T.H.E. Power-Up Quarterly

In the last three years, the solar industry has experienced drastic changes.

Along with many American industries, we were hit hard by COVID-19. Issues with supply chain disruption, fluctuating tax equity markets, homeowner’s financial concerns, and many other factors altered the landscape both for solar professionals, and those looking to “go solar”.

Post-pandemic inflation also caused costs to go up across the board, making solar a steeper investment.

And then, to top it all off, California rolled out a new policy in April 2023 the Net Billing Tariff (NBT, or NEM 3.0), which affected consumers of the three major California utility companies, including PG&E.

Where it used to be that investing in solar was a no-brainer, all this has led to the very reasonable question,

“Is it still worth it to go solar?”

The short answer is “yes”, in most cases, because the price of electricity continues to skyrocket.

California already has the second highest average kWh price in the nation at 31¢, trailing only Hawaii.

Not only that, but if you’re on PG&E, the average price is an astounding 45¢.

In 2024 alone, PG&E raised their rates a whopping four times:

• On January 1, 2024, rates increased by roughly 13%. For the average residential consumer, this came out to about $33 per month.

• On March 1, 2024, 0.3%, or about $0.56 per month.

• On April 1, 2024, 1.4%, or about $3.13 per month.

• On October 1, 2024, 3.1%, or about $6.43 per month.

We may not be able to predict exactly what prices will look like in the next few years, as they can ebb and flow, but if recent history tells us anything, it’s that they’ll continue to trend upward.

The average PG&E bill has more than doubled over the last eight years, according to their own data, and is expected to increase by 10.4% per year through 2026 as stated in the Senate Bill 695 report filed by the California Public Utilities Commission (CPUC) in 2023.

What this means is there’s still a lot to be gained by going solar.

In fact, with solar systems that include battery back-up, homeowners can still expect between 70-90% electricity bill offsets, payback periods between six to eight years, and lifetime bill savings upwards of $50,000.

Plus, with the power grid’s centralized generation model being so inefficient, the infrastructure outdated, and supply shortages made up for with expensive energy from filthy peaking power plants, going solar means you own your primary energy source, allowing you freedom and independence.

4 Keys to Maximizing Your Solar Investment

That said- if you’re going solar, you want to do it right.

Here’s how:

1. Go with Battery Back-Up

Batteries are now an essential component for most residential solar systems. To understand why this is, you’ll have to know a bit more about the NBT (NEM 3.0).

On April 15th, 2023, the CPUC implemented a new credit rate for solar exports, NBT. This shifted the way homeowners receive credits from net metering to net billing, which means the value of the excess solar energy sent to PG&E is no longer directly related to the cost of the electricity you purchase.

Let me break it down for you like I would with a customer over the phone.

On a sunny day, your solar panels are ideally producing the energy they are rated for. The first place this energy is going is to your home, providing power for you to use at the time the panels are producing.

But say there’s more power being produced than what your home’s consuming (a common scenario), where does this “extra” energy go?

If you’re on PG&E and do not have batteries, this energy is going straight back to them. And they will only reimburse you at about 25% of the retail electricity rate.

So, if you export 10kWh of energy back to the grid, they will give you 2.5 kWh in return. Not a great deal.

This is where batteries come into play.

With a battery bank, you’re able to store your system’s extra production, and use 100% of what you store.

With a 14.3 kWh battery (the battery size our company is using now), you can store that 10kWh and use it in the evening, before resorting to buying electricity from PG&E.

This dramatically increases your savings, with the battery doing much more than just paying for itself.

The other major advantage to having battery backup is it enables your solar system to power your home in the event of a utility power outage.

Without batteries, your solar system goes down with the grid, and you’re a sitting duck.

2. Take Advantage of the Federal Tax Credit

Did you know there’s a huge tax credit available through the IRS for going solar?

From now through 2032, the Residential Clean Energy Credit offers homeowners 30% of the costs of new, qualified property improvements.

This means that if you have a $45,000 solar system installed, you’ll receive a $13,500 credit that works against any income taxes you owe the Federal government.

And there is no maximum amount that can be claimed.

It is a nonrefundable credit, meaning it only applies to taxes you owe- you won’t get paid out in cash. But you can carry forward any unused credit to reduce the taxes you owe in future years, for as long as the credit is in place.

Qualified expenses include solar panels, inverters, batteries, labor costs, permitting costs- everything included in your contract. Even generators can be claimed if you install one with the solar system.

So, before you move forward with your solar installer, I strongly recommend that you have a tax plan in place to make the most of this credit.

Applying for it is straightforward- if you file taxes traditionally, you’ll want to use the IRS Form 5695. If you use software like TurboTax, it's even easier: the system will ask if you've installed solar in the last year, and you simply check the box provided.

To be clear, the installation of the system must be complete during the tax year in which you apply.

And you must own the solar system; if you are leasing solar panels, you won’t receive the tax break.

Which brings us to our next point.

