Colorado Solar – Everything You Need To Know

colorado-solar

Information about Solar Panels in Colorado

While you may think of snow when you think of Colorado, it actually has great potential for solar! The state is ranked ninth best in the United States in regards to total installed solar, putting Colorado Solar right up among the best!

Even though the ‘300 days of sun’ is more myth than reality, major parts of the state usually see around 245 days of great sun. The market and policies are also set up relatively well to provide easy access and incentivize solar on your rooftop (or if you are a renter or don’t have a house well-suited to solar, community renewable energy is prominent here too).

Are you a Colorado resident thinking about rooftop solar? If so, read on!

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#1 Overall Solar Grade

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Overall Grade
12 years Avg. Payback Time (For Cash Purchase)
7.7 % Estimate IRR (Return on your investment on cash purchase over 25 years)
$19,213 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.

#2 Options for Buying Solar Panels in Colorado

The amount that comes out of your wallet in the short and long term will differ based on whether you choose to purchase in cash, with a loan, or with a lease.

Residents in Colorado pay an average of $0.118/kWh for electricity, slightly below the national average, and consume about 688 kWh per month, averaging out to a monthly electric bill of $81. While this doesn’t break the bank compared to some other states, it adds up to almost $1,000 per year – a significant chunk of change for the average homeowner.

The amount of money that you can save over time with rooftop solar will vary throughout the state of Colorado, but we did the calculations for an average array (5 kW in size, facing south). These numbers may be different for you depending on the part of the state you live in, the size of your house, the direction of your roof, and more.

A typical 5kW rooftop installation will cost you $18,366 upfront in Colorado – but once you factor in the 30% Federal Income Tax Credit (ITC), you’ll get $5,510 back in year one, making the upfront cost right around $12,856.

As mentioned, how much you can save depends on what type of financing you choose. For more information on financing options in general, check out our FAQ. Regardless of the type of financing that you choose, remember that it is essential to talk to multiple companies and installers so you can be sure that you are getting the best deal. Let’s go over the different financing options, as well as estimated savings for a 5kW installation.

Cash Upfront

The average solar rooftop installation in Colorado will pay for itself in 12 years, assuming it is paid for in cash (it will take longer when factoring in interest on a loan). So that is $12,856 out of pocket in the first year when the tax credit is factored in, but after 12 years, you’ll start turning a profit! How much can you expect to save? Well, over 25 years – the estimated life of most solar installations – you can expect to save around $19,213 after paying off your installation! In essence, for every $1 you spend, you’re getting almost $2 in profit!

As in any other state, paying up front with cash is the option that will net you the most financial benefits from rooftop solar in the long run. It will be a large sum of money initially, but you will avoid interest payments and monthly payments (outside of your decreased electric bill), and you’ll be eligible for all the tax incentives as well. The best part is that the savings on your electric bill should become more impactful year over year, as utility prices tend to increase by 3.3% annually in Colorado.

Bottom Line: A 5kW installation purchased in cash can save you almost $20k over it’s lifetime. Not too bad!

Leases

If paying up front isn’t an option for you, and you don’t like the idea of taking out a loan, a solar lease or solar power purchase agreement (PPA) is a good choice. These two items are similar and show up with little difference in your pocketbook – both typically entail a monthly payment over the life of the contract, typically 20 years. The difference is that with a solar lease you are paying to rent the solar system, and in a PPA you are paying for the kWh that the system produces.

You do not own the system under either model, even though it is on your roof – it is built and maintained by the company that installed it, and therefore requires little responsibility on your part.

While this convenience seals the deal for some, it doesn’t bring the same perks as ownership in the form of tax credits (many companies work to pass their tax credit benefits on to the homeowner, though of course that’s hard to verify) or increased home resale value (though you can usually transfer the lease to a new homeowner if they want it).

In order to qualify for some leases or PPAs, you need to undergo the same type of credit checks that you would if you were leasing a vehicle. In some situations, the solar panels can be installed on your roof with $0 down. If you own your home and have a good credit score, it shouldn’t be too hard to be considered for solar via lease or PPA.

Bottom Line: You can save money through a lease or PPA due to a lower electric bill, but you miss out on many of the perks of ownership.

More: Solar Leases

Loans

If you want the benefits of a cash purchase (fully owning the system, incurring tax credits) but can’t afford the lump sum upfront, you can take out a loan for the purchase. Due to interest payments, you won’t save as much money as you would when making the purchase up front, so be sure to factor this into the purchase.

