Alabama Solar – Everything You Need to Know

alabama-solar

Information about Solar Panels in Alabama

Alabama solar would be a great option if only the state would be a little (okay, a lot) more supportive. It’s got sunny skies and fairly high electricity costs (at least when compared to some of its neighbors), but unlike many other states, it seems like Alabama is actively trying to discourage solar!

There’s no net metering, third-party ownership of Alabama solar is actually banned, and residents are eligible for only scant incentives. Unlike other states with burgeoning solar industries, there’s no promise of solar savings here. You’ll need to do your homework, study your savings and financial estimates, and install as cheaply as possible.

Thankfully, once your panels are up and running, you will actually be producing quite a bit of electricity thanks to Alabama’s great sunlight, but saving money will be a struggle.

Below, we’ve got all the info you need for going solar in Alabama, including savings estimates, as well as info on financing, solar policy, and available incentives.

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#1 Are Solar Panels Worth it in Alabama?

C
Overall Grade
13 years Avg. Payback Time (For Cash Purchase)
7.6 % Estimate IRR (Return on your investment on cash purchase over 25 years)
$19,614 Your Net Profit Over 25 Years (Cash Purchase)

* Note that these are estimated values for informational purposes only, and do not take into account the full complexity of all financial projections. They also only apply to cash purchases, which means your numbers will be different if you lease your system or pay for it with a loan (factoring in interest). Also note that we are not financial advisors, so this information should not be construed as financial advice.

Typically, we score states by their return on investment. Zero to 5 years gets an A. 5 to 10 years gets a B. 11 to 15 years gets a C. With an average installation in Alabama seeing an ROI of 13 years, the state earns a C. However, with no net metering in place, actually seeing a decent ROI is going to be pretty hard – nigh impossible – meaning Alabama solar, in actuality, really deserves an F.

#2 Options for Buying Solar Panels in Alabama

Paying cash is going to be your best bet in Alabama.

Cash Upfront

Like buying a car, paying cash for your solar installation is going to give you the best bang for your buck. Just like that car purchase, you avoid any loan interest or expensive lease payments. Unlike purchasing a car though, with solar you also add value to your home and get to take advantage of the federal tax credit to decrease your overall investment.

Installing an average-sized 5kW installation in Alabama costs around $12,985 after applying the 30% federal tax credit (or $18,550 without). As mentioned, with Alabama’s clear skies a 5kW installation actually produces quite a bit of electricity. Because of this, even without any additional financial incentives to lower the cost of going solar (like in many other states), you can still save quite a bit.

Using the electricity generated by your system will allow you to avoid buying expensive power from your utility. You’ll save money each year until year 13, at which point your total savings will be equal to your initial investment ($12,985). This is your return on investment, or ROI. After year 13, you’ll start producing clean, no-cost electricity for the rest of your installation’s life! After 25 years, you’ll have saved $19,614!

That’s obviously a great return, but these savings come with a giant caveat. As we keep mentioning, there is no net metering in Alabama. We’ll go into more detail about this later, but net metering essentially pays you for the solar power you generate but don’t use (and therefore goes into the grid). Without it, your savings will likely be much lower. To be sure, if Alabama ever decides to institute net metering, it will be quite easy to save the amount above.

Exactly how much you can save over the life of your installation depends on your own electricity usage, when you use that electricity and your solar set-up. For example, let’s say you can only use half of the electricity you produce. If this is the case, your savings just dropped to under $10k. It’s still worthwhile, especially if lowering your own emissions is your chief reason to go solar.

Bottom Line: It’s imperative you understand the importance of net metering, and how the lack of net metering will affect your savings, before installing your solar panels. Read more on net metering in the appropriate section below.

Leases

Along with 9 other states, Alabama explicitly bans third-party ownership (which includes PPAs and leases) in the state. And without net metering to entice the big national installers like SolarCity, Vivint, and Sunrun, there’s no one in Alabama to really offer solar leases anyway.

In regards to solar, this truly is a tragedy. While you’ll never save as much money with a lease when compared to cash purchases or even loans, leases are what drove the huge explosion in residential solar that started in the late 2000s. Not allowing solar leases is like a state only allowing motorcycles on the roads – sure, we can all get to where we want to go, but many people would rather do it in a different vehicle!

Bottom Line: With all that being said, if there was one financing type to ban, at least it’s the one that’s dying anyway. With solar loans, homeowners can save more and still avoid that high upfront cost – the biggest selling point of the solar lease.

More: Solar Leases

Loans

Solar loans are just what they sound like: you take out a loan to fund your solar panels. Once the installation is complete, you pay the loan back, with interest, over an agreed upon time. In solar-happy states like California and Colorado, credit unions, banks, and solar companies all offer solar loans. In Alabama, it’ll be a bit harder, so reach out to a few local installers to see what’s out there.

