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Should I Go Solar?

Q: My summer electric bills are sky-high. For this reason, I’m really thinking about having solar panels installed on my roof. I figure it’s gotta help me save on energy costs, but I hear they can be expensive. Should I go solar?

A: Solar panels are popping up on roofs all across the country. With the 26% Federal Solar Tax Credit (ITC) on solar panels in 2021, solar panel installation is especially popular now. It’s also incredibly effective: A solar panel system can potentially lower a three-digit energy bill to less than $10!

You know that solar panels can save you some dough on your electric bill. But are they worth the price? Let’s take a closer look at the cost-effectiveness of solar panels and highlight some important questions that will help you determine whether a solar energy system is the right choice for your home.

The Dollars and Sense of Going Solar

Most residential homes will need a five-kilowatt solar panel system for meeting their energy needs. According to Energy Sage, average out-of-pocket costs for Arizona homeowners before the federal tax credit was between $12,452 to $16,847.1

That’s a whole lot of money! But before you put your solar plans on hold, let’s take a look at four ways you can pay for your solar panel system:

  1. Cash. If you can afford it right now or save money for a big purchase soon, paying for your panels upfront will bring you the biggest return on your investment since your panels may not cost you a penny after the initial startup fees. Depending on your system and your general energy consumption, your solar panels can reduce your electric bill by 70 to 100 percent. This means most systems will pay for themselves in five to seven years.
  2. Home Equity Loan or Home Equity Line of Credit (HELOC). Excluding cash, the most financially responsible way to finance your solar panel purchase is through a loan or a home equity line of credit (aka HELOC) taken out against your home’s value. Lenders such as Desert Financial offer low introductory rates and a fixed-rate option to help you lock in the current interest rate. Interest may be tax-deductible (ask your tax professional for details) and the funds you need can be available to you in very little time.
  3. Lease agreement. Solar leasing is available in about half of the country, including Arizona. As with a car lease agreement, you’ll pay monthly rent instead of an upfront fee for your panels. The leasing company will then install your panels and collect the federal tax credit, as well as any government incentives available in your state, on your behalf.

    Leasing solar panels comes with some major downsides. For one, after the lease agreement is over, the company will either remove the panels or charge you full price if you want to keep them. You also may end up saving less on your energy costs than you assumed, since some leases contain an escalator clause that increases lease payments by three percent a year. Finally, a leased solar panel system can scare off potential homebuyers should you decide to sell your house before the lease is up.
  4. Solar loan. If you’d rather not lease your panels but you don’t have the cash available to pay for them upfront, you can take out a loan created just for the purpose of funding this purchase. A secured solar loan will use your home as collateral and offer tax-deductible interest, while an unsecured solar loan will likely have higher interest rates. Prepare to pay high origination fees as well with any kind of solar loan.

Arizona Incentives

If you own your solar panels outright or through a loan (not leasing them), you can take advantage of these tax incentives:

  • The Federal Investment Tax Credit (ITC) allows you deduct 26% of the cost of solar panel installments2
  • The Residential Arizona Solar Tax Credit will reimburse you 25% of the solar panel costs the year you have them installed.3

Are Solar Panels Right for You?

Ask yourself these questions before you make your decision.

  • Which way does my roof slant? In the United States, south-facing roofs are the best recipients of solar energy. Next up is west-facing, and then east-facing roofs. North-facing roofs are the least desirable for solar.
  • How much sunlight does my roof get each day? Are there obstructions like neighboring homes, trees or hills that block the sun from reaching your roof? It’s best for sunlight to hit your panels for a minimum of five hours a day.
  • How large is my roof? An average residential solar system will need 20 panels to receive sufficient sunlight, which comes to roughly 500 square feet of roof space.
  • What type of roofing do I have? The cheapest and easiest solar panel installations work on roofs made of asphalt shingles or corrugated metal.
  • How old is my roof? It only makes sense to install your panels on a roof that has many more years of life left. Otherwise, you’ll need to pay to have the panels removed and then reinstalled when you replace your roof. Similarly, it’s not worth installing panels if you plan on moving out of your home within the next decade or so.
  • How expensive is my electricity? The higher your local electricity rates, the more cost-effective your solar panels will be. You can determine the rate you pay per kilowatt hour by looking at your most recent energy bill.

The Bottom Line

Should you go solar? At the end of the day, it’s your call. If you can afford to pay for the panels outright or take out a HELOC or Home Equity Loan to help fund the purchase, and all other factors are in your favor, you may want to consider getting solar panels — especially while the federal tax credit is still active.

However, if you don’t think you can afford another monthly payment and you don’t believe solar panels would be in your best interest, you can find other ways to cut back on your energy costs without going solar.

A HELOC is a smart way to go solar.



The material presented here is for educational purposes only and is not intended to be used as financial, investment, or legal advice.