Arizona Solar – Everything You Need to Know
Information about Solar Panels in Arizona
It’s no surprise that Arizona has been a pioneer in the solar industry. Residents enjoy sunshine for 85% of the year, making it the ideal location for going solar.
Solar energy’s popularity is a good thing for the earth, however, its long history in AZ means that some of the most lucrative rebates and incentives have expired. On the other hand, economies of scale and stiff competition have caused a drop in the average price of systems in the state. All told there are roughly 400 solar companies in Arizona, making it convenient for residents when it comes time to shop for an installer. Due to the unique dynamics of the industry in this state, there are things to take into consideration before jumping into the solar decision.
#1 Are Solar Panels Worth it in Arizona?
* 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.
#2 Options for Buying Solar Panels in Arizona
A photovoltaic power system is a hefty investment – buying an average sized system in AZ will set you back about $17,000, possibly more depending on what you choose. There are some other options, but due to various factors involved in this state in particular, you’ll want to take an extra hard look at the details of each one.
Paying cash up front for solar is almost always the most economically rewarding way to go green with your electricity. Without any interest charges or monthly payments, any power your system generates will truly belong to you, which is particularly advantageous if your system produces all of the power your home needs (in Arizona this may not happen during the hottest months, as kilowatt-hours used will be higher the more you use your air conditioning).
Over 25 years (the estimated life of your solar system), you can save just shy of $20k with an average-sized 5kW solar installation. And yes, that’s after you’ve paid the system off, meaning you’ll save $20k after Year 11 when you’ve recouped your total investment.
Looking at both the benefits and drawbacks of this option helps you see the big picture in order to make the best choice for your situation.
Pros of a cash solar purchase:
- You’ll own your own equipment, which means that any energy generated will be yours to keep.
- Once you recoup your investment through energy bill savings, you’re essentially getting free electricity.
- You won’t have to throw money away on interest charges.
- Tax credits and other financial incentives will belong to you rather than to the installer.
- Should the need to sell your home arise, you’ll be able to reap the benefits of the increased value without worrying about attracting buyers who are willing to take over lease payments.
Cons of a cash solar purchase:
- All maintenance and repairs are solely your responsibility (although most equipment does come with a lengthy warranty and maintenance is typically slim to none).
- Payback time in Arizona is on the slower side compared to other solar-happy states, at approximately 11 years.
The issue of leases in Arizona is complex. In 2013 the Department of Revenue decided that leased systems should not be exempt from property taxes because they consider the systems to technically be mini-utilities being administered by the installer/owner. This meant that the DOR put the burden of the taxes onto the solar companies, who in turn often choose to pass the responsibility along to the leasing (or PPA) consumer.
Two solar companies subsequently sued the DOR, and in an odd ruling in June of 2015 a superior court judge essentially ended up siding with both parties. The results of this ruling are unclear. The task of determining just who should pay the property taxes on leased systems could land on the laps of county assessors, but the true impact is not yet known. If you do choose this route, it’s wise to check with your local municipality to find out whether or not you will be liable for taxes assessed on the added value that solar brings to your property.
Pros of solar leasing:
- Homeowners usually have no maintenance or repair responsibilities, although this can vary so be sure to check with installers to see who covers what.
- Because there is typically no money required down on the system, there is no payback time – savings on energy bills should be immediate.
- There are no installation costs, and the price of your system is broken up over a period of years.
- Your system could produce more power than you need, allowing you to benefit from credits to your bill. This comes in especially handy during the hottest months of the year when air conditioning bills are at their highest.
Cons of solar leasing:
- Depending upon the installer’s terms, you may be responsible for some maintenance, or replacement in certain situations such as natural disasters. Be sure to read the fine print so you know exactly what’s covered.
- If your home uses more energy than your system produces, your lease payment plus the electricity bill could offset any savings.
- Tax credits and any other financial incentives offered by the federal or state government belong to the owner of the system, not the homeowner.
- Just as utility companies normally raise their rates each year, solar leases often include an annual escalator. For example, a contract with SolarCity involves agreeing to a 0-2.0% per year increase in payments each year for the length of the lease.
- Selling a house before the end of a lease contract can be challenging. Potential buyers must meet credit score criteria – and be willing to assume the payment. Otherwise you’ll be forced to buy out the contract.
- The system may not be eligible for property tax exemption. This could cause your overall savings to shrink considerably since solar adds about $20,000 to a home’s value.