Just like a cash purchase, with loans you own the system. Therefore, you are eligible for the 30% federal tax credit, as well as any other incentives that are available. You’re also adding value to your home at the same time. While you won’t save as much with a solar loan, you do successfully avoid paying that $18k out of pocket. Awesome!

Unfortunately, going solar with loans still holds the same important caveat as cash purchases: there’s no net metering in Alabama. And with a loan’s additional interest costs, your savings are going to be even more meager, making net metering (or lack thereof) even more important.

However, let’s just pretend that net metering isn’t an issue (maybe you’re able to use 100% of the electricity your installation produces right in your own home). Financing the same 5kW system above (that cost $12,985 after incentives) with a 15-year loan with 5% interest, you could save about $11,759 after 25 years.

Bottom Line: Breaking it down, a loan adds about $7,855 to your total investment cost. Obviously, if you’re able to find a loan with lower interest rates or shorter duration, your total interest payments will decrease and your total solar savings will go up accordingly, so be sure to shop around before choosing.

More: Solar Loans

#3 Alabama Solar Policy Information

Wow. Solar – and renewable energy in general – really isn’t a priority in the state of Alabama. The lack of solar policy is shocking, even for us (and we write these state guides for a living).

alabama-flag

Renewable Portfolio Standard

The state of Alabama has yet to adopt a renewable portfolio standard. RPSs are the single greatest impetus to growth in a state’s solar industry. Without an RPS, solar – as well as other renewables – are oftentimes just dead in the water. Why is that?

States pass RPSs when they want to really encourage renewable energy, mandating that XX% of electricity sold in the state must be renewably sourced by YY date. Since utilities are the ones selling the electricity, the responsibility to meet these goals falls on them (usually with financial consequences if they don’t). Without these mandates, utilities don’t have a lot of reason to adopt or encourage its customers to adopt renewable energy.

As of 2017, 29 states have adopted RPSs. Most southern states have yet to adopt any, with Alabama right in the geographical center. And before you start thinking that RPSs are just a ‘yankee’ thing – consider that South Carolina, North Carolina, Oklahoma, and Texas have all adopted RPS mandates.

More: Renewable Portfolio Standard (RPS)

Electricity Prices

More than anything else, electricity prices will dictate your total savings going solar. If your utility’s rates are high, you can save quite a bit going solar. If they’re low, you’ll have a harder time making back your investment.

In Alabama, current electricity prices of $0.128 per kWh are pretty much in line with the national average of $0.129 per kWh. This means you could see a healthy return on your investment if net metering was available.

When you also consider that Alabama utilities raised their rates 3.7% each year on average over the last 15 years – compared to the national average of just 2.6% – you can see how solar in Alabama could make a lot of financial sense for homeowners, if only the right policies were in place!

Net Metering

Alabama doesn’t require utilities to offer net metering to solar customers. Of all the blows to solar in Alabama (possibly except for the RPS), this is the biggest. Net metering simply means the utility tracks how much electricity your solar installation puts into the grid, how much electricity you take from the grid (at night, for example, when your solar isn’t producing), then calculates up the difference. At the end of the month, if you produced more electricity than you used, the utility will credit your account.

So, for example, let’s say you used 900kWh this month, but your installation produced 1100kWh. With net metering, you’d then have an extra 200kWh in credit on your account that you can use next month.

Net metering means that you financially benefit from all the electricity you produce, whether you use it immediately in your house or it goes to the grid. It’s a major cornerstone of the financial benefits of solar. Without it, you’ve got two options:

First, you can use all the electricity you produce in your own home without sending any to the grid. To do this, you can either install batteries (which is just prohibitively expensive right now in Alabama) or really change your living schedule so you use all the electricity from your installation right when it is created – a difficult endeavor. Either way, the goal is to use as much of the energy you produce as possible.

Your installation will produce the most electricity on bright, sunny days, typically between 11 AM and 3 PM when the sun is highest. Try to move all your electricity-heavy tasks, like washing clothes and dishes to those times. In Alabama, air conditioning (the biggest electricity consumer) in the summer is just a constant, so you really can’t do anything about that.

Your second option is to simply cut your losses and realize that any electricity you don’t use is lost savings. How much you use or don’t use depends on your lifestyle.

Unfortunately, it’s a fact that without net metering, it’s hard to really see significant savings with solar.

More: Net Metering

Interconnection Rules

Unlike many, many other states, Alabama has yet to pass any legislation standardizing the interconnection process (which is the process through which utilities give their approval to connect to the grid) for solar. This means that each utility, even in the same state, can have vastly different requirements and fees for connecting solar installations to their electricity grid.

