Do Solar Panels Increase the Value of Your Home?
Given the initial costs of solar energy, it's only natural to wonder how much value you get out of them if you're thinking of selling your home. Having solar panels installed in your home sets it apart from non-solar homes, but does that mean they add value?
In this article, we go over the specifics of solar energy, how much it costs to install, and why it can add value to your home.
Do Solar Panels Increase Home Value?
Why Use Solar Panels?
Entire households can be powered using the solar energy collected by the panels. They are generally used by homeowners to reduce their carbon footprint while also saving money on electricity.
For homeowners, this makes solar panels as much a financial investment as it’s a means for them to do their part to save the environment.
Solar panels are made from photovoltaic (able to convert light into electricity) cells that are extremely thin and delicate, which is why the cells are coated in conductive glass or plastic. The cells are each about 6 inches wide and 6 inches long.
The solar cells are all placed together in separate modules making up the majority of the panel surface. The number of cells is what determines how many watts the panels can generate per hour.
Solar panels are merely a single part of what makes up an entire system. Accompanying the solar panels are the solar panel inverter, portable solar generator, charge controller, and the cables responsible for carrying the electricity to your home.
The equipment making up your solar panel system may vary according to the type of system you own.
Types of Solar Panel Systems
Off-Grid Solar System
An off-grid solar system is responsible for handling all of a household's energy needs, which makes the home completely reliant on solar energy. An off-grid solar system is mostly what’s used when solar panels power mobile homes.
Provided you have enough panels and you get enough sunlight, solar panels can power an entire home.
Due to the number of solar panels it would take to be able to fully power a home, as well as the necessary equipment, this type of solar system can be costly to install. The upside, however, is the amount of money the homeowner saves on utility-provided electricity.
Solar generators are important when it comes to off-grid solar systems. When night falls and sunlight is no longer available to derive energy from, a solar generator ensures that your home stays powered throughout the night.
With this type of system, when it comes to adding value to your home, unless buyers are specifically looking for an off-grid home, the likelihood of a prospective buyer being willing to jump into the off-grid lifestyle is very slim.
Grid-Tied Solar System
A grid-tied system refers to a solar panel system that’s connected to the main electrical grid. What characterizes the grid-tied system is its ability to draw power from both the solar energy collected by the panels and the main electrical grid.
This means that, unlike an off-grid system, instead of switching to a solar generator for energy when the sun goes down, with a grid-tied system you're able to source your power directly from the grid itself. This type of system is useful if you only need solar panels for your lights and TV.
Solar panels for tiny homes are best suited for this type of system because they make the most of the space they're given.
The monetary cost of continuing to rely on the utility grid for power can be balanced out with net metering.
Net metering is a billing strategy designed for households that produce their own electricity. Whenever a household with a grid-tied system produces more electricity than they need, the excess is sent to the grid in exchange for credit on the household's electricity bill.
One drawback of this type of system is that whenever a blackout occurs, homes using a grid-tied system will also be left in the dark because of their connection to the main grid.
Solar Energy as a Financial Investment
With the cost of the solar panels and all the necessary equipment, along with the cost of professional installation, the initial price you have to pay for solar energy can be high. This of course depends on the number of panels and the type of system you’re looking for.
This is why purchasing solar for your home is considered a financial investment. You’re making a big purchase with the intention of eventually making that money back.
Cost of Solar Energy
Although prices have steadily declined, solar is still a significant purchase.
Grid-tied solar systems are usually priced between $13,000 and $15,000 while the estimated price of off-grid solar can go from $18,050 to $74,000, which includes expenses of additional equipment.
The average amount spent on electricity per month in the U.S is $114, which makes it about $1,368 per year. With the use of solar energy, this amount can be either significantly chipped away or eliminated completely.
Despite what could possibly be a hefty initial fee, you immediately start saving on energy expenses and slowly see a return on that investment. On average, a solar panel owner sees a 20% return on investment within the first year, and a complete return within 6 to 10 years.
How long it takes to make back your initial investment depends on factors such as your local electricity prices and the type of solar system you have.
Solar Panel Appraisal Value
On average, having solar panels installed raises the value of a household by 4 to 5 percent, and by $20 for every $1 that is spared on energy expenses.
These days people are becoming more energy conscious, which means a larger number of potential buyers are looking for a more energy-efficient home.
While solar panels do add value to your home, exactly how much depends on the state of the system itself. An older solar system that’s farther along in its 20+ year warranty won't add as much value as a newer one. This is because degradation and loss of efficiency have to be taken into account.
Do Solar Panels Help Resale?
When selling a home with solar panels, your location can help determine the added value of your solar system. Solar energy is more valuable in states where the price of electricity is higher. A region's net metering regulations as well as other state-based solar incentives may also play a part in potential buyers’ decisions.
It's important to note that the solar panel system needs to be under the homeowner's name, not leased. If not, the solar panels won't add any value to the home.
This is because the homeowner doesn’t technically own the panels. It's best if the solar panels are under the homeowner's complete ownership to avoid contractual complications with any third party.
Additionally, having a solar panel system with battery storage also adds to the value of your home.
Is Solar Energy a Good Investment?
We’ve established that a solar panel system does add value to your home, so now we're left with the question; Is solar energy a worthwhile investment? What are the benefits?
State Incentives for Solar Energy
With the startup price of solar energy being what it is, while not totally unaffordable, many people are hesitant to invest in it. Since solar energy is a much greener source of energy, the government tries to encourage people to switch to solar.
This is done using various state solar incentive programs, including net metering.
Solar Investment Tax Credit
One of these incentive programs is the federal Solar Investment Tax Credit (ITC). This incentive offers a tax credit of 26% for homeowners who’ve invested in solar.
The 26% tax credit is only given to those who’ve installed solar before the end of 2022. After that, the tax credit drops to 22% as of 2023 before being phased out completely in 2024.
This incentive was first introduced in 2006, and meant to be phased out by 2022, but was extended to encourage more people to take advantage of it.
To qualify for this tax credit you need to own both your home and solar panels.
Many states offer additional incentives separate from ITC, such as state government rebates that lower the price of your solar panels by as much as 20%.
Solar Renewable Energy Credit
Another example of a state solar incentive is Solar Renewable Energy Credit (SREC). It works similarly to net metering.
After installing your system, you need to register with the necessary officials who keep track of your home's energy production and offer you credits that can be sold to your local utilities.
Your generated electricity is billed per megawatt-hour (MWh) and the value of your credits differs from state to state. A single credit can go from $21 to $425.
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