Arkansas Solar – Everything You Need to Know
Information about Solar Panels in Arkansas
While the state hasn’t done much to help homeowners save money by installing solar, Arkansas solar can still be a financially rewarding investment.
The only real step the state has taken is to pass interconnection and net metering regulations (which are actually undergoing a major upheaval in 2017). However, with the federal tax credit and Arkansas’ sunny skies that are perfect for producing clean, renewable energy, you can still see a return on your investment while contributing to a healthier planet.
Read on for all the info you need to decide whether going solar in Arkansas is right for you, including savings estimates, relevant solar policies, and available incentives.
#1 Are Solar Panels Worth it in Arkansas?
* 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 Arkansas
Arkansas homeowners can choose to finance either in cash or through a loan.
Going solar in Arkansas is not going to make you rich. With Arkansas’ low electricity prices and the slow rise in utility rates (see Electricity Prices section below), your savings are going to be moderate compared to other solar-friendly states.
With this in mind, removing any superfluous costs like loan interest is the first step to saving money by installing solar.
Purchasing a solar installation in cash sets you up to save as much money as possible, removing any financing fees or additional costs and lowering your expenses. As the sole owner of the installation, you are eligible for the federal tax credit, and your system can add a good deal of value to your home as well.
The flipside to all these benefits is the high initial purchase price of solar, which at $18,550 in Arkansas for a medium-sized 5kW system, can be quite an investment.
However, we already mentioned the federal tax credit, which lowers your taxes by 30% of the cost of your installation. Adding this to the mix drops your total investment to $12,985 ($18,550 X 70%).
Obviously, any financial investment needs a healthy return, so let’s see what your installation can bring in savings:
A 5kW installation in Arkansas will produce about 7,053kWh its first year, and 160,390 kWh by its 25th year (the estimated lifespan of most solar installations). Buying 160,390 kWh from the average Arkansas utility over the next 25 years would cost you about $20,858. So for the 5kW installation above, your total net savings equal about $7,874, with an internal rate of return of 3.9%.
Now let’s be honest. You could see a better rate of return on a good stock investment. However, do stocks allow you to add value to your home AND reduce your emissions and carbon footprint? I think not!
Unfortunately, leases and PPAs aren’t an option in Arkansas. First off, along with a handful of other mostly-southern states, Arkansas officially bans solar companies from offering PPAs.
Secondly, even if they were allowed, with Arkansas’ low electricity prices and net metering’s shaky future, none of the national installers like SolarCity and Sunrun – who started the whole solar leasing business model – are even entering the state.
It’s not a huge loss, as leases and PPAs are on their way out, as more homeowners are seeing the benefits of solar loans and ownership.
More: Solar Leases
If you can’t afford to pay for your installation with cash upfront, taking out a loan is the next best option. You retain ownership of the installation and therefore are still eligible for the 30% tax credit. Just like with a cash purchase, your installation can also add value to your home.
The downside, though, is those pesky interest payments, which can really cut into your savings. Taking a look again at the 5kW installation above that cost $18,550, if you take out a 15-year loan with 5% interest, you’ll be adding $7,855 in interest payments.
Do you see where this is going? By paying all that interest, you drop your savings to about $20 in total. Doesn’t seem worth it, does it?
Well, even with a loan going solar with a loan can still be worthwhile. There are a few tricks to help you lower those interest payments:
- First, shop around to find the shortest loan with the lowest interest rates. In a state without much solar like Arkansas, this most likely means talking to banks and credit unions about home equity loans, Fannie Mae-backed energy loans, and FHA-backed energy loans.
- After taking out the loan, use the money you saved with the federal tax credit to pay down your loan early.
- Make higher monthly payments, with the additional portion going strictly to your principal to shorten your loan period and reduce your overall interest paid.
For example: Let’s say you find a 7-year loan with 3% interest (a good deal, but not uncommon by any means). With this loan, you’d pay just $2,039 in interest, increasing your total net savings to $5,835 – pretty close to the savings from a cash purchase!
More: Solar Loans
#3 Arkansas Solar Policy Information
Beyond passing net metering laws – which are getting overhauled as of 2017 – the Arkansas legislature and regulators have done pretty much zero to encourage the growth of solar and other renewables in the state.
Renewable Portfolio Standard
The phrase probably doesn’t mean much to you, but renewable portfolio standards (RPS) are the single most important piece of legislation a state can pass to jumpstart their renewables industry.
RPSs are simply mandates that utilities operating in the state must source a certain percentage of all the electricity they sell from renewable sources by a certain date. Typical goals include Nevada’s 25% renewable by 2025 and Montana’s 15% by 2015, though they can go all the way up to 100% renewable (Hawaii by 2045)!