One other option offered by some Arizona solar companies is a prepaid lease. This arrangement typically results in the homeowner paying much less per kWh by paying the entire contract upfront – sometimes as little as 50% of the amount per kWh you’d pay over the course of 20 years of monthly payments.
More: Solar Leases
If you’re considering going solar in AZ but don’t have the thousands of dollars on-hand to put into paying for your system outright, a solar loan may be an option.
Your savings won’t be as a high as with cash, since you’ll be paying that pesky interest, but it’s still worth it! Over 25 years, you’ll save $12,334.
Fortunately, there are several avenues to pursue in terms of obtaining financing for a photovoltaic installation.
Personal loan from a bank or credit union – personal loans may have a higher interest rate than other loans, particularly if they’re unsecured, and could require an origination fee. But, they are generally simple and straight-forward to apply for.
HELOC – a Home Equity Line of Credit is available to those with enough equity in their home, and interest rates are fairly competitive, at under five percent.
Installer financing – many solar companies offer their own financing options, often at very competitive rates. For example Arizona Solar Solutions currently offers a 12-year loan at a 2.99% interest rate. Be sure to ask plenty of questions – installers often use third-party lenders rather than financing the system themselves, so you want to be fully aware of all the terms of the loan and from whom you’re borrowing.
Fannie Mae – you may be eligible to borrow up to $15,000 toward your solar installation in Arizona via the federal government’s Residential Energy Efficiency Improvement Loans. At below-market interest rates, this is a worthy option to investigate. Certain restrictions as to the type of roof and system you have may apply. No matter which solar loan option you choose, it’s a good idea to compare several financing sources in order to get the best possible interest rate and loan terms. With such a robust, competitive solar environment in Arizona, it may even be possible to negotiate a loan with no money down.
Like any payment option, solar loans have their benefits and drawbacks.
Pros of solar loans:
- As long as your payment amount is below the amount of your energy bill savings, you’ll see the benefits immediately, on the first power bill.
- Installation typically requires little to no money down, depending upon which type of loan you choose.
- Even if you borrowing the money to buy your system, you still retain ownership and are entitled to all available financial incentives and tax benefits.
- Payments on a solar loan are normally lower than those on a lease or Power Purchase Agreement (be sure to make these comparisons side by side before making a final decision, however).
- After a period of years, typically between 7 and 15, your system will be completely paid off, allowing you to sell your home without concern for payments or contract transfers.
Cons of solar loans:
- Some loans required collateral, which in most cases means putting your home up as a guarantee in case of default.
- Using a loan to purchase your Arizona PV system means you’ll pay more total for the system than you would if paying all in cash up front, due to the addition of interest charges.
- PPAs and leases are faster to process than a loan application.
- If you choose to sell your home before the loan term is up, you will have to pay the loan off one way or another (this aspect may be nullified by the increase in your home’s value).
- As the owner of the system, you are responsible for any maintenance or repairs that arise (it’s notable that PV systems typically require little to no maintenance, and the equipment often comes with lengthy warranties).
More: Solar Loans
Power Purchase Agreements (PPAs)
Power Purchase Agreements are similar to solar leases, with one major difference. Rather than making a “rent” payment on your system, with a PPA the homeowner agrees to pay a certain amount per kWh of energy used. Traditional energy rates in Arizona are very low right now – about 11.1 cents per kWh, so it’s important to consider whether a solar PPA will net you any savings over your regular electric bill. Just as with a lease, you will need to meet credit requirements in order to enter into a PPA.
Pros of PPAs
- As with a lease, the owner of the unit is usually responsible for maintenance and repairs.
- There is often little to no money required down at the beginning of the contract.
- In the best case scenario, you will see significant savings by way of the locked-in per kWh rate if local utility rates rise.
Cons of PPAs
- Selling your home may pose issues with this third-party ownership arrangement, just as with a lease.
- Green energy incentives such as the federal tax credit go to the installer/owner rather than the homeowner.
- If you want to buy the system after a number of years, the total of your PPA payments plus the purchase price will likely be more than what you would have paid for a brand-new system in the first place.
- As with a lease, this third-party option may end up boosting your property taxes.
More: Power Purchase Agreement
#3 Arizona Solar Policy Information
With an ‘F” for interconnection policies, no SREC market, and no fixed Net Metering policy, there is room for improvement for Arizona Solar.
