Buying Solar Panels in Maryland
Interested in solar panels in Maryland? Look no further:
Solar panel installation growth in Maryland has seen fantastic growth over just the past couple of years. In 2015 alone, installations increased by 86% over the previous year, and this number is expected to continue to go upward.
At 144 megawatts of solar capacity installed in 2015, the state came in at the number 11 slot nationwide, and with 349 megawatts of total installed capacity, it sits at 13th in the country.
Maryland gets about 57% sunshine per year, making it a perfectly suitable place to take advantage of the sun’s power production. Even some major corporations have jumped on the alternative energy bandwagon – Staples, General Motors, Walmart, Kohl’s, and more. In fact, IKEA in Perryville boasts one of the largest PV systems in the state, at 4.9 MW of capacity.
If you’re considering installing solar panels in Maryland, now is a great time – the cost of these systems has fallen by nearly half since 2010. It is a major decision, however, so it’s important to look at all of the aspects involved, such as:
- How to pay for your Maryland solar energy system
- How to take advantage of incentive programs offered by the federal and state governments, as well as credits available by selling your extra energy
- How solar panels affect the home selling process
- How to find a reliable installer
- Future savings on your energy bills
Purchasing a solar system in this state can run between $15,000 and $30,000. Not everyone who is interested in solar has that kind of change hanging around, so if you don’t plan to pay for your system in cash you’ll need to decide between the other financing options.
Maryland is one of the approximately half of US states that allow leasing (one of two forms of what’s known as third-party solar financing) as an option for consumers to install solar on their property. What is solar leasing? An installer puts their own system on your roof and you make monthly payments which ideally end up being less than the amount you save on your electricity bill. The terms of the lease vary from company to company, but 15-20 years is a common length. Sungevity, for example, offers a 20-year lease term at $40-120/month, depending upon the system and your location.
Choosing a lease won’t get you out of the stringent qualification process, such as the one you’d have to go through for a loan. In fact, it’s sometimes harder to get a lease than a solar loan, with credit score requirements of at least 700 not uncommon. If you do qualify, however, you’ll often benefit from the lack of a down payment requirement (though as with anything else, this isn’t always the case and depends upon current promotions and company policy).
Leasing your solar energy system is one option, just be sure to look at all of the pros and cons before making a decision on the best financing for your individual situation.
Pros of Solar Leasing:
• There’s no delay between installation and savings – you’ll see a financial benefit on your first energy bill. • Homeowners can avoid the barrier of pricey down payments, bringing solar energy into the reach of more people than would be able to afford it otherwise. • The installer typically takes care of any maintenance issues, and equipment is commonly accompanied by a warranty. It’s important to verify all terms with the installer to make sure of exactly which responsibilities they expect the homeowner to take care of. • If your energy bill savings are more than your lease payment, you will end up with a cash-positive transaction each month – meaning you’ll actually make money on your system.
Cons of Solar Leasing:
• If your home consumes more electricity than your system produces, you could end up in the red between power bills and the lease payment. This is uncommon, but there are no guarantees when you sign the contract. • You could be responsible for some maintenance costs (which are typically minimal on a new system) or for replacement in the event of a natural disaster. This is where it’s important to make sure the warranty covers these types of events. • Solar leases typically include an annual price escalation clause, meaning your bill can go up between one and three percent each year. For example, Sungevity’s disclaimer states a possible 1.5-2.9% escalation on their leases. Traditional energy rates also tend to rise, and in MD they go up by an average of 4% per year – higher than the national average of 3%, according to the U.S. Energy Information Administration. This means leasing may put you on the better end of the deal. • There are a number of federal and state incentives for installing alternative energy sources. When you lease, you forfeit the rights to these incentives, although in some cases you may be able to retain your SRECs (credits that you can sell to the utility company). • Selling a home with an existing solar lease may cause issues with selling your home. The buyers either need to be able to meet credit and other requirements for the lease, or you will have to buy out the remainder of your contract. • Homeowners are usually prohibited from making any home improvements that could affect the functioning of the system.
Power Purchase Agreements (PPAs)
Solar PPAs (the second of the two third-party solar financing options) offer a slightly different option from leasing. A Power Purchase Agreement resembles a solar lease in that the homeowner does not buy the system, instead making monthly payments to an installer. The difference between a lease and a PPA is that a PPA requires you to agree to paying a certain price per kWh of energy, rather than a fixed monthly payment. As with a lease, an escalator may be involved, so again it’s wise to compare projected rates for both the solar company and your local utility to see which option is most financially logical.
