Indiana Solar – Everything You Need To Know
Information about Solar Panels in Indiana
Indiana might be called the crossroads of America, but it is evident from their policy that they do not wish to be the crossroads for renewable energy, especially when it comes to Indiana solar.
Despite the lack of extra incentives and rebates on offer at a state level, there are still some significant opportunities to make a profit in the Hoosier state, depending on where you live and how you plan to pay for your system.
Read on to see exactly how far ahead you can get with Indiana solar, all while helping to protect the environment and avoid burning fossil fuels!
#1 Are Solar Panels in Indiana Worth It?
* 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 Indiana
There are a few ways to finance solar for your home – the most common being cash, solar loans, and leases. Each will carry certain advantages and disadvantages, but you stand to make some money no matter how you decide to purchase your system!
When considering any major purchase, cash should always be on your radar because it ensures complete ownership of the system from day one and avoids any interest payments for a loan or complicated leasing agreements. Once you hand over the bills and pay it off on paper through savings, credits, and exemptions, you’ll just be counting profits for the remainder of its 25-year lifecycle.
To determine exactly how much you stand to gain by purchasing your solar system with cash, we’ll examine some details to see how much money you’ll save and how many years it will take the system to pay for itself. Remember, though, that all of our numbers are just estimates and you should always check with a qualified professional before making a serious financial decision.
If you are interested in purchasing a 5 kW system (this is a very average size for a family-sized house) in Indiana, you’ll pay about $18,550 retail for equipment and installation. This is a big number, but we will be starting out ahead because we won’t have to pay sales tax on this amount (we’ll get into that below)!
Once we’ve cut the check, we’ll immediately qualify for the federal tax credit (we’ll talk about that more later). After that first year, $5,565 will be recovered through the personal tax credit, and it will bring our cost down to $12,985.
After costs, we’ll check out how much we stand to save. Using data that we compiled in-house along with the National Renewable Energy Lab’s online solar calculator, we see that a 5 kW system in Indiana will generate about 6,659 kWh per year of operation. Since your utility’s prices are about 12.57 cents per kWh, you’ll avoid about $837 in electricity costs during your first year!
Solar isn’t perfect, and it’s likely that your system will degrade in performance by about 0.8% each year. But if you consider that your utility company will likely increase their rates by 3.4% each year – the average yearly increase in Indiana from 2001 to 2016 – you will be coming out further and further ahead with your savings!
With all of this data considered, you’ll end up paying off your system in 14 years, making about $15,877 in profit over the 25-year lifespan of your system. It works out to a 6.5% internal return on your initial investment. What an incredible feeling it is to make money from something that is helping the environment at the same time!
Going down the lease route is ideally a very low risk, low reward scenario in which the installer retains ownership of the solar system on your home. Since they own the entire system, they will be responsible for any maintenance or issues that pop up over your contract term. It’s good for you because there shouldn’t be any unexpected expenses over the course of the lease.
However, just like a car lease, you won’t actually have ownership of the system. Each month, you’ll make payments to your solar company for use of the equipment and ensuing electricity. With solar costing less than utility-sourced electricity, you’ll typically save you a little bit of money each month on your energy bills. It might not be a lot of money, but it is still money saved!
Remember that these leases are binding contracts and it would behoove you to ensure that you are well-informed of exactly what is contained in the rental agreement. The majority of installers work with integrity, but read the fine print for details like payment escalators or any loopholes that could leave you in trouble during certain situations (for example, who’s responsible if lightening strikes your panels or you need to reroof your house?).
If you sell your home while the lease is still active, you’ll be responsible for getting your buyer to take over the leasing arrangement. This could complicate a home sale!
More: Solar Leases
If you don’t have enough cash on hand to simply pay for your system out of pocket, then there is always the option of getting a low-interest loan to finance your solar system.
We’ve already looked at the nitty-gritty details in the cash example, so now we’ll focus on how funding your purchase with a loan will impact your financial gains. Worry not, you’ll make money despite the interest!
With a loan for Indiana solar, you’ll still qualify for the federal tax credit and exemptions that you can take advantage of with cash. The biggest difference will be the $7,855 in total interest over a 15-year period at 5% you’ll be paying. If you can qualify for a better rate, you could end up spending a little less, but it will still be a fair chunk of change.
With this increase in cost, it will take 20 years to pay your system off. This is quite a long period, but you’ll still be making $8,022 in profit over 25 years and walk away with a 2.4% internal rate of return for your efforts. There are certainly ways to get higher returns than this, but few of them also help save the planet at the same time!
More: Solar Loans
#3 Indiana Solar Policy Information
Indiana is hampered by a lack of meaningful policies intended to spur growth in the solar industry. Despite solid net metering, there just isn’t any real motivation for utilities to put some skin in the game and help get residents on board.
Renewable Portfolio Standard
Forcing individuals to open up their wallets and install a solar system on their home might violate a few fundamental rights to freedom, but there is nothing wrong with a state encouraging their local utility companies to start walking down the path towards sustainable energy.
