Michigan Solar – Everything You Need to Know

michigan-solar

Information about Solar Panels in Michigan

Are you thinking about going solar in Michigan? Are you unsure about where to start? Don’t worry, we’ve got you covered! We’ve compiled all the info you need to decide whether Michigan Solar is right for you.

Below you’ll find savings estimates as well as information on relevant solar policies and incentives. Once you’re through with this article, you’ll have everything you need to make an informed decision on whether going solar in the Great Lakes State is right for you.

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#1 Are Solar Panels Worth it in Michigan?

C
Overall Grade
12 years Avg. Payback Time (For Cash Purchase)
8.1 % Estimate IRR (Return on your investment on cash purchase over 25 years)
$21,925 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.

While Michigan lacks pretty much all the incentives that make going solar such an attractive investment in other states, its high electricity prices and very high annual increase in electricity rates mean you can still save quite a bit going solar, balancing out our grade for Michigan to a solid C.

#2 Options for Buying Solar Panels in Michigan

While Michigan allows third-party ownership like leases and PPAs, there are few, if any, companies actually offering it. This leaves residents with the choice of either cash or loan – which are not bad choices anyway.

Cash Upfront

Buying solar in cash upfront has a lot of benefits. It’s a simple transaction, you’re eligible to receive the 30% federal tax credit, you save the most money possible, and you add value to your home.

Balancing out all these benefits is the fact that you must foot the entire bill at the beginning of your project, which can be quite expensive. In Michigan, solar installations typically run around $3.71 per watt, so an average-sized 5kW installation costs about $18,550. After applying the 30% federal tax credit, that total cost drops to $12,985.

Obviously, an investment needs to be quite good to warrant spending so much money, so let’s find out how much solar can save the average Michigan resident over 25 years (the estimated lifespan of solar installations):

First, we need to account for Michigan utilities’ average annual electricity rate increase of 4.3%, as well as a solar panel’s typical 0.08% drop in production each year due to wear and tear. Next, we need to compare the cost of our installation ($12,985) to the cost of continuing to purchase all your electricity from the utility for the next 25 years. Taking all this into account, we find that you can save $21,925 after paying off your installation, with a payback of 12 years.

Bottom Line: $26k in net savings on a $13k investment? That seems like a pretty good return to us!

Leases

The state of Michigan allows companies to offer leases or PPAs for solar, but as yet there are few if any companies actually offering this financing. Big installers like SolarCity and Sunrun have yet to enter Michigan, likely due to the lack of incentives available that drop the installation cost.

Bottom Line: Not having leases as an option isn’t such bad news, as cash or loan purchases make more financial sense anyway. With cash or loans, you save more, add value to your home, and are eligible for the 30% federal tax credit.

More: Solar Leases

Loans

If you don’t have the funds to pay in cash, loans offer an alternative way to go solar without that huge initial investment. You’ll be paying interest on the loan, so you won’t save as much, but you’ll install your entire system with little to no money down!

Taking out a 15-year loan with 5% interest to finance the 5kW installation above adds an extra $7,855 in interest, making your total investment $20,840 after incentives. This drops your savings to a still-respectable $14,070.

Your actual savings will vary depending on the length and interest rate of your loan, so be sure to shop around before choosing. Banks, credit unions, and solar loan companies all offer solar loans these days, so call a few to find the best deal. Solar installers oftentimes also have preferred lenders, so be sure to ask the installers you’re talking with as well.

Michigan Saves, an organization initially set up by the Michigan Public Service Commission to encourage adoption of energy efficiency and renewables, has partnered with lenders to offer unsecured loans for solar installations, other renewable projects, and energy efficiency improvements like weather stripping, insulation, roofs, water heaters, and refrigerators. The loans last 1 to 10 years depending on the total loan amount. Interest rates are typically 4.99%, but range from 4.25% to 7%. The max loan amount is $30,000. Depending on what interest rate you qualify for, this could be a great option!

Bottom Line: If you don’t have the cash to pay upfront, loans are your next best option!

More: Solar Loans

#3 Michigan Solar Policy Information

Beyond the Renewable Portfolio Standard, Michigan hasn’t adopted many policies to encourage the growth of solar in the state.