PPAs, like leases, require a certain credit score and possibly other qualifying criteria which must be met. And as with leases the arrangement offers benefits and drawbacks, each of which you should examine closely to determine whether a PPA is the right choice.
Pros of PPAs
• There is typically a low down payment, or no money at all required prior to installation. • The responsibility for maintenance and repairs typically falls upon the installer’s shoulders. • Provided local utilities raise their rates higher than the terms of your fixed kWh price, you could save some serious cash on monthly energy bills. • Some PPA agreements allow you to buy the system down the line – typically after about five years – if you so choose.
Cons of PPAs
• A PPA brings the same challenges with selling your home as a lease does. It will be your responsibility to find a buyer who not only wants your system but can also meet the requirements necessary to take over the contract. • As with a lease, most of the rebates and incentives go to the owner of the system. • If you do decide to buy your system from the installer down the road, you may pay more than if you had bought new to begin with. • Being locked into a fixed rate per kWh means that decreases in local utility rates will not net you any benefit. It is, however, rare for energy rates to go down – typically they rise each year – still, it’s wise to be aware of all possibilities.
Paying Cash for Solar Panels in MD
From a ROI perspective, paying cash upfront for your system is the most advantageous. You avoid interest on loan payments as well as any monthly lease payments. You own your own power, and between the federal tax credit, incentives from the state of Maryland, possible county incentives, and SRECs that you sell each year, payback time can be impressive – as low as four years, depending upon the cost of your system and local utility rates.
Paying cash removes any concern over making future payments, eliminates wasted interest payments that would come with a personal loan or HELOC, and gives you complete freedom to do whatever you wish, including selling your home. Even though it seems like a no-brainer if you’ve got the green laying around just waiting for the perfect investment, you still want to make sure all elements of this choice fit your needs.
Pros of a Cash Solar Purchase:
• Paying cash offers the quickest possible payback time on a solar system. • You will be free of loan and interest payments. • You’ll own your system free and clear and be able to do with it as you choose. • It’s much easier to sell a home with an outright owned system rather than one that comes with a contract requirement. • All financial incentives offered by the installer and governments are yours and yours alone.
Cons of a Cash Solar Purchase:
• Some experts argue that the money spent on a cash solar purchase may be able to earn a higher ROI in a different investment, making a loan an equally smart option. • You will be responsible for the repair and maintenance of your equipment.
Solar Loans in MD
Most people don’t have $25,000 in cash tucked away that they can earmark for putting into a solar system, yet prefer not to lease their system. If you’re considering a solar installation and would like to own your own power, you may consider a loan. There are a number of ways to get financing for your system, including:
• A personal loan – these are typically available in both secured and unsecured options, with better interest rates for a secured loan (i.e. using your home as collateral). This type of loan could include an origination fee, and usually comes at a higher rate than a home equity loan.
• A HELOC – a home equity loan, or Home Equity Line of Credit, can typically offer a better interest rate – currently under 5% – but is secured by using your home as collateral.
• Installer financing – some solar companies offer their own financing options. These are often achieved via a third-party lender, with an attempt to offer competitive interest rates. As always, read the fine print – know from whom you are borrowing and the exact terms of the loan.
• Fannie Mae – the federal government offers loans for renewable energy home improvements through its Residential Energy Efficiency Improvement Loans. These loans may be offered at below market rate interest, and you can borrow up to $15,000 for your system.
It’s advantageous to investigate several different avenues for obtaining solar financing. Credit unions, your personal bank, the installer, and the government will all have different terms and you’ll want to do the math when it comes down to exactly how much you’ll be paying in the end. Because of the rapid growth of the renewable energy industry, there is a competitive environment which can result in you being able to negotiate a good rate often with no money down.
Solar loans are a boon to homeowners who qualify – you get all of the benefits of owning your system, while being relieved of the obligation to come up with all of the money at once. Just make sure to consider the upsides and downsides of this financing option.
Pros of Solar Loans:
• A loan allows homeowners to see immediate savings, because the payments are highly likely to be below what you will save on the first power bill. • You can usually get your system installed with a minimum of upfront cash outlay. • A loan means you still own your own PV system and so all available incentives, rebates, and tax benefits belong to you. • The payments are usually lower than with a PPA or solar lease. • Your system can be paid off in as little as 7-15 years, unlike with a lease or PPA.
