By Dr. Rikki Racela, WCI ColumnistYes, I did it, I fell victim to the sales pitch of those door-to-door solar panel salespeople. You may have heard these pitches for solar panels and the financial “benefits” of having such a system installed on your roof. But I’m not sure I should call myself a victim since I went into this decision with a healthy dose of financial skepticism and knowing that I was being “sold” a system. I knew that these salespeople oversell the financial benefits of a solar system because, well, they are salespeople. You don’t make money off purchasing a solar panel system; they do. Rather, there are incentives that offset the cost of purchasing a system.
Let's go over these incentives that were sold to me as a New Jersey homeowner, how solar salespeople oversell the benefits, and the reality of having a solar panel system.
The Solar Panel Sales Pitch
One day, I got a call out of the blue from a telemarketer saying they work with my power company in installing solar panels. I agreed to have them come by my house to go over what was involved in purchasing a solar system. A week later, two salesmen from a solar panel company came over at 7pm (my wife and I are super busy and could only meet late at night). About five hours later (no joke, five hours!) we decided to purchase a system from them. To the salesmen’s credit, they explained everything involved with the process of financing and installing a solar system, but the fact they stayed that long is a reflection of the high commission these guys got for making a sale.
The entire system for my size house would be about $95,000. However, we were told these costs would be offset by:
- A federal tax CREDIT of 1/3 of the cost of the system
- The solar incentive program in New Jersey
- Power that is generated by the system
- The increase in value of the home
- A new roof!
These incentives only manifest when you actually purchase your solar system. Leasing your system or using a “power purchase agreement” does not qualify you for these incentives. A solar lease, similar to a car lease, means you pay a fixed amount to the solar company to use the solar panels. There is no upfront cost to you, but any energy generation benefit is offset by the monthly payment to lease the system. A power purchase agreement is similar to leasing the solar system, but instead of a fixed payment, you purchase the energy that is generated by the system (as the name implies). Again, there's no upfront cost to you for installation, but now you buy the power made by the panels, which hopefully is at a cheaper rate than when you buy from your power company.
My wife and I purchased our solar system outright, but we didn’t have $95,000 lying around. We were offered contractor financing, where the solar power company uses banks it works with to give a loan for the solar system. Because the loan is backed by an asset (the solar panels), the loan terms are usually favorable if approved. Since these loans are not pre-qualified, the salesmen had to do the approval on the spot in our home.
We actually were not approved with the first lender despite my wife and I having credit scores over 800. I suspect a recent HELOC approval and opening new credit cards to hack cashback rewards might have had something to do with the rejection. We were then approved by a second lender for the near $95,000 amount with a fixed interest rate of 3% (pretty sweet given the super high interest rates at the time). The loan was then sold to a different bank. It is a 25-year term, so this loan is just as long as a 30-year mortgage. Despite the sweet interest rate, we went into debt to buy this system. But if it generated significant income like real estate, then fine, this loan would make prudent financial sense.
Unfortunately, we will go over why the financial incentives do not overcome the cost of the system in a significant way.
The Federal Tax Credit
Being a high-income family in the top federal tax bracket, the federal tax credit for 30% of the cost of the system was pretty sweet. That was a significant chunk of change of about $30,000 saved. You could almost look at our loan rate being cut by about one-third—more like borrowing $95,000 at 2.1% or borrowing around $65,000 at 3%. Either way, this was a significant incentive for us. However, the other financial incentives are not as sweet.
The New Jersey Solar Incentive Program
Formally named the Successor Solar Incentive (SuSI) program, the New Jersey solar program gives solar panel owners money for generating power from their solar systems. Under SuSI, there is a subprogram for residential homeowners called the Administratively Determined Incentive where 1 MWh (megawatt-hour) of electricity generated by a solar system is worth $85. As I write this, I have had my system for about eight months, and so far, I have generated 7.6 MWh of electricity. It seems that in an average month, I’m going to be credited $85. Though the salesmen pitched this benefit in their presentation, it's not much of a benefit at all.
Power Generated Offsetting the Electric Bill
If you’ve ever looked at your electric bill before, it can be super confusing. Here is mine:
Yes, it looks stupidly complicated, but if you just look at the highlighted numbers, I can estimate that I used about 600 KWh (kilowatt-hour) costing about $130, so that’s about 4.6 KWh per dollar. If my system on average produces 1,000 KWh a month, that’s around $220 per month off my electric bill. It's not exactly chump change, but when it comes to purchasing a $95,000 system, this is a very tiny incentive.