Without any standardized statewide interconnection process, it’s impossible to know exactly how all utilities in the state handle solar applications, so be sure to call up your utility or discuss the process with your installers.

In fact, your installer should handle most, if not all, aspects of your interconnection process, so you don’t need to worry about this much anyway.

Homeowners Associations

In the past, some HOAs, local governments, or other organizations have attempted to block local residents from installing solar, either because they believe solar detracts from home values or the aesthetics of a neighborhood. Because of this, many states with pro-solar policies have passed legislation protecting homeowners’ right to go solar.

Unfortunately, Alabama has passed no such laws protecting solar rights. If you go solar, be sure to discuss your plan with your HOA and neighbors to make sure they understand exactly how your solar installation will (or better yet, won’t) affect them.

#4 Financial Incentives, Rebates, and Tax Credits

Better say thanks to the feds, as that’s the only real financial break you’re getting for your solar installation in Alabama.

alabama-montgomery

Federal Tax Credit

No matter what state you’re in, you can count on the federal government’s 30% tax credit for solar installations. As a tax credit, not a deduction, it lowers your income taxes by 30% of the total cost of your solar installation, dollar-for-dollar. This means that if you spent $18k on your installation, you’d owe $5,400 less at tax time.

The tax credit is unfortunately nonrefundable, but you can break it out over several years if your tax liability isn’t high enough to claim the whole amount in a single year.

The full credit is set to expire by the end of 2019, so if you’re thinking about installing solar, get it done before then! After 2019, the credit drops to 26% for a year, then 22% for a year before dropping off completely.

More: Solar Federal Tax Credit

Alabama Tax Credit

Alabama offers no state tax credit for going solar.

Property Tax Exemption

Alabama actually does offer an exemption on the value your solar installation brings to your property for the first 10 years of its existence. The exemption is based on the market value of the house and installation, which is determined by county assessors each year.

Unfortunately, the tax exemption is set to expire at the end of 2018, so it’s really not worth much unless it gets extended.

Solar Sales Tax Exemption

While the state of Alabama doesn’t offer sales tax exemptions per se, state law does explicitly allow local governments to offer sales tax exemption of both state and local taxes for solar installations.

Solar installations qualify for a lower state sales tax of 1.5% (as opposed to the general 4% sales tax), as solar equipment is grouped under manufacturing and farm machinery. A sales tax exemption could save you $270 in state sales tax for your $18k installation. Not a huge amount, but in this climate, every dollar certainly helps!

Unfortunately, like the property tax exemption, the sales tax exemption expires at the end of 2018.

General Increase in Home Value

There’s not a lot of incentives for solar in Alabama, but it’s not all bad news! Adding solar to your roof can add some serious value to your property.

A federally-sponsored lab studied home values in 8 different states over 14 years and found that buyers are willing to spend an extra $4 per watt for homes with solar installations that are owned by the actual homeowner (so no leases).

Alabama, unfortunately, wasn’t included in the study and we can probably assume that homes with solar in the state will pull less than the typical amount in other states. However, even at only half this average rate, you’d still be looking at $10k in additional value for an average 5kW installation.

More: Buyers Will Pay More for Solar Homes

If you’d like to dig even more on local incentives and rebates, check out the DSIRE database.

#5 Birmingham Solaralabama-birmingham

Going solar in the Birmingham area is just like any other area of the state. Neither Alabama Power nor the city of Birmingham offers any additional incentives for going solar, but you’re still eligible for the federal tax credit.

Alabama Power’s rates are a bit different than other utilities, and it’s good to know how they work before moving forward with solar, as they can affect your savings.

Instead of charging homeowners a $ per kWh rate for electricity, Alabama Power charges a set monthly base charge of $14.50 to cover infrastructure costs like upkeep of poles and wires. After that charge, homeowners pay $0.09 per kWh. While this $ per kWh rate is lower than the state average, when you are calculating your potential savings by going solar – don’t forget about that monthly fee!

Even if your solar system produces enough electricity to cover 100% of your electricity use, Alabama Power will still charge you that $14.50 each month (about $175 per year). This can seriously cut into your monthly – and therefore total – savings. Be sure to get a few estimates from installers that are well-versed in Alabama Power’s rates and read over your savings estimates carefully.

What to Do Next?

Alabama’s clear skies and high electricity costs give you a strong foundation to save money, but the policies simply aren’t there to make it go easily. Without net metering, seeing any sort of savings by going solar in Alabama is tough, though doable.

The best thing you can do is talk to several installers for quotes and research what financing options are available to lower your overall cost.

Image Credit under CC License via Pixabay - 2, 3, & Flickr - 1,  4

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