RPSs lead to utilities constructing renewable energy plants (typically solar and wind), purchasing renewable energy from generation companies, and even paying solar homeowners for their renewable energy credits (or RECs, which are certificates that utilities horde to prove they are complying with RPS goals), which can lead to explosions in the residential solar industry as well.
Unfortunately, Arkansas is one of only 13 states that haven’t adopted any RPS goals. Until they do, their local solar industry will continue to muddle along at a leisurely pace.
At $0.10 per kilowatt-hour (kWh), Arkansas’ average utility price is about 25% lower than the national average of $0.13 per kWh, though close to neighbors Louisiana ($0.10 per kWh), Oklahoma ($0.11 per kWh), and Texas ($0.11 per kWh).
On top of that, from 2001 to 2016, Arkansas utilities raised rates about 1.8% each year, much lower than the nation’s average of 2.6%.
All this to say, electricity prices in Arkansas are lower than in most other states and are rising at a slower rate as well.
In most of life, low utility prices are a blessing, but when it comes to solar, it’s not so simple.
Obviously, no one wants to celebrate high electricity prices, but that is actually what makes solar such a great deal. If your energy prices are high, you can save a lot of money by producing your own solar electricity and avoiding that expensive utility-sourced electricity. If your prices are low, solar can still be worthwhile, but it takes longer to make your investment back and start saving.
Installing solar in Arkansas can be a good financial decision, just keep the terms “slow growth” and “long term” in mind.
Net metering in Arkansas is actually pretty dang good, at least for now.
In 2001, the state passed legislation requiring utilities to offer net metering to solar homeowners and businesses. Since that time, the Arkansas Public Service Commission has amended those rules several times, but the basic requirements remain the same.
Customers of both privately-owned utilities and electric cooperatives with solar installations smaller than 25kW (or 100% of their highest electricity use in one month over the last 12 months) are eligible for net metering.
If your installation produces electricity that you can’t use and subsequently goes to the grid, your utility will provide retail-rate credits for all of that excess electricity. So, if your utility charges $0.10 per kWh and you added 50kWh of your unused solar electricity to the grid last month, you’ll see a $5 bill credit on your account next month!
Any additional credits roll over month to month for 2 years, at which point the customer can choose to sell those credits to the utility at their avoided cost (what the utility would spend to generate that electricity on their own, typically around $0.03 per kWh).
Unfortunately, as of mid-2017, the Arkansas PSC and state utilities are in talks to restructure net metering incentives and have yet to make a final ruling, so don’t get too comfortable with this great net metering program – things could change.
There is good news, though. Regulators have already decided to allow all existing solar customers to continue their current net metering setup for the next 20 years (see the article linked to above), so if you’ve already installed solar and are worrying about what’s going to happen to you – forget about it!
If you haven’t installed solar yet, be sure to watch for any changes to net metering incentives. Of course, your installer should be well aware of any changes once they come down the line.
More: Net Metering
In order to ensure an easy process to connect your solar installation to your utility’s grid, Arkansas – along with most other states – has passed legislation standardizing this process, known as interconnection. Without a standardized process, each utility working in a state can require different fees, paperwork, installation techniques, and even additional homeowner insurance!
Thankfully, when Arkansas passed those net metering regulations back in 2001, they also passed interconnection standards. Unfortunately, they’re not as great (for homeowners) as other states.
First off, as long as they’re approved by the PSC, utilities can require additional safety or performance standards beyond typical electrical and building code requirements. While this is somewhat irregular, that’s not a huge deal. Here’s the bad part: the homeowner must pay for all these additional requirements! Not cool.
Additionally, the legislation doesn’t address whether utilities may require additional liability insurance to cover the value of the installation, so it’s left up to individual utilities.
Paying for additional equipment and insurance adds expenses to your installation and drops your savings accordingly, so you’ll need to talk to your utility or installer for insight into both of these issues.
It’s not all bad news, however. As long as your inverter meets certain safety requirements (namely, the ability to shut off automatically if the grid goes down, which almost all inverters do), utilities cannot require an additional safety disconnect switch for your installation. While an extra switch isn’t too big of a deal, it’s one less thing you have to worry about (and pay for).
Homeowners Associations and Solar Access
Thousands and thousands of homeowners across the US have installed solar on their rooftops, and unfortunately, some of them have run into trouble with HOAs and neighbors. Typically, these issues fall into 2 categories:
- HOAs or other covenants blocking or severely limiting solar in their neighborhoods.