Home Value Increase
According to Zillow, solar panels can increase the value of a home by about 4%. I bought my house for $1.2 million; 4% of that would be $48,000. Now we’re getting somewhere! However, this is just an estimate, and that money is only realized if we were ever to sell the home. We aren’t planning on doing that anytime soon.
A New Roof!
Since it would be ridiculous to put solar panels on a 40-year-old roof that could start leaking and need replacement at any time, solar companies will say, “Hey, you get a ‘free' new roof with your solar installation.” This roof replacement is built into the cost of solar panel installation, but it does not change the fact that if you are due for a new roof anyway, this part of the solar system installation was technically a necessary repair. It is difficult to determine the cost of a new roof on your own, but using an online estimator for my size roof would have cost $30,000. This is similar to the cost the salesmen quoted for me that we were getting for “free.”
Since my asphalt shingle roof was already approaching 20 years old, this roof replacement was a nice perk that was likely going to be necessary in the near future anyway.
Summary of Benefits
So, the salesmen pitched the solar panels as a great deal because the system would pay for itself, given all of the above. The federal tax credit ($30,000), the increase in the value of our home ($48,000), and the new roof ($30,000) all make up the cost of the system (and then some). That’s $108,000 of value with the panels costing $95,000. That's not even including the New Jersey solar incentive program and the energy savings value. As the salesmen mentioned, there’s no way you can say no to this deal!
But Rik, didn’t the headline of this post say solar panels were a bad financial decision? Yes! And what follows is why.
More information here:
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You’re Going into Debt
We had to borrow money to install this system. Although the interest rate was awesome, that’s more debt that we have to pay down. That’s cash flow out the door that we must budget for now. You might be asking, “Doesn’t the money from the New Jersey solar incentive and the money saved on your monthly energy bill offset the loan payment?” Yes it does, but it doesn’t cover the full monthly payment. The state incentive and energy production benefits total about $300 a month, while the monthly payment is around $320 a month. That's about $20 a month out of our pocket until 25 years from now when the loan is finally paid off.
And what about that “free” new roof? I already mentioned the cost of the new roof was added onto the costs of installing a solar panel system, and that is added to the loan amount. Instead of saving money in cash for a new roof, we essentially borrowed the money to pay for a new roof. Also, homeowners insurance would cover any damage to the roof from, for example, hail, and a roof inspector can often find signs of hail damage to justify paying for replacing the roof. It’s not much of a financial benefit to take out a loan for a new roof when you could either save up and pay for a new roof in cash or make a claim of roof damage to your homeowners insurance company.
And how about the increase in the value of the home? Well, that value is not cash in your pocket, and it can't be used to help pay back the solar loan. It is locked in the house, and the only way to truly realize that extra value from the solar panels is to sell your home.
Our Solar Company Went Bankrupt
The salesmen mentioned that solar companies go bankrupt all the time, but the reason to trust their employer was that it was one of the largest solar companies in the US at the time of our purchase. And they weren’t lying. It actually was one of the 10 biggest companies in the US at the start of 2023. But it still went bankrupt; as per a national newspaper report, complaints from customers included high-pressure sales tactics and the failure to get panels installed in certain towns because of difficulty filing permits. Lawsuits are ongoing, but the bankruptcy means that the guarantee of fixing the system if anything breaks and the regular routine maintenance that was included with our purchase has disappeared.
It costs a few hundred bucks a year to clean and maintain the system, but I am hesitant to get an outside company to clean a system it didn’t install. And if this outside company damages my panels, then what?
The bankruptcy is a nightmare for people who were in the middle of their installation, but it is still somewhat of a worry for customers like me who, despite being lucky enough that the company went bankrupt after the installation was complete, now have no way of having reliable maintenance. Also, now that the company has gone bankrupt, what do you tell potential buyers of my house? What was supposed to be a selling point has now become a potential problem that buyers may not want to deal with. It’s very plausible that these solar panels, installed by a company that's now defunct, might actually detract buyers and lower the price of my house.
