Pictured above: Today’s attractive all-black solar panels eliminate the “checkerboard” grid appearance of older panels.
How to Buy a Solar Power System for Your Home
Home solar power is an exciting field and has experienced tremendous growth as solar panel prices have fallen. However, this high growth has attracted many new market entrants. Some don’t really know what they’re doing. Others are more interested in your money than your satisfaction.
Internet companies have sprung up with websites that offer to estimate how much you could save with a solar power system. These companies make money by asking you to provide your contact information, which they sell to solar contracting companies. All too often, the “company” is a salesman or an installer with a van and no office, working through a licensed contractor whose office is hundreds of miles away.
So here is some useful advice.
Make sure your contractor puts your expected solar electricity production in writing.
Unfortunately, some unscrupulous solar power salespeople promote unrealistic expectations of solar power system performance. So we strongly recommend that you insist on a written estimate of the expected solar electricity production to be provided by your solar power system, for each month of the year. Don’t let any salesperson tell you this information is too complex to provide. Month by month estimated average solar electricity production figures are automatically calculated by all the major solar power system design and estimating software products today. Any experienced and reputable solar power contractor can easily provide you with this information.
Naturally, actual savings are impossible to predict and unusual weather may cause variations from long-term average weather, affecting your system’s production during some months. But excellent software is available from several vendors that allow solar contractors to estimate the solar electricity production of a solar power system with a high degree of accuracy.
A written estimate of expected solar electricity production should include a roof layout image or drawing, showing the proposed locations of panels on your roof. And it should list the specific assumptions the estimate is based upon, including at least the following:
- brands and models of solar panels and inverter(s)
- number of solar panels and the azimuth angle, or direction, that each bank of solar panels will face
- identification of any trees that must be trimmed or removed to achieve the performance in the estimate
- the approximate tilt angle of the solar panels
- that the estimate is based upon average solar irradiance and weather data for your location
Don’t worry if you don’t know what some of these terms mean. Just make sure you get the assumptions for each in writing. While a written solar electricity production estimate is not guaranteed to protect you against misrepresentation, it will greatly increase the odds that your system will be capable of producing the amount of solar electricity a solar contractor has promised you.
And keep in mind that automatically generated online estimates of your roof’s solar electricity production potential aren’t always accurate. The software that generates the estimates has trouble with:
- estimating how many solar panels will fit on non-rectangular roofs
- detecting roof azimuth and tilt angles, especially on complex roofs
- detecting roof exhaust vents, chimneys and other obstructions that reduce the number of solar panels that will fit on a roof
- estimating the effects of shade from trees and nearby structures
Even the most advanced solar power system design software cannot solve the problems above without human interaction. An online estimate is just a starting point.
Pick a solar panel manufactured by a company that has been in business at least as long as its power production warranty.
It has become industry standard practice for solar panel manufacturers to guarantee in writing that their solar panels will maintain a certain minimum level of performance over 25 years of use. The guaranteed performance typically declines by a small amount—usually one-half to seven-tenths of one percent—each year.
But here’s the interesting thing about solar panel power output warranties. Many solar panel manufacturers have not been in business for 25 years. Or even close to 25 years.
Research the manufacturer of solar panels you are considering. Many Chinese manufacturers went out of business because the Chinese built too many solar panel factories during the past seven to 10 years (mass production—not technology advances—is actually the biggest reason why solar panel prices have fallen so much since 2008). Solyndra, a U.S. solar power startup company, failed spectacularly (you may recall the name from the 2012 presidential election campaign). SunEdison, another relatively young solar company that is active in the rooftop solar power market, lost money every year from 2009 to 2015 and filed for bankruptcy protection in 2016.
American Solar sells and installs solar panels manufactured by SolarWorld USA and LG Corporation. SolarWorld has manufactured solar panels in the United States for decades and traces its roots to the U.S. space program in the 1960s. SolarWorld solar panels installed in the 1970s are still performing within current energy production warranty standards. LG is one of the world’s largest manufacturers of appliances and consumer electronics and has been in business since 1947.