- Neighbors planting trees or building additions that block sunlight from hitting already-existing solar panels.
Both of these can be serious issues, and many states have passed laws protecting solar homeowners that find themselves in either – or both – of these situations.
Unfortunately, though, Arkansas is not one of these states and has yet to pass any laws protecting solar homeowners.
If you decide to install solar, be sure to contact your HOA and neighbors as early as possible and stay friendly and positive. Talk about the benefits, and share your plans or images of how the installation will look on the roof (your installer can help with this).
Basically, show them how solar isn’t a liability, but something to celebrate!
#4 Arkansas Solar Incentives, Rebates, and Tax Credits
Arkansas homeowners are eligible for the federal tax credit, but not much else.
Federal Tax Credit
Even if the state doesn’t offer much in terms of incentives, all Arkansas homeowners are still eligible for the federal income tax credit (known by a few names, including the Solar Investment Tax Credit, ITC, or Renewable Energy Tax Credit).
To be honest, this credit alone is pretty much all you need! It drops your owed taxes by 30% of the total cost of the installation. So if you spent $18k on your system, you can avoid paying $5,400 on your federal taxes.
While the credit isn’t refundable if you don’t owe enough in a single year (meaning the feds won’t cut you a check for that amount, instead it subtracts from what you owe), you can break down the total and claim pieces over the course of several years to benefit from the full amount.
The credit was originally meant to expire at the end of 2016, but federal lawmakers extended the full credit until 2019, when it is lowered to 26% for a year, then 22% for a year. After that, it’s toast!
More: Solar Federal Tax Credit
Arkansas Tax Credits/Rebates
Arkansas offers no tax credits or rebates for homeowners going solar.
Utility Based Incentives
Currently, no utilities in Arkansas offer financial incentives for homeowners going solar.
Property Tax Exemption
While a good number of states offer property tax exemptions on the additional value a solar installation brings to a home, Arkansas does not.
With the average property tax rate in Arkansas at 0.62%, an exemption could save you about $110 in the first year for an $18k system. While it’s not a huge amount, over the course of 10 years you could be looking at close to $1k in savings.
Sales Tax Exemption
Many states also exempt solar installations, either the equipment or the entire installation (equipment plus labor) from sales tax as well. Again, Arkansas is not one of those states.
With the state sales tax at 6.5%, and solar equipment accounting for about 40% of an installation’s total cost, a sales tax exemption could save you about $470 when you go to install your system.
Couple that with a property tax exemption and you could be dropping your total installation costs by almost $600 just through tax exemptions in your first year! Maybe one day soon, Arkansas will step up.
General Increase in Home Value
In 2015, the federally-funded Lawrence Berkeley National Renewable Energy Lab (LBNL) published a study comparing the value of homes with solar installed vs similar homes without. They looked at over 22,000 home sales in 8 states across the US (though not Arkansas) over several years.
The authors found that homes with solar generally sold for a premium, an average of $4 per watt depending on the age of the system, as long as the installation was owned by the homeowner.
At this rate, installing a 5kW system could potentially add $20k in value to your property. Obviously, the value that solar adds to homes in Arkansas could be different than what the study above found, but even if you realized just half the value, that’s still an extra $10k to your home – basically covering your entire investment!
Before making a decision, be sure to talk to a local realtor or some local friends who’ve recently sold their solar home for a bit more insight into your area.
If you’d like to dig even more on local incentives and rebates, check out the DSIRE database.
#5 Little Rock Solar Information
If you live in Little Rock and want to go solar, you shouldn’t have any surprises in store. Entergy Arkansas must offer net metering incentives just like most utilities in the state (though again, that could change soon) and you’re of course eligible for the federal tax credit as well.
If you’re on Entergy’s standard residential rates, the utility uses a tiered rate structure. In the summertime, when electricity demand is high, rates are a little higher compared to winter. In addition, you’ll pay a premium for any electricity you use over your first 1,500 kWh each month.
With solar installations actually producing more electricity in the summer than winter, this means you could save a little more than homeowners with other utilities that don’t offer tiered rates.
However, Entergy also charges all customers a flat fee of $8.40 a month, no matter how much electricity you use. This obviously can cut into your total savings – though not a huge amount – so be sure to discuss this with your installer and account for this cost in your savings estimates (especially if you take out a loan, as your savings could be small to begin with).
What to Do Next?
Overall, installing solar in Arkansas won’t make you rich, but it allows you to save some money, adds value to your home, and helps the environment at the same time. Seems like a win-win-win to us! Just be sure to shop around if you’re financing with a loan and stay updated on the status of net metering.