Often, the state government will do this by creating laws that mandate utilities generate some percentage of their power from renewable sources by some specific date. Called a Renewable Portfolio Standard (RPS), these rules are necessary to make utilities invest in otherwise less-profitable technologies rather than continue to burn fossil fuels until they are all gone. A bit of bad medicine today will help everyone in the future!
In the case of Indiana solar, their RPS is called the Clean Energy Portfolio Standard and does a poor job of getting the local utilities to do much of anything besides the status quo.
While most standards legally force utilities into action, theirs simply makes a suggestion without any means of penalizing non-performers. In fact, their Comprehensive Hoosier Option to Incentivize Cleaner Energy (CHOICE) is entirely optional!
However, for those utilities that do participate, the state allows them to increase their profit margins. Unfortunately, as of 2017, no utilities have chosen to participate.
For reference, here are their goals:
- 4% of energy supplied by clean sources by 2018
- 7% of energy supplied by clean sources by 2024
- 10% of energy supplied by clean sources by 2025
All that being said, Indiana is actually outperforming their RPS! In 2016, renewable energy (mostly wind) accounted for 6% of the state’s total electricity generation – though obviously this is due to wind’s low cost, not the state’s RPS.
Until they put a little bite into their standard, we likely won’t see much forward progress regarding utility-based incentives and rebates!
As we discussed a little earlier in our solar purchase breakdowns, electricity prices play a significant role in how much you stand to profit from going solar.
How? Think about this: If tomatoes are selling for $.10 at the grocery store you probably won’t bat an eye at the price as you add them to your cart. On the other hand, if they continue to raise prices to the point that they cost $100 each, you would probably start reading books on gardening so that you could grow your own! You can avoid that high cost that the stores are charging.
This is exactly how solar energy works. If you are producing energy from the sun, you will save more and more as your utility’s electricity prices rise.
Right now the national average for electricity is about $.1270 per kWh, and Indiana’s price is about $.1257 per kWh. At 1% lower than the national average, Indiana won’t be winning any awards in the price race, but there are still many states with lower rates that have even less to gain. All in all, being close to the average means you can still save a lot of money!
To save the largest amount of money possible, it is chiefly important that you can send back any extra power that you generate to the local grid and receive some compensation for it in the process. The system that allows this to happen is called net metering, and in Indiana, you have a pretty solid foundation to work with.
The idea of net excess generation (NEG) is critical to owners of solar systems since solar installations only generate power when the sun is shining. Often, you’ll produce more than you need during those daylight hours and need electricity at night. Even though you will be using energy from the grid at night, it is still possible to decrease your power bill to $0 depending on your system and power consumption.
All interconnected systems under 1 MW (which is a huge system) are eligible for this service, and any power that you don’t use and send to the grid will be credited to your account at the full retail rate of $.1257 per kWh (or whatever your utility charges). Having the full retail rate is important because now you essentially own your own little power plant, capable of selling power back into your community.
As your installation pumps electricity into the grid, you’ll rack up credits that you can pull from at night and on cloudy days. Any credits that you receive will rollover indefinitely each month, but the only downside is that you won’t be able to get a check for any unused credits at the end of the year. Also, you’ll be forced to carry at least $100,000 in insurance on your system against potential damages.
More: Net Metering
Since you have your own little power plant mounted to your roof, there are potential safety risks if things aren’t handled appropriately from an installation standpoint. How you connect your home system to the local utility grid is defined in a state’s interconnection rules.
In Indiana, these rules say that systems under 10 kW (most residential systems will fall under this line) will fit into the level 1 category – which is good news because there are no additional fees to worry about during your application for connection. There is, however, a stipulation that you install an external disconnect switch at your own expense so that the utility can manually cut you off if there is a problem.
This isn’t a unique requirement, but any extra cost is always negative from the system owner’s perspective.
Homeowners Associations and Solar Access Laws
Although it seems perfectly reasonable that everyone should have free, unfettered access to the sun, these sorts of rights have to be defined by state law to be legally enforceable. It shouldn’t be too hard to envision a scenario in which a neighbor or developer wants to build something tall near your home that has the potential to block the sun from getting to your solar panels. In this case, you’ll want all the legal protection you can find!
Indiana’s policies are actually better than many states. First, the state bans HOAs or other covenants from denying or restricting solar installations. Great! Secondly, to ensure your access to sunlight, you’ll need to enter into a voluntary solar easement contract with all involved parties.
#4 Indiana Solar Incentives, Rebates, and Tax Credits
Indiana is not going to win any awards for the number of incentives offered to its citizens for going solar, but there are still some old standbys and a couple of exemptions that can help knock some money off your purchase price. With these basic incentives, you’ll still be able to make a solid return on your system!
Federal Tax Credit
We might as well start off with the best item on our list. Coming to us at the federal level, the residential renewable energy tax credit is truly the single biggest financial incentive available for Indiana solar. With it, you’ll be able to take a full 30% off the cost of your solar system right off the top as a personal tax credit.
This credit is non-refundable, which means you won’t get a check back if it causes you to owe less than $0 at tax time, but you can use the credit over multiple years so don’t worry about wasting it!
