Going Solar in New Jersey
Information about Solar Panels in New Jersey
New Jersey is one of the hottest states for solar.
Despite the fact that New Jersey is hardly the sunniest state in the nation – with an average of just 94 clear days per year – it still boasts over 528 solar firms, installing a total 181 megawatts of the alternative power source in 2015 alone.
With ever-dropping prices, the solar trend is only expected to continue its upward path. The decision to install solar in your own New Jersey home raises a lot of questions and we will address them here. We have all the information you need to go solar, including savings estimates and info on available incentives and relevant policies.
#1 Are Solar Panels in New Jersey 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 New Jersey
With the average solar installation costing about $15k, choosing solar for your home is a serious financial decision. Thankfully, you have a few different options when it comes to paying for your PV system in NJ.
This is by far the most attractive payment option from a savings standpoint. You won’t be paying interest and you don’t have to worry about monthly payments for a lease or loan. You will truly own your own power, free and clear. Virtually all installers accept cash payments as an option, so if you’ve got the green on-hand it’s definitely a strong contender to consider.
In New Jersey, an average-sized 5kW installation costs about $16,550 before incentives. After applying the 30% federal tax credit, that investment drops to $11,585. Over the life of this installation (around 25 years), you can expect to save about $20,683 after paying off your initial investment. This gives you an internal rate of return of 9% with a payback time of 11 years.
Cash is a superior option whenever possible simply because it takes the burden off of you as far as worrying about making future lease or loan payments, removes any interest payments, and allows you total freedom should you decide to sell your home. You won’t have to worry about transferring lease contracts or continuing payments on a loan for an item you don’t even own anymore.
Still, there are of course drawbacks as well. But first, let’s start with the positives:
Pros of a cash solar purchase:
- You’ll make your investment back in a short amount of time.
- You won’t pay interest on loan payments.
- You’ll own your equipment outright.
- You can take advantage of all available financial incentives such as tax credits and SREC payments.
- Selling your home will be simpler than with a leased or PPA system.
Cons of a cash solar purchase:
- The big one: You’ve got to foot that entire bill upfront. At $16k, that’s not an easy decision for most people.
- You are responsible for all maintenance and repairs.
Leasing is available in many states and thankfully NJ is one of those states, making it easier for homeowners to take advantage of alternative energy sources and reducing or eliminating upfront costs. How does a solar lease work? A developer installs the system, and the homeowner makes small monthly payments to the company to pay off the cost of the equipment.
The arrangement is typically set up over a period of 15-20 years. Sunrun, SolarCity and NJR (New Jersey Resources) all offer leases in New Jersey. Credit score requirements can be strict, depending upon the company, and qualifying for a solar lease may actually be more difficult than qualifying for a loan.
NJR, for example, requires a minimum 625 credit score to qualify for the terms of the lease. You may also need a down payment – this will vary from developer to developer and also depends upon their current promotions. While leasing can make solar energy accessible to those without a lot of home equity or large amounts of cash to pay upfront, it may not be the right choice for everyone.
Pros of solar leasing:
- Savings are immediate, starting with the first electric bill following installation.
- Maintenance is typically taken care of by the developer/owner of the system, which means you won’t have to deal with repair costs and other maintenance issues (maintenance terms vary between companies, with some covering all or part of the expenses, or allowing the homeowner to make an upfront payment at the beginning to cover these costs – make sure you know who handles maintenance before signing a lease).
- Steep installation costs are defrayed because you make payments over a long period of time rather than up front or in the form of a down payment on a loan.
Cons of solar leasing:
- Financial incentives related to installing alternative power usually go to the owner of the system, not to the homeowner. This means you’re paying full price for your installation, when you could be getting a 30% discount with the federal tax credit.
- Lease agreements often include a price escalator, which means your monthly bill will increase yearly, typically around 1 to 3%. Traditional power rates also increase on an annual basis, around 2.6% on average in the US, so it’s important to keep an eye on changes in your area.
- If you decide to sell your home, potential buyers will have to meet credit requirements in order to assume the solar lease, or else you will have to buy out the remainder of the contract, which can be expensive depending on how long you have left in the agreement.
- Lease contracts often require homeowners to agree not to make alterations like adding a chimney, because these alterations may affect the system’s operation (no shading the panels!).
More: Solar Leases
Power Purchase Agreements
A PPA is similar to leasing, except that instead of a fixed lease payment you only pay for the power your system actually produces. You contract with a solar finance provider to buy, install, and maintain your system and then you purchase your energy at per-kilowatt rates that are set to compete with local utility company rates.
If you’re considering a PPA arrangement, you’ll want to keep track of your current electricity rates so you can compare them with the proposed rates from the financing company. Because you will be agreeing to pay a specific rate, this may or may not be a lucrative long-term choice.
