Going Solar in New Jersey
New Jersey solar power is in its highest growth year in the U.S. to date (according to the U.S. Solar Market Insight Report 2015 by GTM Research).
Up to one million American homes are expected to be utilizing solar energy by the end of 2016, and New Jersey is no slouch in contributing to this number. 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 and the waning popularity of natural gas (solar exceeded the rate of gas in new electric generation installations for the first time ever in 2015), this 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. In this overview we will look at the many factors that may impact your decision, such as:
- Payment options for a solar system in New Jersey
- Federal, state, and private incentive programs such as tax breaks and selling your excess energy in New Jersey
- Factors involved in selling a home with solar power in New Jersey
- Keys to finding a reputable solar installer in New Jersey
- Potential energy savings resulting from installing solar in New Jersey
Payment Options for Solar in New Jersey
Photovoltaic cell systems can cost between $12,000 and $25,000, which means choosing solar for your home also brings financing decisions that need to be made. You have a few different options when it comes to paying for your PV system in NJ.
Solar Leases in New Jersey
Leasing is available in over half of states, and 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 scheduled payments to the company. The arrangement is typically set up over a period of 15-20 years. Sunrun and NJR (New Jersey Resources) both offer lease options (NJR has dubbed their version The Sunlight Advantage). Qualifying for a solar lease may actually be more difficult than qualifying for a loan. Credit score requirements can be strict, depending upon the company. 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. It’s best to evaluate both the benefits and drawbacks to determine whether leasing is the right choice for you and your home. 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. • It is possible to end up on the cash-positive side, if your system produces more energy than you need and your lease payments are lower than the amount you save on your power bill.
Cons of solar leasing:
• Your home could possibly use more power than the system produces, causing your total expenses between the electricity bill and lease payment to be higher than your savings. • You may be responsible for some maintenance costs – make sure you understand all of the terms before signing. • Financial incentives related to installing alternative power usually go to the developer/owner of the system, not to the homeowner (although Sunrun claims to allow customers to retain extra energy credits). • Lease agreements often include a price escalation clause, which allows the company to raise your per kWh rate by 1-3% per year. Traditional power rates may also go up on an annual basis, 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.
New Jersey Power Purchase Agreements (PPAs)
A PPA is similar to leasing, except that instead of a fixed lease payment you only pay for the power you actually use. 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. Many New Jersey solar PPA providers feature an online tool that lets you apply right over the internet. 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. • You can typically choose to buy your system later on if you wish, usually after about five years or so.
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.
Purchasing Your System with Cash
This is by far the most attractive payment option from a savings standpoint. You won’t be paying interest and you won’t have to worry about monthly payments for a lease or to your lienholder. 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. The average cost of a 6kW solar panel installation in New Jersey is between $12,000 and $16,000. This is one of the fastest states in terms of payback time – most solar customers can expect to earn back their investment within seven years, often faster if paying all cash because there are no loan interest charges. 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 the cost of interest, 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 benefits and drawbacks. 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:
• Your savings could potentially earn a higher interest rate in another investment than the interest rate you’d pay for a solar loan. • You are responsible for all maintenance and repairs.
Solar Loans in New Jersey
New Jersey is unique in that the solar loan program is offered through PSE&G (Public Service Electric and Gas Company) rather than through the state. You can also obtain financing from a private lending institution or a solar contractor; it’s 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).