Having almost a full third of the price off of your system is a fantastic deal, but you should know that this incentive won’t be around forever. In 2020 this credit will be lowered to 26%, fall to 22% in 2021, and then finally disappear in 2022 unless someone on the Hill decides to renew it. To be safe, jump on this quickly!
More: Solar Federal Tax Credit
State Tax Credits/Rebates
Along with tax exemptions, state tax credits and rebates are a great way for governments to support the adoption of solar energy among their residents. The more incentives available, the quicker they will be able to rid themselves of fossil fuels polluting their air and water. Unfortunately, there isn’t anything in the way of financial incentives for residents of Indiana.
Not to flog a dead horse, but having an RPS that forces compliance by a particular deadline will always compel utilities and legislatures to start finding solutions that make solar more affordable.
Hopefully this mentality will change soon.
NIPSCO Utility Incentives
It might not be a glamorous rebate or juicy tax credit, but utility-based performance payments can be a huge financial win long after your system is paid for and installed. Performance payments occur when your local utility pays you an incentive for generating renewable power. It’s that simple.
Separate from net metering, rebates, and all the rest, a utility might choose to offer these payments as a way to satisfy their renewable energy quota through home solar owners rather than or, in addition to, producing it on their own.
There is not a statewide system for these performance payments, but the utility NIPSCO has a feed-in tariff that will pay $.16 per kWh produced from your home system and added to the grid (provided it meets the specs)!
Here are the specifics of the program:
- Systems between 5-10 kW = $0.15 to $0.17/kWh ( depending on the allocation, this will be most residential systems)
- Systems between 10-200 kW = $0.14 to $0.15/kWh
- Must meet interconnection requirements
- Non-refundable fee of $25 plus $1 per kW paid during application
- Payments are made on a monthly basis
Obviously, how much money you can make depends on how much electricity you put into the grid. With our 5 kW system from above, lets say we put 40% of the 6,659 kWh annual production into the grid. NIPSCO will pay us an extra $400 annually! This tariff is guaranteed for 15 years and comes with an automatic 2% increase each year (see sheet 8). What a spectacular way for customers of NIPSCO to make some extra money with solar!
Property Tax Exemption
Adding value to your home is never a bad thing, right? If it was, why would anyone spend thousands of dollars on bathroom renovations, landscaping, and decks? If you decide to sell your home, all of those additions can add serious value to your selling price, and it will allow you to recoup that investment. Something that people may forget about, however, is the increase in property taxes that come along with increases in home value.
Many states have chosen to reward solar adopters by allowing them to exclude the value that solar adds to their home for property taxes so that they can enjoy the addition without any of the downside. Luckily for residents of Indiana, you are exempt from this tax.
Unfortunately, these systems are no longer eligible for the tax exemption in the event the ownership of the property changes hands. You’ll be able to enjoy it as long as you live there but it would be much nicer if you could include that perk along with the sale of your home!
Sales Tax Exemption
Just like property taxes, sales tax is an added expense that can really add up if you aren’t considering it while planning your purchase.
With Indiana solar, you won’t have to worry about paying this tax as they have created an exemption for the modules, inverters, and racking equipment needed for installing your solar system. Since the sales tax in Indiana is 7% and equipment accounts for about 40% of the total installation costs (PDF p.18), you’ll be saving about $500 when you purchase your average-sized system.
General Increase in Home Value
We mentioned this above in the property tax section, but it is worth noting again that buying a solar system could lead to a real increase in the value of your home.
If you check out this years-long study by the Lawrance Berkeley National Lab, you’ll see that they found a $4/watt premium in the sale price over almost 22,000 homes compared to their neighbors. There is real money here, and this could mean that our 5 kW system would add about $20,000 in home value if you chose to sell your home after installation. This basically refunds you for your full system value and then some!
If you’d like to dig even more on local incentives and rebates, check out the DSIRE database.
#5 Indianapolis Solar Information
Many states have some cities that are a bit more progressive than others when it comes to renewable energy in general and solar energy specifically. In these places, the city or local utility can offer special incentives to its residents to help encourage them to adopt solar power and make it more financially feasible for them to do so. Unfortunately, there aren’t any standout places that are making waves in the state.
Looking at the state’s capital, Indianapolis shows us that there isn’t much here out of the ordinary for the state. The local power company, Indianapolis Power and Light Company, doesn’t offer the feed-in tariffs that its brother NIPSCO does. There actually aren’t any extra incentives for going solar at all for residents in this area.
One cool thing this utility is doing, however, is offering special rates for charging electric vehicles. While it isn’t a juicy rebate, it could save you a little money by allowing you to charge your EV for as little as $.023 per kWh. That’s only 18% of the retail rate!
What to Do Next?
Hopefully, it is evident at this point that while Indiana is not the best choice for those looking to go solar in the US, there is still potential to save quite a bit of money by going solar!
If the state legislature decides to add some teeth to their RPS, then the state has a real opportunity to create a great solar power landscape for its citizens. Regardless of what you decide to do, please use our information here as a baseline on your journey and get estimates from as many actual installers in your area as possible before committing to the deal.