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The Benefit: More Environmental, Not Financial
Yes, there is some financial benefit to purchasing solar panels, but in the end, you are paying for something where the financial benefits do not offset the cost of the system. What purchasing solar panels does is benefit the environment. That was the reason my wife and I went for the purchase in the first place. The financial incentives were just that—incentives to make the purchase of solar panels more palatable. You will not make money buying solar panels. Buying solar panels will be a step away from the goal of financial freedom.
But you will be creating a renewable source of energy. That’s less oil and gas burned, less coal polluting the environment, and less nuclear waste made. My wife and I thought about this planet, which will be the home for our children, our children’s children, and so on during our purchase. The purchase of solar panels is a step toward that goal. Despite being a financial mistake, we would do it all again (just not with the now-bankrupt company we used).
Have you ever considered buying solar panels? Have you purchased solar panels and now regret it? Were you oversold on the financial benefits of solar panels? Or did solar panels actually work out for you?
We purchased solar panels and paid cash in 2014 and with the tax rebate and incentive program going on at the time our $50,000 investment was recouped in less than 6 years, that’s not even counting the energy savings. The energy savings even in full sun were not as robust as we thought they would be and the panels need maintenance and become less effective as the years go by.
Nice Marla! seems like you still did great despite not as much energy savings and maitenance cost 🙂
We bought our solar panels 3 years ago. They cover 100% of our energy use despite being in east facing roof. . In Colorado so no state incentive. It was about $17K after discounts and federal tax credits.
I estimate it will take 17 years to pay off the initial investment (not counting any potential increase in home value). From a pure investment perspective I would have done better with the S and P 500.
However, I make lots of purchases that never pay off their initial cost. My couch, my ski pass, my car. None of these things are going to earn me a penny.
What I get for the difference between my return on the solar panels and what I would have earned in a similar no-risk bond-type investment is what I “purchased”. For me this is a sense of having taken a concrete (if largely symbolic) step towards mitigating my consumption of non-renewable resources and contribution to climate change. I also benefit in my early retirement from having reduced my obligate expenses. This provides a level of insulation against sequence of returns risk and energy cost inflation.
I haven’t regretted it once.
You overpaid, and I’m sorry.
We did a roof/solar combo in 2017. Gross payout was $31k for a 6.1kw system and roof.
Of that between tax rebates and state refund we paid around $18k out of pocket
If we paid for electric we are looking at $150/mo ($1,800/yr), and a total payoff in about 10 years for both a roof and solar.
For us it completely made sense and we’ll probably pull a profit in some capacity.
This only makes sense if you plan to stay in the home until the break even point and tax credit offset costs.
I got our solar for 30k for a 9 Kw system in 2024. With 30% tax incentive and Susi in NJ, it was a no brainer. No leasing but purchased it outright. We didn’t change the roof b/c it was relatively new but I think you overpaid for your solar. It has been a great purchase for us!
The big lesson is not that going solar is a mistake, but that not doing your homework and getting multiple bids for such a major project is a huge mistake.
One thing I didn’t see mentioned, the roof now qualifies as part of the solar installation, thus you get a 30% tax deduction for your roof, and any other “required” upgrades such as higher amperage service or a new breaker panel.
I got 9.6kW of solar put on my roof last spring for $29K in Houston, TX, which included a new breaker box. I paid for it with a high interest bank loan that I paid off in about 6 months by throwing every bit of spare cash I had at it. I also used some new credit card bonuses to offset the costs, paid installer with credit cards, paid off credit cards with bank loan. My net cost after tax deduction will be ~$13K.