The PSE&G Solar Loan Program
For those in the PSE&G service area, the energy company’s loan program can be a useful tool in financing a solar power installation. While this loan doesn’t cover the entire cost of the project, it is a good option for those who don’t have enough cash to pay for the whole cost upfront, or don’t have enough equity to finance their system entirely through a HELOC. The loan program exists because of PSE&G’s commitment to provide financing for 97.5kW of solar to New Jersey residents and businesses over a three-year period, through their Solar Loan III program (the third incarnation of the program, which was instituted in 2008). It typically provides up to 40-60% of the project costs, and comes with specific requirements in order to qualify. Applicants must:
• Be PSE&G customers in good standing • Consent to a credit check • Have a FICO score of at least 680 • Have not filed bankruptcy during the last seven years
One of the major benefits of the Solar Loan III 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. There is a catch, however. Due to the limited capacity of the loan program, there is no guarantee that an applicant will be accepted. There is another element to the process as well – in order to define the value of the SREC credits to be used for repayment, PSE&G utilizes a competitive solicitation process. This means that the developer/installer helps the applicant submit a proposal involving a bid for the terms of the loan, including SREC floor prices which remain in effect for the term of the loan, unless the borrower chooses to repay early via cash. This floor price plays into whether a loan request is accepted. In the event that there are multiple applications with the same SREC bid price, a time-stamp determines priority. In addition, there are other fees associated with the loan, should it be accepted:
• Application fee: $20/kW ($7500 maximum and non-refundable upon the receipt of a conditional bid award) • Administration fee: $85/kW (deducted from loan amount at closing) • SREC processing fee: $120/kW (deducted from loan amount at closing) Other stipulations that apply to this loan: • 10-year loan terms only • Certification of home ownership required • Set interest rate of 11.179%
PSE&G provides a loan estimate calculator on their solar loan website for purposes of determining an appropriate bid. Applicants must enlist the assistance of their installer to construct a bid, as there is required information that only the installer can provide. Unlike the first two versions of the loan program, applications cannot be submitted at any time. PSE&G only holds competitive solicitations about every other month, during which a portion of the total capacity is available to applicants. Once an applicant’s bid is accepted they will need to have either cash to cover the remaining portion of the installation, or have a loan in place, either through the developer or a private lender. The PSE&G loan is not paid out until construction on the project is completed and all inspections have been done. A solar loan is a great option for those who qualify because they allow the homeowner to enjoy the benefits of ownership, such as tax credits and exemptions, while spreading the cost of the system over a number of years. Still, as with all financing options, there are pluses and minuses. 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 • System paid off in 7-15 years rather than the typical 20-year contract of a lease 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
NJ Solar Incentives and Policies That Reduce the Cost of Going Solar
While New Jersey lacks a personal tax deduction for installing solar panels, it does offer a number of incentives, which when combined with federal incentives has contributed to the state’s number 10 ranking in the U.S. for installations in 2015.
Why NJ Is a Great State for Solar
As of 2015, 29 states had enacted a RPS (Renewables Portfolio Standard). This mandate requires that utility companies produce a specific amount of power from renewable sources, such as wind or solar. The easiest way for the utilities to meet these requirements is by making alternative power sources attractive to homeowners through incentive programs. The power company has no vested interest in you, the consumer, producing your own power – that means they’ll be making less money off of you through high electricity rates. In the case of states with a RPS, they have no choice but to make this option available to customers. 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 EY (Energy Year) 2027-2028.
The state requires that those producing their own power through a distributed generation system (a unit that produces electricity at or near the point of usage) go through the interconnection process. This is basically a fancy way of saying that you need to file an application with your local utility company to connect to their grid. Luckily New Jersey law prevents utility companies from charging residential customers application fees or connection fees for hooking up to the grid. 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.
There are multiple financial incentive programs available to homeowners who install solar energy systems in New Jersey (it’s important to remember, as noted at the beginning of this article, those who choose a lease or PPA option are not eligible for these incentives, rather the installer/owner is the beneficiary of any credits or rebates). 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 a credit of 30% of the cost of solar systems provided certain criteria are met:
• The system must have been placed between January 1, 2006 and December 31, 2019 (expiration was previously set for 2016, however this has been extended, and will decline incrementally each year until it reaches 10% in 2022, then it will be eliminated for residential installations). • You must own the system, either via a cash purchase or loan financing; solar leases and PPA arrangements 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 federal ITC (Investment Tax Credit) is calculated based upon the net price. This means that you claim the amount you paid after any installer promotions, rebates, etc. The IRS permits you to carry over any unused credit to the following tax year – for example, if your credit is $5000 but you only owe $3000 in federal taxes, you will claim the remaining $2000 on your next year’s tax filing. 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.