Understand that purchasing a solar power system is financially a much better deal than leasing.
Most residential solar power systems in the United States today are leased or installed under power purchasing agreements. With leasing, you rent solar panels that are installed on your roof. With a power purchase agreement, you pay a guaranteed price for power produced by solar panels installed on your roof and owned by a third party (the sale of electricity by a non-utility entity is currently illegal in Florida).
Owning your own solar power system makes a lot more financial sense than leasing or purchasing power produced by a third party’s solar panels installed on your roof, for several reasons.
Your long term savings will be much greater if you own your solar panels. Solar panel leases and power purchase agreements are designed to immediately lower the total cost you pay for electricity. While this can be very appealing for homeowners on tight budgets, these agreements typically have 20 year terms and escalator clauses that increase the lease payments or power purchase rates by a fixed amount (about 3%) every year.
When you purchase a solar power system, your monthly payments may be a bit higher initially than the value of electricity your solar panels will produce. But at some point, your solar panels will be paid for. At that point, you will have enormous savings from solar panels that should produce power for 40 to 50 years or more.
A solar lease or power purchase agreement could also make selling your home more difficult. First, the potential buyers may be rejected by the solar power leasing company because of minimum credit score or debt-to-income ratio requirements. Second, potential buyers may not want to assume a lease or power purchase agreement that contains an escalator clause.
A solar lease isn’t like a car lease. When you lease a car, one big reason for doing so is that you are free to walk away from the car at the end of a typical three or four year lease term. And the lease payment is the same fixed amount every month. With a solar lease, you are locked in for 20 years and the lease payment goes up every year.
Understand that the attractiveness of your solar power system can have a big impact on your home’s resale value.
Independent studies show that installing a solar power system substantially increases a home’s resale value, and can also help the home sell more than twice as fast as a similar home without solar power. This increased value is just common sense: A home with much lower electric bills is worth more than a similar home with much higher electric bills.
But here’s some cautionary advice: For maximum resale value, you want a clean and attractive solar power system installation. Things you should look for, especially for solar panels that will be visible from the street:
- Ask for all-black solar panels, which are much more attractive than panels with plain aluminum frames and the “checkerboard” pattern.
- You want a nice, clean panel array that forms either a rectangle or—on a hip roof—a symmetrical pyramid arrangement of the rectangular solar panels that follows the roof contours.
Make sure you get a hard copy or emailed PDF file from your solar contractor that shows the proposed layout of solar panels on your roof.
Verify that your contractor actually has a physical office and staff in your area.
We see solar contractors in Florida installing home solar power systems 100 to 200 miles in driving distance from their closest office.
It is not at all unusual for a contractor to take on large commercial projects 100 to 200 miles or more from the company’s closest office. But home solar power systems have a very different cost structure, with much less profit per system. So using an out-of-town installation contractor can be a bad idea. You may find it difficult to obtain service if you have a problem with your system after installation. Why? The driving distance and labor travel time can increase the contractor’s costs for a service call by 400% or more.
So before you consider working with a particular contractor, make sure the contractor has an actual physical office within 30–40 miles or so from your home. Type the street address listed for the office into Google. Make sure it isn’t just a house, an apartment, or a business that rents mailboxes (like a UPS Store or Mailboxes, Etc.).
And you really should think twice before doing business with a company that doesn’t even have an office.
Make sure you are doing business with a licensed contractor.
This one should be obvious. Even so, we do periodically encounter unlicensed installation of solar systems. As with any home improvement that requires a building permit, an unlicensed contractor cannot legally install your solar power system. An unlicensed company may try to convince you to do business with them by suggesting that you can save money by not pulling a building permit, or by getting a lower price because the unlicensed contractor has lower overhead expenses (the unlicensed company may suggest that you pull the permit as the property owner).