Here’s a blog post I wrote about how to pick a solar installer (LOL!)…
https://theclimateadvisor.com/how-to-pick-a-solar-installer-for-your-home/
Anyhow, hopefully you will come to enjoy your solar more over time. Pair it with some batteries for a really robust system. 🙂
I work with solar in NY. But am looking to help people in NJ as well as they’ve been referred to me. But there are a few things wrong with what you experienced. First, that amazing interest rate of 3% was not amazing at all. Did you know you paid a dealer fee to the bank of about $10,000 to $13,000 (depending on what bank you went with,) JUST to get that rate? I sit my people down and explain how the financing works and I see that lightbulb going off when I show them! They choose the higher interest rate 7.99% because there is 0 dealer fee. Also, I explain to them how to pay it down and re amortize the loan not only when they get the credits after taxes but even $5k a year every year after that, BOTH, lowers their monthly payments AND gets them closer to paying off the loan. So, if I had helped you for example. First of all, your panels would have cost more like $45k to $50k your roof no more than $12k to $15K…(I’ve done some pretty big roofs so I am imagining yours is huge). Let’s say the project was $65,000. The one bank I love that has no dealer fees and unlimited re amortization schedule, (no fees to re amortize simply call, say you want to pay $X amount towards loan and voila, your new loan amount is lower as are your monthly payments) also has first 6 months after installation no payments. This gives you time to get closer to that tax time to get those credits to lower your payments sometimes even before the first payment is due! (Just had that with 2 of my clients right now!). Long story short. solar IS or CAN BE an amazing savings BUT the way it is done by many companies I hear your story over and over again! That being said, even now, if you want to reach out to me I can see if I can help you figure out how to lower your payments with your current bank. I know most every bank that lends for solar though I don’t use them (I have worked for a few solar companies so I’ve seen most of them). You may still be able to lower that monthly payment. That is how it should be done! As you say, utility companies keep raising their prices so IF solar is done right you WILL save a LOT! If it is not done as I have said, you STILL save long term just not as much as you could have. Ok I’ll get off the soap box now. 🙂
Quick note, I speak confidently on these numbers even without seeing your house because I had a client just last month that I helped with a huge roof (solar and roof) and they were quoted $99,000 with another company and I did it for them for $67,000. (P.S. There are programs in each state as well that offer an up front discount IF you apply. I don’t know about NJ yet as I am just learning about it. But NY, it is called the ASI program. I worked for 3 companies NONE of them did that program. They didn’t want to be bothered. I now check and apply for EVERY one of my customers and have been able to save them between $5000 to $10,000 up front before installation).
A Solar Company came into our small Rural Community a few Years ago and was trying to tell people of the wonderful advantages it would be to having “Solar Gardens”; as they now call them; installed on your Property and they would lease the Land from you. Not purchase it, mind you, lease it from you for $1k per Acre per Year. Sounds fantastic, doesn’t it. These are nothing but CIRCUS SNAKE OIL SALESMEN!!! We had 122 Acre Wooded Property that was an absolute Hunters Dream Land. I got on a Town Committee of 9 People who did TONS OF RESEARCH about this whole Project. I will make a very UGLY LONG STORY short. My Neighbor, who lives directly across the Road from me, had a 190 Acre Farmland that he rented out Yearly to other local Farmers to grow various Crops on. He bought into the whole SOLAR GARDEN BULLSHIT. He leased 160Acres of his once very productive Farmland to these SOLAR SNAKES. That means that every day I lived there in the Future, I would possibly be looking at and driving by 160 ACRES of these useless glass Panels. And he didn’t even need the Money it was supposed th generate. We got Lawyers involved with us to try and fight these people. We even had a Wind Ordinace and a Solar Ordinance drafted to protect us from these SNAKES, and it cost the Town Board $1k each to have these Ordinances adopted and approved. FORGET IT PEOPLE, YOU CAN’T FIGHT THESE SOLAR PEOPLE. There is way too much money involved.😡😡😡 So, we sold our Property, House and Land, and got thee Hell out of there. We had owned it since 1996 and built a really nice new House on it in 1997. THOUGHT I WOULD NEVER SELL MY LITTLE SLICE OF HEAVEN. We moved 10 Miles away, to another Rural Area, where there was NO chance of this ever happening to us again, in our Lifetime anyway. I just couldn’t stand the thought of 160 Acres of Useless, non-recyclable, Black Glass Panels staring me in my Face for the rest of my Life. People, you better do ALOT OF RESEARCH, before you sign that 40 Years Contract on the dotted line. Which they can extend for another 10 Years if needed. And you ARE LEGALLY BOUND to this and CANNOT GET OUT OF, unless they break the Contract. Which they ain’t gonna do!!!. It was very hard for use to leave our 122 Acres of Paradise, but it was the best Financial Decision for me and my Wife. Although I hated myself for having given into these people. I felt like I sold my Soul to the Devil himself. Sorry about the length of this, but this is actually the nice shortened Version of a Very Ugly Story. BEWARE OF THESE SOLAR SNAKES COMING INTO YOUR SMALL COMMUNITIES AND TRYING TO PULL THE WOOL OVER YOUR EYES. Solar Panels may work, in some instances, but not at the Price of ruining Productive Agriculture Land forever… JUST BE CAREFUL OUT THERE…