Homeowners throughout the US are increasingly considering home solar systems as a way of avoiding rising energy costs and benefiting from the increasing incentives and tax breaks surrounding renewable energy. In the past year, residential solar projects in the US grew by a significant 40%, reaching just under six gigawatts. This growth was driven by a record 700,000 homeowners who installed solar in 2022.
Challenges in the Solar Market
Though the growth of residential solar in the US is booming, the solar market still faces a number of challenges. For example, foreign sourcing of solar energy components and tariffs on imports from China continue to be contentious issues. Net metering, a primary way for homeowners to be repaid by the grid for generating their own energy, took a significant hit in California last year, which is expected to lower overall growth of residential projects this year. Lending conditions throughout the credit market are tighter today due to Federal Reserve interest rate hikes, driving up loan rates for solar projects.
Financing Options for Homeowners
Financing may be necessary or at least well worth considering for most homeowners interested in upgrading their home energy with solar. The national average for a 10-kilowatt solar panel installation in 2023 is around $20,000 after taking into account a 30% federal solar tax credit. Loans have become an increasingly popular way to finance solar, and even as low and in some cases zero-interest rate offers disappear, higher retail utility bills continue to make lending rates reasonable.
Key Things to Consider
Before deciding on a residential solar project, homeowners should consider several key things. Firstly, it’s important to understand what they might want to buy and what it might cost. EnergySage can be used to find competing solar quotes, giving homeowners a better idea based on real-life factors such as the size of the system. Secondly, homeowners should consider financing options. Their state’s energy office and a local electric utility may offer solar financing programs, and homeowners should seek quotes from three to five sources, being sure to pay attention to terms and conditions.
Potential lenders can include a homeowner’s local bank, credit union, national bank, or a specialized institution known as a green bank that focuses on loans for environmentally friendly projects. Solar installers, such as Sunrun and Sunnova, also offer loans.
Finally, homeowners should be familiar with other terms, conditions, and options that may be available. For example, some loans allow the borrower to amortize once to reduce the amount. Home equity loans and HELOCs could also be a good option for homeowners who have built sufficient equity in their home.
The Pros and Cons of Leasing
Leasing options exist and may be attractive to some homeowners as a way to avoid the upfront costs of equipment and installation. Another benefit is that the homeowner isn’t responsible for maintenance. Leasing to homeowners is expected to become more popular this year because of additional credits leasing companies can receive under the Inflation Reduction Act.
However, leasing is generally more expensive for homeowners, and they won’t be eligible for the 30% tax credit. Leasing can also present several challenges when homeowners decide to sell their house, so it’s important to weigh the pros and cons carefully.
The cost of solar installation is more palatable for consumers thanks to the tax credit that was extended and increased as a result of the Inflation Reduction Act. Still, if it’s out of reach financially, even with a loan, prices continue to drop, and homeowners have 10 years to qualify for the IRA incentive. Homeowners should get quotes from multiple sources and understand the specifics of any financing arrangement they enter into.
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