Try to get projected rates for future years from both the contractor and the utility company so you can weigh each option carefully. Similar to a solar lease, there are certain requirements that must be met, which typically includes a certain level of credit score. Once you choose a company you will need to go through their qualification process to find out if you meet their requirements.
PPAs can be a viable choice for those who don’t wish to make a big upfront investment, although you should take into consideration whether or not you will be selling your home within a few years because a non-ownership arrangement for your solar energy system can have a significant impact on the selling process (more about that later).
There are benefits and drawbacks to this option, just as with the other options for financing your system.
Pros of PPAs
- Low or no upfront investment required.
- The installer takes care of maintenance and repairs.
- If local electricity rates go up, you may end up saving significant amounts of money on your energy bill due to your locked-in per kWh rate.
Cons of PPAs
- You won’t own your system, so selling your home can be a bit more complex.
- If local electric rates go down, you will not benefit from this drop – you are locked in at a fixed rate (although it’s notable that this almost never happens, power rates typically only go in the upward direction, on an annual basis).
- You will not be able to take advantage of local or federal incentives for installing a solar energy system – your installer/owner will reap these rewards.
- You may pay more for your system if you decide to purchase it later on than you would have if you had bought it outright to begin with.
Loans offer the best of both worlds. As the owner of the installation, you can save more money than with a lease or PPA agreement, but you don’t have to foot the entire bill like with a cash purchase.
These days, you can obtain financing from many different sources: private lending institutions, solar contractors, and even your utility. PSE&G (Public Service Electric and Gas Company) offers their customers 10 year solar loans with 11.179% interest (not that great…).
Of course, the interest rate and term length greatly affects your total savings, so its worth the time to compare interest rates available to you based upon your credit score and the equity you have in your home (in the case of a HELOC). Let’s take a look at a few examples:
Let’s say you take out a 15 year loan with 5% interest to pay for the same 5kW installation as in the ‘Cash Upfront’ section above. This adds an additional $7,008 in interest to your total investment, dropping your savings to $13,675 with a payback of 16 years – still pretty decent when compared to loan savings in other states.
If you take out a loan with PSE&G, you’ll add an additional $11,009 in interest, dropping your savings to just $9,674 – much less than the loan example above!
There can be factors to consider beyond just interest and loan length. One of the major benefits of the Solar Loan program is that it allows borrowers to pay back their debt through SRECs (Solar Renewable Energy Credits) if they so choose. The credits (which will be covered in further depth below) can easily amount to enough to cover loan payments over the course of a year.
This just illustrates the importance of shopping around to find the best loan you can!
Pros of solar loans:
- Allow you to install solar with little to no money upfront
- Facilitate immediate payback, since most loan payments are set below the rate of savings you’ll achieve on your first electric bill
- Allow you to take advantage of tax breaks and other incentives for further financial gain
- Payments typically lower than leasing or PPA
Cons of solar loans:
- Higher overall investment when compared to paying for your system in cash
- You are responsible for maintenance and repairs since you technically own the system
- May require a down payment and/or collateral
- If you sell your home during the term of the loan, you will still be responsible for the remaining payments (except in the case of a PSE&G loan – the buyer is typically permitted to take over the loan)
- Take longer to process than lease or PPA applications
More: Solar Loans
In 2012, the state of New Jersey began allowing local governments to offer PACE (Property Assessed Clean Energy) financing to fund renewable energy projects.
PACE financing works very similarly to a loan, though there are a few key differences. Typically, a local government will work with a 3rd party organization to offer PACE financing. The government funds the projects and the organization runs the program. Once projects are completed, the property owners then pay the ‘loan’ back through special assessments on their property taxes.
The non-profit New Jersey PACE as well as AllianceNRG both offer PACE financing in the state, but unfortunately only commercial projects are available for PACE financing in New Jersey. Single family homes are not eligible (though multi-family properties are).
PACE is unique in that the debt is linked to the property – not the individual – so if you move, the new property owner takes on the payments without any complicated processes. Also, as the financing is offered through local governments and facilitated by non-profits – as opposed to for-profit businesses – interest rates and terms can be quite low.
Hopefully, as PACE becomes more common, it will become available for residential solar as well as commercial. Until then, you still have many options to finance your installation!
#3 New Jersey Solar Policy Information
The state of New Jersey has adopted some excellent policies to encourage solar in the state.