Don’t fall for it. If you hire an unlicensed contractor:
- Your new solar power system will not qualify for a utility net metering agreement, which allows you to feed excess power generated by your solar power system back to the utility for credit on your utility electric bill.
- In the unfortunate event that your home or furnishings suffer any damage during or after work is completed, an unlicensed contractor is probably not going to have liability insurance coverage. And the company that provides your homeowners insurance coverage will reject the claim if they discover that the work was performed illegally.
- A contract with an unlicensed contractor, for any scope of work that requires a license, is void and has no binding effect under Florida law. This means that manufacturer warranties for products installed by an unlicensed contractor would be void as well.
- An unlicensed contractor can’t buy workers compensation insurance for workers who perform tasks (like solar panel installation) that require supervision by a licensed contractor, so you will be financially liable for any injuries suffered by workers on your property.
Be wary of advice that you can claim the solar tax credit for roof replacement.
Expenditures that do qualify for the solar tax credit include solar equipment, mounting racks and fastening systems, labor costs for on-site preparation and installation, electrical equipment and conduit and wiring to connect the system to your home’s electrical service.
“Onsite preparation” means preparation of solar equipment for installation at the site. The cost of tree removal to eliminate shading of solar panels may qualify for the solar tax credit as a component of installation labor, but the IRS has not published any guidance we are aware of on the eligibility of tree removal for the solar tax credit.
On the other hand, a roof replacement made solely to change style or because of a roof’s age and condition—including the roof area underneath a solar panel array—absolutely does not qualify for the solar tax credit. Period.
Limited roof replacement exception. While you should seek the advice of your own tax professional, we believe the solar tax credit should apply to replacement of a section of roof directly underneath a solar panel array when the sole purpose of the roof replacement is modifying the roof to accept the solar panels. The best example of this is installation of a solar power system on a concrete tile or Spanish mission tile (barrel tile) roof in a high wind zone area like Florida, where the attachment point bolts for the solar panel racks must penetrate directly into the roof trusses.
On roofs with concrete or clay tiles, the roof trusses can be extremely difficult to locate without removing tiles. So we engage a roofing contractor to remove the tiles directly underneath the solar panels, and install fiberglass shingles over 25 year+ premium underlayment material. (After the solar panels are installed, the roofer replaces the tiles around the perimeter of the system for appearance. The fiberglass shingles under the solar panels are not visible.)
Allocation to reflect multiple uses. IRS private letter rulings on solar panel racking systems with multiple uses (e.g., carports, parking lot light posts, car charging stations) suggest that even for a partial roof replacement, required solely because of the installation of solar panels, as described above, cost should be allocated between the solar purpose and the non-solar purpose as protective roof material.
Structural component. Incidentally, the term “structural component” in the IRS instructions for Form 5695 does not refer to the roof structure underneath solar panels. It refers to solar power producing roof panels, mats and shingles that are part of (instead of attached to) the roof or building structure, and not to conventional roof or building structures or materials.
Third party advice. A salesperson may tell you that his or her company’s lawyers or accountants have reviewed the solar tax credit regulations and that roof replacement is eligible for the 30% tax credit. They may even show you a letter on law firm or CPA firm letterhead. Be careful. While reasoned, well researched written opinions of tax professionals do have value, they are only applicable to a very specific set of facts and circumstances of a specific taxpayer. In fact, a blanket letter prepared by a solar contractor’s lawyer or CPA, for indiscriminate distribution to the contractor’s prospective customers, would probably be a conflict of interest under 31 C.F.R. §10.29.1
- Treasury Regulations Section 10.29 (31 C.F.R. §10.29) forbids federal tax practitioners from having conflicts of interest, where a conflict of interest is defined as representation of one client that is directly adverse to that of another client, or representing a client in circumstances creating a significant risk that the representation of one or more clients will be materially limited by the practitioner’s responsibilities to another client, a former client, or a third person, or by a personal interest of the practitioner. See IRS Circular 230.