Renewable Portfolio Standard
Despite the fact that solar rebate incentives have fizzled out in Arizona, they do have a strong RPS – Renewable Portfolio Standard. This means that the state has a goal to achieve a certain level of alternative energy generation by a specified time, in this state’s case, 15% by 2025. Of this amount, 30% must be distributed energy, such as wind or solar. There is no specified solar carve-out included in this goal as there are is in many other states.
Even though the state doesn’t offer SRECs (Solar Renewable Energy Credits – proof of alternative energy generation that can be sold to utility companies in order to meet their solar energy production requirements), consumers can still take advantage of the federal tax incentive, plus other various financial benefits of installing a photovoltaic system.
Why There Is No SREC Market in Arizona
SRECs – Solar Renewable Energy Credits – have played a huge part in the popularity of residential solar energy. These credits allow homeowners to sell their power production certification to utility companies for a pretty hefty profit – a few hundred dollars in some cases. The purpose of such sales is to help utilities to meet state government requirements for alternative energy production.
The lack of SRECs in AZ is good and bad – good because it’s largely due to the fact that utility companies in the state are at a point where they are able to meet RPS requirements for green energy generation, eliminating the need to purchase certificates from private solar power system owners. This is bad because it means that consumers can’t capitalize on their own solar energy production in Arizona the way those in many other states are able to. This also means that the payback period is longer in Arizona than is typical.
More: Renewable Portfolio Standard (RPS)
Net metering as we know it is now finished in Arizona.
After a 5 year battle between solar installers and electric utilities, the Arizona Corporation Commission (ACC) decided to get rid of net metering for the state’s 3 privately-owned utilities (APS, Tucson Electric Power, and UNS Electric), replacing it instead with a value of solar methodology that, it’s said, more accurately reflects the true cost of solar.
Under these new regulations, solar customers of the above three utilities will no longer receive credits for the excess electricity their solar installation produce and which can be used in successive months. Instead, customers will be paid a $/kWh rate for any excess electricity they put into the grid, with no way to save these credits for future use.
The $/kWh rate for excess electricity will be calculated using what they call a Resource Comparison Proxy, which bases the rate on how much the utility itself pays for its solar power purchase agreements. Each utility will calculate their own rates and submit them to the ACC for approval. As of April 2017, only APS has submitted their rates.
Under APS’ new rates (which were approved by a coalition of solar interest groups), solar homeowners are compensated $0.129/kWh for excess electricity their first year (just a little less than full retail rate). This rate will decrease each year by 10% over the 10 year contract. Solar customers also can choose among 4 different rate structures, including time-of-use and demand rates.
If you’re already a net metered customer, no need to worry! APS will respect all preexisting net metering agreements. Solar homeowners already in net metering agreements are grandfathered in and will continue to receive credits for excess electricity based on full retail price of electricity for the remainder of their agreement.
APS has yet to introduce these new regulations to homeowners, though expect them by the end of 2017. Both Tucson Electric Power and UNS Electric have yet to submit their new rates for approval.
If you’re a customer of Salt River Project (SRP), the states’ largest utility not regulated by the ACC, you’re already used to not having net metering. In early 2015, the utility’s Board of Directors approved a completely new Time-of-Use rate schedule for solar homeowners, which included lower electricity rates, a demand charge based on total energy use, and a flat monthly fee to cover infrastructure costs (like utility pole and line upkeep). Unfortunately, the new rate also threw out all net metering credits for excess electricity!
These changes quite literally killed the local residential solar industry, as it became much more difficult for homeowners to save money going solar. SRP offered net metering until 2014 and customers who enrolled in the program before then can continue receiving credits for all excess electricity they produce.
If you’re a customer of APS, TEP, or UNS Electric you’ll still receive compensation for any excess electricity you produce, but only time will tell exactly how much you’ll get and how this will affect the local solar industry. Watch out for serious program changes by the end of 2017.
More: Net Metering
Interconnection is the process of tying your solar power system into the local utility company’s grid so that you have access to any extra power you might need above and beyond what your system produces. Interconnection also allows for net metering, which is a way to send extra energy generated by your unit back into the grid so that you can get credit for it on future energy bills.
Each utility has their own interconnection policy requiring that you apply for tie-in. The company then reviews the system, associated documentation, and approves or denies interconnection. You might wonder why you need the utility company’s permission to connect to a grid that your home already utilizes for traditional electricity. In part, the process is in place because the utility must ensure that your PV system will not compromise the reliability and safety of their equipment. They analyze the system’s type and size, customer load, and how those elements will interact with the grid.
