I am often asked by prospective buyers if I think that a home with solar is a good buying option. While every real estate class that I have ever attended always emphasizes that the buyer should decide for themselves, I would be remiss without giving my two cents opinion on a particular situation. I mean, why else am I there than to council and advise my client?
For me, the question of whether solar is a good option or not comes down to one key question – Am I saving money? Essentially every home buyer has to have electricity and will be getting it from somewhere. For those of us in the Phoenix area, our two key options, depending upon where the home is located is SRP and APS. Both operate as a monopoly – SRP is a utility cooperative, APS on the other hand is a private corporation beholden to their stock holders. While both utilities must answer to the the state corporation commission, there are no guarantees that either company works solely for the benefit of its customers.
Solar, on the other hand, offers a home owner to control costs through outright ownership where there is not monthly payments, prepaid solar leases where the home buyer prepaid for the cost of electricity for a specific period of time, or through fixed payments assumed through a loan or lease transfer. I don’t plan on talking about the merits of loans, leases, and outright ownership in this article but want to emphasize that electricity must come from somewhere and the cost of that electricity is at the heart of this question.
To simplify this question, I look for the cost per kilowatt hour for the electricity used. A kilowatt hour is a unit of measurement to measure the amount of electricity used over a period of time, in this case over an hour. To look at the electrical cost from APS or SRP, look no further than to the rate plan that you would select. APS’ Saver’s Choice rate plan, for example, has both on peak and off peak charges. During the summer time, their charges for a kilowatt hour during on peak hours (3pm to 8pm) is $0.24314 per kilowatt hour and drops down to $0.10873 per kilowatt hour during off peak times (as of the writing of this article).
When buying a home that has a solar owned system without any loan payments associated with it, the cost to generate a kilowatt hour is $0. So for each kilowatt hour that the solar array generates, you literally pay $0 for that electricity. The same principle is applied to prepaid solar leases. Since the solar lease is prepaid, the cost to the new home owner is $0 for all of the electricity it generates.
Now it becomes a little more convoluted when looking at a solar loan or solar lease payment. To calculate the cost per kilowatt for a solar loan or lease, you need to know 1) the monthly solar payment and 2) the annual kilowatt hour production from the solar panels. To calculate the cost per kilowatt, multiply the monthly solar payment by 12 (annualize the payments) and divide by the annual kilowatt hour production for the year. For example, if the monthly solar payments are $100 per month and the annual kilowatt production from the solar panels equals 15,000 kilowatts per year, you would simply multiply $100 by 12 to equal $1,200 and divide that number by 15,000 (1,200 / 15,000) to equal $0.08 per kilowatt hour. Looking at the aforementioned rate plan from APS with an on peak charge of $0.24 and an off peak charge of $0.11, any electricity produced by the panels would produce a savings.
However, if the monthly payments are $150 and the annual production is 15,000 kilowatt hours per year, the cost per kilowatt jumps to $0.12 ($150 x 12 = $1,800 / 15,000 = $0.12). While there still is a savings for any electricity used during the on peak hours of the aforementioned rate plan, it actually costs more to use the electricity off peak than it would to buy it from the local utility.
Besides the cost, another factor to consider is net metering. Net metering is the ability to store the extra electricity generated by your solar panels back on to the grid in order to use them at a later time throughout the year. Utilities companies give you a 1 to 1 payback on those electrical credits. For example. If you generated 600 kilowatt hours in January but only used 550 of those kilowatt hours, you created an excess of 50 kilowatt hours that the utility will store for you on the grid. As months pass and your need for more electricity increases (as it does during the summer months), those extra 50 credits can be used without incurring a charge from the utility company for those extra credits. This becomes very economical and attractive for many systems will overproduce during the low demand months so that the home owner has extra credits to use during the expensive and hot summer months and results in small, affordable electric bills from the utility versus the neighbor next door without solar that is paying hundreds more.
Don’t confuse net metering with net billing. Net billing is the process in which the utility reimburses the home owner for the excess electricity they produced at a set rate each month instead of allowing the credits to roll over to the next month. The payback rate is about half of the cost of the on peak charges but will vary depending upon the age of the solar system.
Third, and this primarily affects solar owned systems, one should consider the age of the equipment. While most solar panels are expected to have a 40+ year life to them, other components may not last as long. String inverters, for example, typically have a 10 to 15 year life expectancy. If the system is owned and the system is 10 years old, you may have to buy a new inverter in the coming years. Additionally, equipment will not function at its peak capacity as it did when it was first installed. Solar panels will produce less electricity each year, though some see less degradation each year when compared to others. Check the warranties on the equipment and verify that they are working at their optimum capacity before buying.
This may seem like a lot to consider when buying a home with solar, but the savings potential can be greatly beneficial in the cost savings each month and the satisfaction that you can lower the temperatures during the summer without the fear of high utility bills. Solar can provide the predictability to your monthly bills while giving you the comfort and enjoyment of a solar lifestyle.
For those of you that would like to take this a step further, I have created a worksheet that you can use. You can download the Solar Home Buying Worksheet home buying clicking here.
As always, you can also contact me directly at (480) 888-1234 with any questions.