Cons of Solar Loans:
• You may have to put some cash into a down payment, and/or put your home up as collateral should you default on the loan. • You’ll pay more in the end than you would paying cash outright, due to interest added onto the loan. • If your loan is not paid off at the time you sell your home, you’ll still be responsible for the payments (although this problem is often offset by the fact that home values increase significantly when equipped with solar panels). • You will have to take care of any repairs or maintenance since the system belongs to you. PV systems typically require very little in the way of maintenance, however, and equipment is usually covered by a warranty of 15-20 years. • A loan application usually takes longer to process than PPAs or leases.
Maryland Solar Incentives and Policies That Reduce the Cost of Going Solar
Maryland is on the right track as far as incentives to encourage the use of alternative energies. They offer several attractive benefits for those who install solar panels, bringing the cost of these systems down for residents.
Why Maryland Is a Great State for Solar
Two-thirds of states now have a Renewable Portfolio Standard, or RPS. This is essentially a set of energy-related goals for the state to reach by a predetermined year. Power sources used to reach these goals include wind and solar. Carve-outs are used to provide consumers with incentives to install these systems because they provide the opportunity to sell renewable energy credits to utilities so they can meet the RPS requirements. Why would utilities want to buy your certificate of alternative energy produced? Because if they can’t prove to the government that they are producing a certain amount of power through green methods, they pay fines called ACS – Alternative Compliance Payments.
Maryland’s RPS is moderate – the state has an overall renewable energy generation goal of 20% by the year 2022, and a solar goal of 2% by 2020. The RPS was recently amended to accelerate the solar goal to this level from a previous timeline of 2022.
Interconnection is the process of hooking your PV system up to your local utility company’s power grid. There is an application process that must be carried out in order to ensure that all codes are met, and that the system will not interrupt the safety and reliability of the existing network of equipment. The type and size of system is assessed during this process to verify that everything will work properly together.
The protocol is also in place to facilitate net metering – a way of allowing consumers to get credit for extra power their unit may produce, which is essentially “sold” back to the utility company in exchange for energy bill credits.
There are seven major electric providers in the state of Maryland and each has their own individual interconnection application process and requirements. For example, PEPCO administers interconnection in a two-part process, and there is no application fee for systems under 10 kW (the typical residential system is 5-8 kW). Installers commonly work with the utility companies and assist you in the process of applying for interconnection and obtaining all of the required documentation.
There are several great benefits for solar owners in Maryland, at the federal, state, and county levels. As noted earlier, if you choose a PPA or lease option, you will not be eligible for most of the incentives mentioned here. You must own your system either outright or via loan financing in order to take advantage of the tax credits, exemptions, and SRECs.
Federal Tax Credit
By far the most financially rewarding aspect of buying a solar power system is the federal tax credit – this credit consists of 30% of the cost of your system, as long as specific requirements are met:
• You must own your PV system, whether through a cash purchase or by way of a loan. PPAs and leases may not claim this credit. • The installation must have taken place between January 1, 2006 and December 31, 2019. While the credit was previously slated to end in 2016, last-minute legislation allowed for the credit to be extended through 2022, at which point it will have decreased to 10%. After this point the credit will be eliminated, barring another extension. • The system must be there as a result of your own installation. You cannot buy a house and claim the solar tax credit on a system that is already installed.
The federal tax credit, known as the ITC (Investment Tax Credit) is calculated on a basis of the net price – in other words, you will receive 30% of the final purchase price after sales promotions offered by the installer and any other rebates. Should your tax liability be lower than the amount of your credit, you may carry over the remaining amount to the following tax year.
Consult your tax preparer in order to be sure you meet all necessary guidelines and file all of the required documents to ensure you get the maximum possible credit.
Maryland Solar Energy Tax Incentives
Maryland is no slouch when it comes to encouraging its citizens to install green energy generators. From a solar rebate to tax exemptions to local incentive programs, there are several very good reason to go green in the state.
State Sales Tax Exemption
You won’t pay any sales tax on your solar equipment or installation in this state. The potential savings are no chump change – with a 6% sales tax rate, you’ll avoid an additional $2,500 in costs on a $25,000 system. There’s nothing special you need to do in order to take advantage of this exemption, you simply won’t be charged the tax when paying your installer.
Property Tax Exemption
Each year researchers are learning more about just how much solar panels increase a home’s value. Now, a study by the Lawrence Berkeley National Laboratory shows that the green energy may add as much as $4 per watt to the selling price. On a 5 kW system that’s a hefty $20,000. In Maryland, you won’t have to worry about this increased property value causing you more pain at tax time – the state gives solar owners a pass on this portion of their property taxes.