Renewable Portfolio Standard
As of 2017, 29 states have enacted RPSs (Renewable Portfolio Standards). This mandate requires that utility companies produce a specific amount of power from renewable sources, such as wind or solar, by a certain date. To meet these goals, utilities can build renewable power plants, purchase electricity from renewable sources, and (in some states) encourage their customers to install renewable energy systems and then purchase their Renewable Energy Credits (or RECs, not to be confused with the RPS. More on RECs below).
New Jersey’s RPS is fairly aggressive compared to other states, with a goal of 24.5% renewable energy generation by the year 2020, and a solar-specific goal of 4.1% by 2027. Why does this matter to you? Well, to meet these goals, utilities will purchase all the renewable energy credits your system produces, allowing you to save even more money by going solar!
Electricity rates play a major role in your total savings going solar. If your utility rates are high, you can save a lot of money by installing your own solar system and producing your own electricity. If your rates are low, it’ll be harder to recoup your investment.
In New Jersey, the average electricity cost is $0.16 per kWh, about 20% higher than the national average. Analyzing EIA data, we also see that New Jersey utilities raise rates about 3% each year on average, about 13% faster than the national average. This means this already-high electricity cost is also rising at a faster rate than most states.
All of this allows you to save big by ditching the utility and going solar.
Advances in alternative energy technology have resulted in the ability for utility companies to not only send power one way to your home, but for power to be sent in reverse – from your solar panels to the electric company. How does this benefit you as the homeowner?
New Jersey net metering programs require power companies to monitor how much energy your system is generating, and if you don’t use up everything you produce, it goes into the electricity grid for use elsewhere and you will receive a credit on your bill for this unused power. In New Jersey, utilities are required to provide retail rate net metering. This means that if you pay the utility $0.15 per kWh, they’ll also pay you (via bill credits) $0.15 for each kWh you put into the grid.
This gives you an incredible advantage when it comes to times of the year when your system is not producing as much power as your home uses. You can use all your credits in later months, when your installation isn’t producing as much. While net metering is not designed to be a revenue-producing activity for your solar energy system, it is still a significant path to savings over the long haul since you likely won’t end up having to put any money at all into your overall electric bill throughout the year.
The net metering process prevents the utility company – and you – from having to nickel and dime each other, sending small amounts of money back and forth throughout the year as your power production and electricity usage ebb and flow.
More: Net Metering
Each solar installation that is connected to the grid must go through the interconnection process, which is basically a fancy way of saying that you need to file an application with your local utility company to connect to their grid.
Thankfully, the state of New Jersey has standardized the interconnection process, creating rules that all utilities must follow. Utility companies from charging residential customers application fees or connection fees for hooking up to the grid. Utilities also are banned from requiring additional liability insurance for solar installations or additional safety disconnects – both of which increase the cost of going solar.
Why is the interconnection review process necessary? This protocol is in place because power generation has an effect on the reliability and safety of the entire grid. The size and type of the system, the customer load, and the specific traits of the local grid are all taken into account during this review process in order to ensure that the proposed project meets all applicable requirements.
Interconnection also serves as a gateway to net metering, which ensures that customers receive credit for power produced beyond their consumption.
Solar Access Laws
Back in the late 1970s, as renewable energy had its first boom in the United States, many states – including New Jersey – passed laws designed to protect solar installations’ access to sunlight.
In New Jersey, solar homeowners today can still take advantage of these laws by creating a property easement for the airspace directly in front of their panels. With an easement in place, neighbors or other developers can’t build structures or plant trees or shrubs that would shade the panels.
This allows you to sit back and simply enjoy your clean energy without worrying about what could happen in the future.
#4 Financial Incentives, Rebates, and Tax Credits
There are multiple financial incentives available to homeowners who install solar energy systems in New Jersey. These benefits range from tax credits and exemptions to offsets on energy needed above and beyond what the system produces.
Federal Tax Credit
The federal government provides an income tax credit worth 30% of the cost of your solar system. So if you spent $16k on your system, you’ll avoid paying $4,800 in income tax the following year. While the tax is non-refundable (you can’t get paid out if your total taxes are less than zero), you can break the credit down over several years to benefit from the full amount.
You must own the system, either via a cash purchase or loan financing – solar leases and PPAs are not eligible. It must be an original installation – i.e. you cannot claim the credit if you purchase a home with an existing system.
The full credit will expire in 2019, at which point it drops to 26% the following year, then 22% the year after that, at which point it drops off permanently.
There may additional stipulations depending upon your specific personal tax situation, so consult a tax professional to be sure you’re getting the full amount for which you are eligible.
More: Solar Federal Tax Credit
Renewable Energy Credits
Solar Renewable Energy Credits, otherwise known as SRECs, have been one of the major players in motivating New Jersey residents to install solar energy systems. SRECs are directly linked to the state RPS (Renewable Portfolio Standard). Once electricity is produced, it’s impossible to tell where it came from. To solve this problem, every megawatt-hour of electricity that a renewable system produces is given an SREC and utility companies must track their SRECs to provide the state with proof of all the electricity they’ve produced (or acquired) via renewable sources.