Calculating the ROI of a 5 kW solar installation in Colorado, financed through a 15 year loan at 5% interest, we find a total net savings of $11,436 – but this is highly dependent on the interest rate and loan length, as well as the production of your panels and your electric rate. It also does not factor in the profit you could make in selling your home with solar panels installed – something that can add a significant chunk of change to your home price and turn a profit for you on the back end.

Bottom Line: Talk to your potential solar installers about a loan, and if you want to pursue one, try to negotiate the lowest interest rate possible based on your credit score, home ownership, and other factors.

More: Solar Loans

#3 Colorado Solar Policy Information

Colorado has seen some successes in solar policy but is strongly lacking in incentives. They have a strong Renewable Portfolio Standard and good net metering laws, but lack tax credits and rebates.

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Renewable Portfolio Standard

Colorado residents were the first in the country to vote in a Renewable Energy Portfolio Standard. In 2004, Coloradans voted to drive the state’s largest utilities to secure 30% of their electricity from renewable energy sources by 2020. The RPS has withstood scrutiny in the form of a constitutional challenge (interestingly, in a unanimous decision led by now-Supreme Court justice Neil Gorsuch).

The RPS further breaks down in ways that are relevant to residential solar. Part of the RPS directs Colorado utilities to secure at least 3% of their electricity from distributed generation, which means the electricity produced by renewables is used at the site. Examples of distributed generation include solar or other renewable energy on rooftops of homes or businesses.

The RPS is critical to the rooftop solar market in Colorado, because as state law, it directs utilities to work to meet mandates. This means that utilities are incentivized to make the solar market affordable and accessible to homeowners. While the RPS doesn’t have a solar set-aside (a part of the law that specifically calls for solar as a method of renewable generation), solar is a natural go-to for the state due to weather.

More: Renewable Portfolio Standard (RPS)

Electricity Prices

Utilities in Colorado charge an average of $0.118 per kWh, almost 10% lower than the national average of $0.128 per kWh. Cheap electricity is obviously great for everyone, but it does mean it takes longer to see a return on your solar investment than in states like California and New York with extremely high electricity prices.

Current utility prices is only one part of the equation though. Electricity prices also increase over time and each state’s utility prices increase at different rates. This utility rate increase plays a huge role in your total savings going solar, since you get to avoid all that increased cost! Analyzing data from the EIA, we can see that since 2001, the average rate increase in the entire US was 2.6% each year. In Colorado, it was 3.3% – much higher than the national average!

By installing solar, you get to avoid that fairly high utility rate increase!

Net Metering

Colorado has fantastic net metering laws to ensure that homeowners are able to secure maximum benefits from their rooftop solar.

Net metering works by measuring all of the energy that flows into your home from the utility (the electricity you typically buy), as well as all of the energy that flows to the utility from your home (the excess solar energy you might produce but don’t use).

This allows the homeowner to secure value from all of the electricity generated by their solar panels, making money off of the excess sold to the grid. In Colorado, residents will receive full credit for all excess energy generated to the grid.

In 2016, utility Xcel Energy challenged the law, attempting to introduce a grid use fee that would make residents with solar panels pay more to connect to the grid (required for net metering), but their proposal was withdrawn – ensuring that net metering benefits would continue. For more on Xcel’s net metering rewards and information, you can visit their website.

More: Net Metering

Interconnection Rules

The utility interconnection process is relatively easy in Colorado, and will typically be handled by your solar installer. If you’re installing a system under 10kW, the state requires you to carry $300,000 in liability insurance (ie homeowners insurance) and $1 million liability insurance for systems over 10kW.

Colorado’s permitting process for interconnection is relatively simple, but just make sure you have your bases covered!

Homeowners Associations

There are two critical components to robust solar access laws: protection of the right to go solar and protection of access to sunlight. Thankfully, Colorado has both covered.

Since 1979, Colorado has banned any organization from blocking solar installations. This means your HOA, local government, or any other covenant cannot block your solar installation. They can place stipulations on your installation for aesthetic reasons, as long as the energy production or cost isn’t greatly affected, but they can’t outright block it. Good job Colorado!

Colorado also allows solar homeowners to enter into voluntary easements with neighbors. These solar easements protect the airspace directly in front of the solar panels, ensuring that no neighbor or developer plants trees or constructs a building that blocks the sunlight from hitting your solar panels.