Residential Clean Energy Grant Program
The Maryland Energy Administration offers a unique program for owners of solar systems (as well as solar water heating, wind turbines, and geothermal heating and cooling). Homeowners who install a PV system between 1 and 20 kW may apply for the grant of $1,000. There are a few requirements to receive the grant, including:
• Application must be made to the MEA within one year of installation.
• The location of the installation must be the owner’s primary residence.
• The property cannot be held in an irrevocable trust.
You will need to provide a number of documents including photographs, proof that the system is paid for, proof of proper permits and inspections, and proof of residency at the property on which the system is installed. In addition, if you do receive the grant, that $1,000 is tax exempt in the state. You can find out more on the website.
Maryland is rife with incentives offered by its individual counties. You will want to check with your specific county of residence to see what’s offered in your area. For example, in Anne Arundel County you can get up to a $2,500 property tax credit (or 50% of your equipment/installation cost, whichever is less) just for installing solar on your property. Other counties offer similar benefits, although not all Maryland counties have these programs.
Maryland Solar Power Performance Payments
SRECs are a significant motivating factor in many solar customers’ decisions to go ahead with the purchase. Solar Renewable Energy Credits go hand-in-hand with the RPS – the utility companies must meet the yearly renewable energy production requirements, and if they can’t do it on their own, they can buy certificates from homeowners with PV panels in order to avoid paying steep fines.
A typical residential solar setup can produce up to five to six credits worth of renewable energy per year. The amount of money you get for these credits is directly correlated with the amount of the ACP – Alternative Compliance Payment. The ACP is the set price each utility company must pay per MW of green energy they fail to produce. In 2016, the ACP in Maryland is $350. You will get less than this amount per unit, however, because the money changes hands a couple times throughout the process, and the utilities would rather just pay the ACP if they must pay homeowners close to the same amount for their SRECs anyway. In 2017 the ACP is slated to drop to $200, meaning the amount residents get for their certificates will drop significantly as well.
In most states system owners can choose to sell their SRECs to special brokers who handle these transactions for consumers. Maryland is a bit different in that solar energy producers must offer their SRECs directly to electric companies first. If the certificates don’t sell within 10 days the owner may do what they wish with them. The Maryland Public Service Commission provides a website that facilitates the process of selling SRECs to power companies.
Net metering is just a fancy way of expressing the ability of utility companies to take reverse measurements of your home’s energy, so to speak. Rather than just measuring the power your home consumes, net metering allows them to monitor the excess amount produced by your PV panels in order to give you credit for sending power back into the grid. This of course assumes you’re not using everything you’re producing – if this is the case, you’ll receive credits on your bill for times when you do need extra power above and beyond the amount your unit generates. This can be a distinct advantage during times of lower production, such as wintertime.
Net metering isn’t technically a revenue-producing aspect of your system, such as SRECs, but it still adds incredible value to your investment because it means you’re unlikely to end up having to pay anything at all for electricity throughout the year. Why not just refund you and charge you each time you over- or under-produce? Net metering prevents a constant – and annoying – exchange of very small amounts of money between you and the electric company. By allowing you to accrue energy credits, both parties win.
In Maryland, net metering is capped at 1,500 MW. Utility companies must offer customers non-discriminatory rates (which essentially means they can’t offer you credits that are way below market rate per kW). The excess power generation carries over for one year, and after that it is paid out to you at the going rate.
Alternative energy generators are similar to any other specialty item (such as a Jacuzzi or wine cellar) when it comes to selling a house. Some buyers will be attracted and some will consider it a liability. As solar’s popularity soars, the issue is being looked at in more and more detail, and there is now evidence that houses with a PV system actually sell a bit faster than their traditionally powered counterparts.
If you decide to put your home up for sale, you’ll need to be prepared to address potential buyers’ questions and concerns. These are likely to include:
• Is there maintenance and repair involved in owning solar panels? If so, what’s required, and is there an active warranty on the equipment? • How much of a problem will it be if the roof should need replacing? • How much savings can I expect to see on my energy bill? (Be prepared to provide past bills.)
If there’s one ace up your sleeve in the process of selling your Maryland home with solar, it’s the fact that the state has notoriously high energy costs, ranking in the top 5 most expensive states (the average bill runs $137/month) and with the system already in place the buyer must do nothing but sit back and enjoy the savings.
