is that large financial institutions buy portfolios of these loans from major originators such as Mosaic, LoanPal and Dividend much like the mortgage industry. Unlike the mature mortgage industry however, solar is just in its infancy. The dealer fee represents the margin of safety these companies require in order to be able to package and sell the loans to said Large Financial Institutions (Wall Street), which ultimately keeps the money flowing in for more new customers. Want to see a solar sales person squirm in their seat? Ask them to explain why there is such a difference between the cash cost and financed cost. If they say anything besides dealer fee, run for the hills and find an honest dealer to work with.
Payment Increases after month 18 unless payed down by amount of ITC
Property owners who install solar systems in 2021 will receive a 26% Federal Investment Tax Credit (ITC), which can amount to thousands or tens of thousands of dollars. Sounds great right? It is, but when financing the system many homeowners are unaware that the assumption of the lender is that you will apply the full amount of the credit to the loan principal within the first 18 months of the note. If you don’t apply this money YOUR MONTHLY PAYMENT INCREASES for the remaining 23.5 Years. So you’re going to put it back in, all cool right? Maybe. The other point many homeowners overlook is whether they can actually utilize the amount of the tax credit. Let me explain – If you haven’t paid in, or owe, the amount of your ITC then there is no way to receive this value because the government isn’t giving you back anymore than you have already paid them in that year via holdings. Meaning, you won’t have the thousands of dollars in your hands necessary by month 18 to keep the payment from increasing. I am told you can utilize the credit over multiple years so you will get your value, the question is will you get it before your payment increases 26% + Interest? financial or tax *Please
consult a professional for guidance as this is not, and we do not give, advice as such.
Panel Degradation
On average solar panel productivity degrades at .5% per year. This means that in year 30 your system will likely be producing at less than 85% of its year one capacity. Understanding this point is important when considering how a consumer should size their system. Often oversizing the system by 10%-20% can be a great idea to account for this future degradation. Either way, if a solar consultant shows you thirty year figures that assume zero utility bill after 30+ years you should be skeptical unless they are producing 115%+ of your current usage with the system.
Batteries: The Juice Isn’t Worth The Squeeze
The current use cases that make sense for installing batteries, in our opinion, are limited to certain markets where time of use plans, or unappealing net metering policies exist. In these instances, batteries can be very efficient and economical. However, in markets with net metering there is little use beyond backup for the occasional outage. For most, the number of hours they spend without power each year doesn’t currently justify the price tag batteries carry. There are far more economical options currently to solve the occasional outage. We are not saying batteries are bad, we believe that they are indeed the future but are just not at enough scale to create enough economic return for residential consumers unless in certain utility markets discussed above. Be on the lookout for future content about this topic!
Seth Hatfield, a maverick in the realm of writing, seamlessly weaves tales from the world of construction and beyond. With a unique blend of insight and creativity, he invites readers on a journey through his diverse repertoire of articles.