#4 Financial Incentives, Rebates, and Tax Credits

The state does offer tax exemptions for solar equipment, but beyond that most of the incentives fall to the utilities and a few local municipalities.


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Federal Tax Credit

This is a tax credit available to any homeowner in the US that installs and owns rooftop solar, and thus is not available to someone using a lease or a PPA. It immediately takes away 1/3 of your cost burden (if purchasing in cash or with a loan) in the first year, and has recently been extended until 2022. The benefits do start stepping down in 2019, so if you want to make a solar purchase, it will be most cost-effective to do so in the next two years.

Unfortunately, this is the only tax credit available for homeowners in Colorado looking to install rooftop solar – there are no state-level tax credits. Fortunately, it’s a great one! Spending $18k on a solar installation means you avoid $5,400 in taxes.

More: Solar Federal Tax Credit

State Incentives

Unfortunately, the state of Colorado does not couple its progressive RPS and net metering policies with cash incentives – the assumption is that utilities will work to meet the RPS mandates, and that this effort will translate to utility-based incentives to individual homeowners.

Thus, there are no longer any state-level rebates to residents that choose to install rooftop solar. However, there are various utilities and cities that offer their own benefits, albeit small ones.

Utility Based Incentives

A handful of utilities across the state offer strong rebates typically based on the size of the installation. Here are just a couple:

To comply with the Renewable Portfolio Standard mandate, some utilities will pay you outright for your Renewable Energy Credits:

  • La Plata Electric Association will pay you $16/kW in one upfront payment for all your RECs if your installation is under 10kW. For systems over 10kW, they’ll pay $1 per MWh.
  • Xcel Energy offers $0.005 per kWh to purchase your RECs

 

Property Tax Exemption

Colorado offers a Residential Renewable Energy Property Tax Exemption that eliminates any additional property taxes your home might incur after installing solar. Since the solar panels add tangible value to your home and are determined when your home is assessed for value and property taxes, this exemption makes the panels even more cost-effective.

Sales Tax Exemption

Colorado also offers a sales tax exemption for solar equipment (not labor). Colorado’s state sales tax is 2.9%. This means for an average installation, you could save about $200 – not bad just for avoiding sales tax!

General Increase in Home Value

One major consideration when deciding to purchase rooftop solar is what to do when you move out of your home. Whether you purchase upfront with cash or a loan, or finance through a lease or PPA, this will be relevant to you.

As we already discussed, installing solar panels that you own should raise the value of your home, while still being exempt from any additional property tax. How much will it raise your home value?

A study from the Lawrence Berkeley National Laboratory found that houses with rooftop solar are appraised approximately 6% higher than similar houses without solar, and installing solar may also help you sell your home faster. This is a relatively straightforward benefit if you own your solar panels in full.

If you leased your solar panels or secured them through a PPA, you may be able to transfer that agreement to the new homeowner if they also meet the financial requirements (high credit score, no previous issues with solar leasing). However, if they can’t meet these requirements, it could impact the ability to close on the selling of your home. Additionally, the process can potentially scare some homebuyers. Furthermore, leases and PPAs add no value to your home.

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 Denver Solar

Looking to install solar in the Denver area? You’re in luck! As a customer of Xcel Energy, you get to enjoy the benefits of net metering, increased home value, and Xcel’s SolarRewards program (the incentive program outlined above).

Xcel’s utility rates aren’t a clear-cut $ per kWh, so estimating your total savings can be a bit trickier than what we’ve outlined above. The utility charges basic residential customers (p.31) a flat $5.39 service fee each month regardless of how much electricity you use. During the summer, when electricity is at a premium, the first 500 kWh you use each month is $0.054 per kWh, and anything over 500 kWh costs $0.099 per kWh.

So as you use more electricity, the cost per kWh increases (this is known as a tiered rate structure). Obviously, all of this can affect your total savings, so the best thing to do is contact a few local installers that are familiar with Xcel’s rate structure and they can produce a savings estimate tailored specifically to you.

What to Do Next?colorado-mountains

If you live in Colorado and you are considering solar, start by finding some reputable installers in your area and determining any regulations or incentives outlined by your utility.

This means shopping around and getting multiple quotes and opinions. You’ll want to talk to your installer about the optimal amount of solar for your roof, your typical energy needs and energy bills, different financing mechanisms, their maintenance policies, and more. This process may take a while, but it is important to be thorough.

If you have any questions, or if you are already a Colorado resident with solar, please sound off in the comments below!

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

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