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Renewable Portfolio Standard

As part of the same bill that set up net metering in 2008 (more on that below), Michigan adopted its first Renewable Portfolio Standard (RPS), which is simply a mandate that a certain percentage of electricity must be produced by renewable sources by a certain date. With RPS mandates, utilities have little reason to adopt solar or encourage their customers to install it.

29 states have adopted RPS goals so far. Hawaii’s goal of 100% renewable by 2045 is by far the most aggressive, though New York and California have each mandated 50% – not small considering their huge populations.

Michigan mandated that all utilities – including investor-owned utilities, electric cooperatives, and municipal utilities – must generate 10% of all their electricity from renewable sources by 2015. In 2016, the state government set a new requirement of 15% by 2021. Solar, biomass, solar thermal, geothermal, hydroelectric, and a host of other renewable sources are eligible.

The two largest utilities in the state – DTE Electric and Consumers Energy – had additional requirements beyond the 10% by 2015: 600MW and 500 MW, respectively.

Michigan’s RPS is right in the middle-of-the-pack. 15% is not a huge amount, but it’s nothing to laugh at either. It’s great that the state stepped up to the plate and created an RPS and it will be interesting to see if a new goal is adopted once 2021 rolls around.

More: Renewable Portfolio Standard (RPS)

Electricity Prices

At $0.144 per kWh, Michigan’s average utility rate is higher than the national average of $0.126 per kWh.

Why does this matter? Well, the more expensive your utility’s electricity prices are, the more money you can save by installing solar and avoiding purchasing that expensive electricity.

Even with the very few incentives available to Michigan homeowners, you can still save quite a bit of money simply because electricity prices are so high.

When we analyze the EIA’s data on historical electricity prices, we find that electricity prices in Michigan haven risen an average of 4.3% each year over the last 15 years – almost 2 percentage points higher than the national average of 2.6%!

Knowing this, you can see how great solar really is. Not only does it save you money simply because it produces cheaper electricity, but you also avoid that ever-rising electricity cost!

Michigan’s high electricity prices, coupled with their very high average utility increase, means big savings for residents – even without incentives.

Net Metering

The state officially began allowing net metering in 2009, following the passing of the Clean, Renewable, and Efficient Energy Act of 2008 (PA 295).

Under these regulations, all investor-owned utilities and any electric cooperatives that have decided to follow the regulations of the Michigan Public Service Commission must offer net metering. Municipal utilities and electric cooperatives that set their own electricity rates (which includes Cherryland, Alger Delta, and Tri-County) are not required to offer net metering.

Solar installations under 20kW (which include the vast majority of residential installations) are eligible for “true” net metering, where any excess electricity is carried forward month-to-month indefinitely. This means that, if your solar installation produces 100kWh more than you use in a single month, you’ll have an extra 100kWh credited to your account the next month.

If you’re on a time-of-use rate, you’re credited at the TOU rate. If you put electricity into the grid during peak times when electricity is more expensive, you are credited for that more-expensive electricity.

Net metering applications cannot exceed $25 and the total fees for net metering and interconnection cannot total more than $100. Utilities must supply the net meter at no cost to the customer.

More: Net Metering

Interconnection Rules

Many states also standardize the process to gain approval from the utility to connect your solar installation to their grid, known as the interconnection process. Without standardized interconnection processes, each utility can charge different fees, have varying processing times (and sometimes very long processing times!), as well as different eligibility requirements.

By adopting standards, the state ensures the process is quick and simple for all homeowners. Michigan adopted detailed interconnection standards in 2008. The standards are broken down into 5 categories based on installation size, with installations under 20kW falling under Category 1.

In Category 1, utilities cannot require solar homeowners to purchase additional liability insurance and application fees are limited to $75 (as mentioned in the Net Metering section above). For Category 1 customers, utilities are required to offer simplified interconnection agreements and applications.

To make the process even easier, utilities must also give a point of contact for each application for times when issues or questions arise.

The state has done a great job of ensuring an easy interconnection process, but you really don’t even have to worry about it anyways, as your installer will most likely take care of interconnection for you!

Solar Access Rights and Homeowners Associations

Michigan currently has no solar access laws. This means that homeowners are left to the whims of their solar-hating HOAs and any arboreal neighbors who just cannot trim their trees.

There are two parts to any robust solar access protection law:

First, laws must protect homeowners’ basic right to go solar. Historically, HOAs, local governments, and other organizations have tried to block solar in their communities because they don’t like the aesthetics or believe solar negatively affects home values (more on this in the final section). To prevent this, states pass laws banning any organization from blocking solar.