While producing an exact number is tricky because each family’s usage differs and production can fluctuate from month to month and year to year, all told, assuming the system produces all or most of the necessary power, your potential buyers may save upwards of $30,000 over the course of 20 years (on top of SREC sales).
One of the major advantages of having solar when you sell is that it typically bumps up the selling price. In the same studies mentioned above, out of Lawrence Berkeley National Laboratory, homes with these systems may bring in roughly $13,000 more than they would without it. And if you’ve lived in your house long enough to earn back some of your investment through SRECs, tax credits, net metering, and the federal ITC, a $13,000 increase in the selling price of your home could mean that you actually come out ahead on the cost of the unit.
Selling Your Home with a Solar Lease
While it may be a little more difficult to sell a home with a lease or PPA, it’s certainly not impossible. You will have to disclose the existence of the contract to potential buyers, and interested parties will have to apply to the installer in order to find out if they qualify to assume the payment. If they don’t, you might want to consider negotiating upwards on the price in order to make it easier for you to pay off your contract. Depending upon how long you’ve had the system you could be looking at $20,000 in costs.
When deciding on leasing, buying, or PPA, consider how long you plan to be in the home. If you think you may have to sell in less than seven years or so, you may want to forego installation altogether. If you’re in your “forever home” then buying or leasing are both viable options.
The first crucial step in your installation is to find a dependable contractor who can complete your installation on a reasonable timeline and within the determined budget. You also want someone who’s experienced in the type of installation you want. This means there are a number of questions you should ask potential installers:
• Does a member of the company have full NABCEP certification? The North American Board of Certified Energy Practitioners requires certified providers to have at least two years of experience in the industry, and pass a stringent examination. • Can the company provide references who are willing to talk to you? • Are the team members licensed, bonded, and insured in the state of MD? • How long have they been in the industry? • Is there an equipment warranty and what kinds of problems and events does it cover? • Does the installer offer financing options, and who is the actual lender? • Can they assist you in selling your SRECs? • What is the estimated timeline for installation, and when will construction begin? • Does the installer subcontract any of the work? • Will they provide you with operation and maintenance instructions?
Other things to consider – ask plenty of questions about insurance issues, net metering protocol in your locale, and any hidden costs associated with your installation, loan, lease, or PPA. Examine every detail of the contract and don’t hesitate to request clarification on any issues you don’t understand.
Maryland is a rising star in the world of renewable energy. The state’s legislators have taken a proactive role in ensuring that residents have multiple financial incentives to go green, as well as to encourage utility companies to become more earth friendly as well. The state has stronger policies than most in tax incentives, net metering, and the solar carve-out, and makes frequent amendments to its policies in order to keep up-to-date on renewable energy goals.
Due to Maryland’s high traditional electric power rates, going solar can offer residents significant savings over their current bills, as well as future costs as energy prices are rising there at an alarming rate. And with 182 companies working in the industry within the state, finding a reliable installer shouldn’t be a problem.
It all comes down to the numbers, so you’ll need to examine them in detail before making the decision about whether to install a solar power system in Maryland:
• Average cost of installing a PV system in Maryland: depending upon the size of the system and current promotions, equipment and installation can run between $15,000 and $30,000. • Average potential savings over the long run: total savings – between monthly power bill savings, plus the value of SRECs – can add up to more than $30,000. • Average ROI (Return on Investment) during the first year: 15-21% for a typical sized system. Thereafter, ROI is equivalent to your savings on power bills subtracted from loan or lease payments. • Average payback time for a solar system in Maryland: depending upon whether you pay cash or take out a loan, payback time is estimated between four and seven years on an average system. Provided your power bill savings are more than your lease or PPA payment, “payback” in these situations is immediate.
When you break it down into cold hard facts, solar is a win-win – take a typical $25,000 system. You will get one third of that back in federal tax credit money, bringing your out-of-pocket investment down to roughly $17,000. The Maryland Energy Administration grant brings that number to $16,000, and if you live in a county with a property tax credit, you’re potentially down to under $14,000.
Energy bill savings over the first year will be about $1,500, plus SRECs of another $1,000, making your initial investment right around $10,000. The money saved on electric bills over the next 20 years brings you to a cash-positive transaction of over $20,000.
With the ITC scheduled to end in 2019, there’s no better time than the present to have solar installed in Maryland. The many financial incentives along with the ongoing savings and SREC income (which are scheduled to continue into 2024) make it the perfect time to get on the green energy bandwagon.
Image credits: via FlickR and Pixabay under CC license