Basically, SRECs are certificates that allow the utility company to claim your renewable energy generation as their own.
How does the SREC program benefit solar power system owners? If utilties don’t meet RPS goals, the state actually fines them. The fine for not meeting the 2017 solar goals is $315 per MWh (or $0.31 per kWh). This amount decreases each year, reaching $239 in 2028. What this means is that for every MWh of their annual requirement under the solar RPS that the utility company cannot meet, they must pay the ACP amount.
It’s typically better for utilities to buy your SRECs than to pay these fines. Homeowners stand to gain considerably from selling their SRECs. The going rate in New Jersey in 2017 hovers around $200 to $250 per credit (1 MWh = 1 SREC). With an average-sized 5kW installation producing about 6,200 kWh annually in New Jersey, the average household will produce about six credits per year, for a total of around $1200 or more.
Property Tax Exemption
Any home improvement has the potential to add to your property tax bill due to the added value on your home. Not true with solar power in NJ, however, as the state offers a property tax exemption for 100% of the value of the renewable energy system.
Considering New Jersey’s average property tax of 2.19% – about twice as high as the national average – this could mean substantial savings over the life of your installation.
Sales Tax Exemption
New Jersey offers a 100% sales tax exemption on all equipment related to a solar energy installation. The exemption is not automatic however, which means you will have to fill out and submit form ST-4 (Exempt Use Certificate) to your installer or equipment vendor.
With equipment accounting for about 40% of the total installation cost (p.16), and considering that sales tax in NJ is a hefty 7%, that means you’ll save about $450 just from this exemption! Pretty sweet!
General Increase in Home Value
As with any non-essential home upgrade, such as a pool or hot tub, solar panels can be a boon or a bust when it comes time to sell your home.
While some real estate agents find that buyers can be hesitant to jump in with both feet on a house that has an existing solar power installation In the end though, solar homes do sell for more than similar non-solar homes.
A 2015 study out of the Lawrence Berkeley National Laboratory in California demonstrated a pronounced difference in the selling prices of solar homes versus non-solar, across eight states. The study analyzed 20,000 home sales and found that across most of these states, homeowners payed on average of $4/watt for homes with solar. This means your 5kW installation could actually add an additional $20k in value to your home!
If you’ve entered into a solar lease or PPA and want to sell your home, it gets a little more complicated. Since you’re locked into a 20-year contract for your equipment, you’ll have to find a buyer who is willing to take over your lease payments. If this doesn’t sound doable, you could always buy out your lease, but this can be extremely pricey depending on how old your installation is.
Another study from the Lawrence Berkeley National Lab found that leased solar adds no additional value to your home, so if you’re planning on moving in the next few years, a solar lease or PPA probably isn’t the best decision.
In the end, solar panels aren’t likely to deter a buyer who has their heart set on a specific home in a specific location, and it may work effectively to entice those with an environmentally (and wallet) conscious mindset.
If you’d like to dig even more on local incentives and rebates, check out the DSIRE database.
#5 Going Solar in Newark
Thinking about going solar in the Newark area? Great! There’s not too much additional information you need to know. You’re eligible for the federal tax credit as well as the SREC program. Since you’re most likely a customer of PSE&G, you can take advantage of their solar loan program.
If there are any additional local city or county requirements for your solar installation (special building permits, for example), your installer will be aware and take the necessary steps.
With PSE&G’s electricity rates around $0.04 per kWh higher than the state average, Newark homeowners actually stand to save quite a bit more than in the savings estimates above, so get out there and talk to a few installers!
What to Do Next?
New Jersey is, surprisingly perhaps, one of the best places in the United States to go solar. Not only does the Garden State rank in the top ten for cumulative installed solar capacity, they also rank number five for number of solar-related jobs, and number six for solar capacity per capita (according to the Solar Energy Industries Association).
Between the tax exemptions, SREC program, and various initiatives like PSE&G’s Solar 4 All, which is making use of landfills and brownfields to create extensive renewable energy farms that will ultimately power 20,000 NJ homes, the state is making huge strides in the area of earth-friendly energy efforts.
Before moving forward, always reach out to a few installers and get several customized estimates for your home.
As you make your decision on whether to install solar in your New Jersey home, do all the research you can and make sure you read the fine print on all contracts and documents. This earth-friendly power source is only growing in popularity, so it’s a great time to get in on the action and reap not only the financial advantages, but also enjoy making the world a cleaner, better place for everyone.