Second, states must protect solar homeowners’ access to sunlight. Let’s say you just spent $20k on a solar installation, then your neighbors plant huge trees or a developer builds a building nearby that blocks the sun. What do you do?

Many states allow solar homeowners to create easements on the airspace just south of the solar panels. The easements are a voluntary, but legally binding agreement between the solar homeowner and his/her neighbors. California has the most robust solar access laws in the country and expressively forbids neighbors from planting trees in the way of a neighbor’s pre-existing solar installation.

Unfortunately, Michigan has yet to adopt any of these laws, so your best course of action is to communicate frequently and remain friendly with your neighbors and HOA, telling them your plans, how they will affect the neighborhood, and what you require.

#4 Financial Incentives, Rebates, and Tax Credits

This is where Michigan really drops the ball. Other than the federal tax credit, Michigan homeowners who go solar aren’t eligible for any tax credits, exemptions, or rebates. It’s somewhat of a sad affair.

michigan-lake

Federal Tax Credit

All homeowners who purchase and install their own solar installation in the United States are eligible for the federal solar tax credit. This tax credit lowers your taxes by an amount equal to 30% of the total cost of your installation. So, if you spent $15k on your installation, your taxes drop by $4,500. This drops your total investment to go solar down to just $11,500.

You (the homeowner, not your installer) will apply for the tax credit during the next tax season, and it can be split up over several years if your tax burden isn’t high enough to claim the entire amount in a single year.

More: Solar Federal Tax Credit

Michigan Tax Credits

Michigan offers no tax credits for solar installations.

Utility Based Incentives

There are currently no utilities offering incentives for solar installations in Michigan.

Solar Property Tax Exemption

Michigan offers no property tax exemptions for solar installations.

Wanting to take all available steps to encourage local residents to install solar, 38 states currently offer property tax exemptions for solar installations. Property tax exemptions aren’t going to make you rich, but they can save you a couple hundred bucks in your first year alone. Sorry, Michigan homeowners.

Sales Tax Exemption

Michigan also offers no sales tax exemption for solar installations.

29 states currently offer sales tax exemptions for solar equipment and installations. We typically don’t think about sales tax adding a huge cost, but when your purchase is $18k, a 4% sales tax adds $720! What an easy way to further encourage solar in the state! Michigan, come on!

General Increase in Home Value

Installing solar not only saves you money on your electricity bills but also adds value to your home as long as you own the installation. In 2015, the Lawrence Berkeley National Laboratory studied home values among 6 different states (but not in Michigan) and found that, if you purchase your installation in cash or through a loan, new homeowners are willing to pay a premium for your home on the average of $4 per watt.

The amount varies based on the age of the installation, with new systems garnering more value than older systems, but this means that with a 5kW installation, you could be adding over $20k in 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 Detroit Solar

If you’re thinking about going solar in Detroit, you won’t run in to too many surprises. DTE Energy, the local utility company servicing Detroit, must follow all state net metering and interconnection laws, just like any other utility operating in the state. They don’t offer any additional financial incentives for going solar, but you can obviously still take advantage of the federal tax credit.

What is different for Detroit is DTE Energy’s electricity rates. At $0.10 per kWh to $0.114 per kWh depending on your energy usage (PDF p.2), DTE’s rates are much lower than the state average. Obviously, this affects your total savings going solar, but it is only part of the story.

DTE also charges residential customers a monthly $6 service charge. This means that, even if your solar installation produces 100% of your electricity use, you’ll still pay that $6 fee each month to cover DTE’s costs to maintain their wires, poles, and other equipment.

Six dollars a month isn’t a huge amount, but it can cut into your solar savings, and even tip the scales against solar if your savings are quite small. With more convoluted utility rate structures like this, the best thing you can do for an accurate estimate of your potential solar savings is to talk to a few local installers who are well-versed in DTE’s rates and who can create a detailed savings estimate.

What to Do Next?michigan-sleepin-bear-dunes

So should you go solar in Michigan? Absolutely! You can save thousands of dollars with a cash or loan purchase. Be sure to take advantage of the 30% federal tax credit and reach out to several installers to secure the best deal.

Image Credit under CC License via Flickr - 1, 2, 3, 4

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