3. Buy Your Solar System (Don’t lease!)

Paying cash for your solar system will always yield the highest return on your investment.

But for many of us that’s not realistic, so we’re left with two alternatives: lease or take out a loan.

Let me cut to the chase here: there are zero upsides to leasing a solar system, other than potentially saving marginal amounts on your electricity bill (notice I said “potentially”, as it doesn’t always work out this way).

Here is a slew of the downsides-

• With a leased system, you’re not eligible for the Federal Tax Credit- it would go to the installer.

• When you lease a system, you’re renting from the solar company; you’re swapping your utility bill for a solar bill, paying only to use the energy produced.

• After the first year of a solar lease, you’ll likely be subject to annual rate increases known as an escalator, with your monthly payments rising by 2-3% each year. This means that you lose out on set electricity costs, which is a huge incentive for going solar in the first place.

• A leased system does not increase the value of your home; if you were to ever sell your home, you cannot factor the value of the system into the sale, unless you were to buy out the remainder of the lease at that time.

• Homes are much harder to sell with leased solar systems, as they complicate the transaction process. In many cases, the buyer will refuse to accept the terms of the lease, leaving you with the responsibility and the expense (and it is expensive) of removing the panels/inverters, relocating them, and having them reinstalled.

One of the “pros” that leasing companies will bait you with is to promise they’ll handle the cleaning and maintenance of the system free of charge.

But solar panels don’t require cleaning on a regular basis, if at all. If they are really caked with dirt, you can simply hose them off or wash them like you would your car.

As far as the maintenance of the system goes, often the reality is getting someone from the lease company to come out and provide service is like pulling teeth. And unfortunately, you’re on the hook for your monthly payments no matter what.

On the other hand, financing a system is much easier than you’d think, given that you can qualify. There are many lenders in the industry who offer zero down loans, and competitive interest rates.

(One thing you’ll want to consider is if the loan is secured or unsecured: financing your solar system with a secured loan means your home serves as collateral, whereas with an unsecured loan, the loan is simply tied to the system itself.)

When you purchase a system, you own your energy source and pay for it in fixed amounts. This means as time goes on, your financial portfolio grows, as do your savings.

Plus, if you own your system, both the value and “sell-ability” of your home go up.

Solar panels, inverters, and batteries all come with the manufacturer’s warranties, and your installation is covered by a California state mandated 10-year workmanship warranty, so you can breathe easy.

Buy, don’t lease. You’ll thank me later.

4. Be Willing to Make Some Lifestyle Adjustments

I’m going to use a dirty word here. Actually, it’s an acronym.

TOU.

It stands for Time Of Use, and it makes life for PG&E consumers unnecessarily complicated.

In a nutshell, TOU are rate schedules that determine the price you pay for electricity at different times of the day, in different seasons of the year.

Homeowners who go solar will automatically be grafted into the E-ELEC (NBT) rate schedule, which looks like this:

To read this chart correctly, add the Generation Usage Charge with the Delivery Usage Charge to get the Total Charge per kWh (i.e. Summer Peak hours are 29¢ + 33¢, totaling 62¢/kWh).

As we’ve already discussed, these are some of the highest prices for electricity you will find anywhere in the country- not only are they significantly higher than California’s median rate, but they are well over two and a half times the national average.

But look at the chart above and you’ll see they are especially high from 4p-9p.

So, if you go solar, it behooves you to use the energy your system is producing at the time it’s being produced, with top production typically being from 10a to 4p. Because then you’ll be offsetting your electric bill at retail cost.

This is especially true for systems without batteries, otherwise you are unlikely to see a return on your investment. (With batteries as a back-up, this point is less critical, but not entirely moot.)

Remember our conversation about the NBT credit rate?

It’s worth remembering, because you’ll only be credited from 4 to 8¢ for electricity exported back to the grid. Given what you’re being charged, it’s a very uneven rate of exchange.

Because of this, getting the most out of your solar investment will mean doing things like dishes, laundry, showering, or cooking with the oven during the day (10a-4p), while watching the thermostat during PG&E’s peak hours (4p-9p).

If you can make this happen, you’ll see your savings soar.

There’s No Time Like the Present

I’ll be straightforward with you- the best time to buy a solar system was probably five or six years ago.

(And the best time to buy Bitcoin was in 2010.)

But as one expert put it, “Don’t let great be the enemy of good.”

Sure, you’re not going to see the same savings as your neighbor who’s grandfathered into NEM 2.0, but in many cases, a home solar system can still be far more affordable than buying utility electricity from PG&E.

And as your system continues to produce electricity at a fixed rate, the payoff only increases.

With astronomical prices that continue to rise, there’s a ton of potential for PG&E customers to reduce their energy costs, and nothing is as cost-effective as providing your own power with a solar system.

Battery development is truly a game-changer; having become more efficient and affordable, they’re a viable way for the average homeowner to save big.

Factor in the Federal Tax Credit, and you can realize a significant return on investment.

So, if you have the means or the credit, and are serious about going solar, then the best time to move forward is now.