No one wants to make a major purchase, only to find out that if they waited just a little while longer to buy, they would have been better off. Unfortunately, the fear of jumping in too soon is keeping some people from maximizing the benefits they could be receiving from a solar power system. It’s true that the price of solar panel systems is declining 5-10% each year. That’s great news and one of the main reasons some people are waiting, but system price isn’t the only variable that drives the financial returns you will receive. Other factors such as the price of electricity, available tax incentives and rebates, and the availability of Solar Renewable Energy Credit (SREC) programs also play key roles. Your decision should also factor in the opportunity cost of waiting—how much you would have saved during the “waiting” period; how much you might have earned in SRECs; and the interest you would have earned on each.
Some things to keep in mind when you are evaluating the timing of your purchase:
- Solar panel system prices are decreasing 5-10% annually. The typical residential system costs $15,000 after tax credits and rebates. So in rough terms, if you wait one year, you’ll save a maximum of $1,500 on the price of your system; if you wait two years you’ll save $2,850, etc.
- Electricity prices are rising 5% annually. The typical U.S. home spends about $1,200/year on electricity. That means if you buy a system that meets 100% of your electricity needs today, you will have an extra $1,200 in your pocket a year from now. The following year, when prices go up, you’ll save $1,260, the year after that you’ll save $1,323 etc. for the life of your panels (25-40 years). If you don’t buy, these numbers represent the opportunity cost of waiting (lost savings).
- Rebates, tax credits and other incentives are in place to encourage certain buying behaviors. As those behaviors catch on, the need to incent consumers decreases and these programs are gradually phased out. The current federal renewable energy tax credit is 30% and is in place through 2016. Additionally, some state and local governments currently offer similar programs and they may or may not phase them out over time. Likewise, some that don’t yet have them may add them soon. Understanding the ins and outs of the situation in your area will help guide your timing decision. Just to give you a general feel for the rebate landscape, the following are examples of just a few rebate programs that are being reduced or eliminated:
- California used to have rebates up to $15,000. Today, they are $0.
- In Rhode Island, only the first 5,000 or so people who purchase a solar panel system will receive rebates which are somewhere in the $7,500 range.
- Massachusetts used to have rebates in the $9,000 range. Now, they are around $2,000.
- In some states, there are SREC programs in place that allow you to earn money for the clean energy you are producing. These programs also fluctuate. For example, in Massachusetts, a homeowner might earn $2,000 in annual revenue generated through SREC sales. If you purchase a system now, you are eligible to participate in this program for the next 10 years. If you purchase a system next year, you are only able to participate for 8 years which represents a $ 6,000 loss ($4,000 for the 2 year reduction and $2,000 for the year you waited.).
- Finally, the typical solar panel installation avoids 90 tons of carbon emissions in one year. While there isn’t a specific dollar figure associated with the carbon you would avoid, you should consider what value you would assign to that personally and factor it into your analysis.
Using the points above, you should evaluate a number of different scenarios to determine when would be the best time for you to buy your solar panels system.