Arizona has received a grade of “F” in its interconnection policies from the IREC (Interstate Renewable Energy Council) due to a lack of universal procedure policy. This means there are no limits placed on the length of time utilities can take to review your application and no across-the-board standards for how the process is carried out.
#4 Financial Incentives, Rebates, and Tax Credits
Arizona, like many other states, also offers some attractive benefits to consumers who install photovoltaic power systems.
Federal Tax Credit
The federal Investment Tax Credit (ITC) is one of the major reasons many people choose to go solar. It slashes the cost of your installation by nearly a third, via a 30% tax credit, as long as your system meets the qualification criteria:
- Installation of the PV system must have been between January 1, 2006 and December 31, 2019.
- You as the homeowner must be the owner of the system. If you lease or have a PPA, you may not claim the ITC.
- Your solar power system must be an original installation – this means if you buy a home which is already equipped with solar panels, you may not claim the ITC on that system.
The Investment Tax Credit was scheduled to expire at the end of 2016, however the government extended the credit and it will continue until 2022, decreasing in steps until the final year, after which residential installations will no longer be eligible. This particular credit is calculated on a basis of the net price of the system. What that means is that once any promotions or discounts are deducted from the retail price, you will be able to receive a tax credit for 30% of that amount – the final total you paid for the system.
In addition, if your tax burden is not high enough to eat up your entire ITC amount, you can carry the remaining balance over to your next year’s tax liability. There may additional criteria depending upon your individual tax situation, so be sure to consult your tax preparer when applying for this credit to ensure you’re getting the full amount for which you are eligible.
More: Solar Federal Tax Credit
State Tax Credit
Since 1995, the state of Arizona has offered a 25% tax credit on solar installations, with a cap of $1,000. Obviously, this credit isn’t nearly as good as the federal tax credit, but $1,000 is still $1,000!
Property Tax Exemption
Just like 37 other states, Arizona offers a property tax exemption for those who choose solar as their preferred method of going green. There is no cap on the amount of equipment you can claim on this exemption, but you will have to provide documentation regarding the purchase and installation to your county assessor. This information must be provided within six months of installation in order to be eligible for the exemption. Considering that solar panels can add $20,000 or more in value to your home, this exemption is definitely worth the time and effort to apply.
Sales Tax Exemption
The state of Arizona grants solar purchasers exemption from paying sales tax on their systems. This can result in significant savings – the state has a variable sales tax rate due to the fact that there is a base rate of 5.6%, on top of city and county rates. These may total up to 10% in sales tax, which means on a $20,000 system you would save $2,000 in sales tax alone.
General Increase in Home Value
Selling a home with solar panels already installed is a bit like trying to sell house with a swimming pool – buyers tend to either love it or hate it. On the plus side, houses with existing solar energy can sell for more than those that don’t have it. Regardless of any pros and cons of putting your home up for sale when it is equipped with solar panels, in the end buyers are going to buy a home they love – and the vast majority aren’t going to let a PV system be the make or break factor. Interested buyers likely will, however, have plenty of questions for you, so you’ll need to be armed and ready with answers so that you can allay their concerns and set their minds at ease. Common concerns include:
- How much will I really save on my energy bill?
- Is there any maintenance required, and if so, who is responsible and how is it accomplished?
- What happens with the loan or lease on the solar system? Will that interfere with the buying process?
- Is there a warranty on the equipment, and will it be valid if new owners take over the house?
You may need to consult your installer for answers to some of these questions while others can be addressed just by allowing potential buyers to peruse your past energy bills. Because Arizona is a state with a longer solar system payback time than average, it’s important to think about whether you may need to sell your home in the near future, before you even consider installing solar. If there is a possibility that you may have to move within fewer than 7 to 10 years, it’s probably best to wait until you’re in your long-term house before going ahead with the 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.
What to Do Next?
Making the decision to go solar in Arizona is not cut and dried. Between leases, PPAs, paying cash, and taking out a loan, the financial rewards will vary according to each individual situation. In addition, the continuous attempts on the parts of each industry to push back at the other can further complicate the situation.
In the end, solar will at the least end up saving you some money, and giving you a sense of satisfaction at the idea of saving 106 trees per year simply by harnessing the sun’s power to operate your home’s electrical components. By closely examining your local energy rates, combined with any payments you will need to make on your system, you can make a solid decision that will serve you well for years to come.