Most people are surprised to learn just how many unique factors contribute to the ROI calculation for a residential solar investment. To maximize your system’s performance and return, a good solar design and installation professional should look at much more than just square footage of your home, and orientation of your roof. The best systems must also address your family’s unique energy consumption patterns. In other words, how much electricity you use every month, day, and hour can have an even greater impact on system design and price than simple square footage. Then, all those factors must be weighed against the optional utility rate plans that are available in your area.
Like any big purchase, the best results happen when you explore all the contributing factors fully, and then align your design, goals and financing options accordingly. To help get you started, here are the leading four factors contributing to the ROI of your solar investment:
1. Your energy consumption habits
This is probably the most important consideration because it’s totally unique to you. How much electricity you use and when you use it is critical because utility costs fluctuate throughout the day. It matters when you’re turning the AC up, drying clothes, or cooking a meal. These patterns are totally yours, and the reason why any other family living in your home is likely to have a totally different electric bill than you. For these reasons, it’s important for your solar installer to fully review your billing history (we recommend one year) in order to design a system that work best for your patterns through all four seasons. This will impact the number of panels you need to purchase, price, and ultimately your ROI.
2. Your local utility provider
Solar panels stop generating electricity once the sun goes down. Battery systems can be used to store excess daylight solar electricity for use at night, but even today’s best batteries are limited in capacity against Arizona's high air conditioning demands. In the vast majority of cases, it’s most economical for a customer to simply offset purchased utility power during the day with solar, and utilize grid power at night when the sun is down. Each utility has unique pricing options for interconnected solar customers, and on-peak / off-peak hours vary as well. Designing a solar energy system to optimize the programs in your area is critical to optimizing your solar ROI.
3. Your roof orientation
Regardless of orientation, the most-important consideration is that your roof, and any solar panels installed on it, must not be shaded by structures, mountains, or large trees. While an unobstructed south-facing roof will capture the most mid-afternoon sun, which is best for many utility plans, a west-facing orientation can also be beneficial at offsetting utility power during high-demand on-peak hours later in the day (such as the 3-7 PM). Ultimately, the best performing solar energy system is designed to address when you're home and when you tend to use the most electricity. All of these variables will influence the configuration, and price of your solar energy system.
4. Payment options and solar tax incentives
There are three main ways to fund a solar purchase: lease, loan, or cash, and within each of those categories are numerous options. In addition, there are both national and state incentive programs that can offset more than 26% of a solar purchase through tax incentives. The most lucrative of these incentives is the federal solar ITC, which is a tax credit for 26% of the solar system cost. This year is the only year of the 26% rate before it reaches 0% in 2022. Locking in this tax incentive now will ensure you get the biggest and fastest ROI on your solar energy system. With this incentive, the tax credit goes towards the homeowner if it's financed through a loan or cash. If you're financing through a lease, the tax credits go to the lease holder. A qualified solar installation company will be well briefed on all options and able to provide a clear ROI calculation for each.
While these four factors are probably the most important, there are many other secondary considerations as well. The number of gas vs. electric appliances in your home, the age of windows, and the age and efficiency of your hot water heater, pool pump, and AC unit can all impact your ROI. We recommend getting a customized quote from a certified solar installer as the best way to learn how much solar can save your family now and in the future.
With the 26% solar tax credit decreasing at the end of this year, going solar now will ensure the biggest and fastest return on your solar investment. Contact one of our qualified solar integrators to start your solar project today!
*This blog has been updated since its original publication of 10/4/2016 to reflect current incentives.