New Jersey Solar Energy Tax Incentives
The state offers a couple of exemptions that make installing solar even more attractive, by reducing the total financial investment.
State Sales Tax Exemption
New Jersey offers 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. Considering that sales tax in NJ is a hefty 7%, that means over a thousand dollars saved on a $15,000 system.
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 this renewable energy source. Given that photovoltaic cells can raise a home’s value by up to 20 times the yearly electric bill, the savings appreciated by this exemption can be considerable. Homeowners must submit form CRES – Application for Certification of Renewable Energy System.
Solar Power Performance Payments
These are otherwise known as SREC, or Solar Renewable Energy Credits, and have been one of the major players in motivating New Jersey residents to install solar energy systems. SREC are directly linked to the state RPS (Renewable Portfolio Standard). Utility companies must provide the state with proof of the number of MWh (megawatt hours) that they have been able to produce via solar energy sources. If they cannot meet these requirements, utilities have the option of purchasing credits from system owners. Basically, these credits 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? States with a RPS charge utility companies for each MWh they don’t produce from renewable energy sources. In New Jersey, the ACP (Alternative Compliance Payment) for 2016 is $323 (this amount decreases each year, reaching $239 in 2028). What this means is that for every MWh of their annual requirement under the RPS that the utility company cannot meet, they must pay the ACP amount. It’s typically more financially logical for the utility company to buy your SREC credits for a little less than they’re worth (because naturally these transactions come at a cost, so some of the money is lost as it moves through the system, plus the utility company wants a discount to make it worth their while rather than just coughing up the ACP). Even with this discounted rate, owners stand to gain considerably from selling their SRECs. The going rate in New Jersey in 2016 may run between $200 and $280 per credit (accumulated per 1000kWh), and most average households will produce about six credits per year.
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? Net metering programs in New Jersey require power companies to monitor how much energy your system is generating, and if you don’t use up everything you produce, you will receive a credit on your bill for this unused power. 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 will be able to apply your net metering credits to these higher bills. While net metering is not 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. There are a couple of things you should know about this process, however. Utility companies operate differently when it comes to net metering. Some will give you a one to one kWh ratio while others offer a slightly reduced return for each kWh you send them. You do get to carry these credits over indefinitely. Make sure to get the details about your local area’s specific net metering practices so you can take this into account when calculating the payback time of your investment.
Selling Your New Jersey Home with Solar Panels
As with any non-essential home upgrade, such as a pool or hot tub, solar panels can be a boon and 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 the homes do sell for more and one study has even found that solar homes tend to sell faster than non-solar homes. Still, some buyers may have concerns, such as:
• Will I actually save on my electric bill? • What maintenance is required for solar panels? • What if the roof needs replacing? • What if I need to resell the house?
Many of these concerns are easily addressed by producing actual bills reflecting the average savings in your area. This is going to be one of the more significant selling points when it comes to demonstrating benefits to buyers, because New Jersey has comparatively high electricity rates, as much as 40% higher than the national average. While it’s difficult to predict exact savings, due to the vast array of factors which affect energy production and usage, estimates show that solar power system owners in New Jersey could save more than $31,000 all told, over the course of 20 years. The best part of selling a home with solar panels in New Jersey is that the system adds value to your selling price. A recent 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, solar increased the selling price by nearly $13,000. In California the gain worked out to $16,000. If you’ve been in your home long enough to recoup some of your investment via electric savings, SREC, property taxes, net metering, and the federal ITC – and it’s highly likely you’ve made back at least a significant portion by now – a $13,000 increase in the selling price of your home could actually net you a profit on the system.
Selling Your Home with a Solar Lease
This is where things can get dicey. If you’re locked into a 20-year contract for your equipment, you’ll have to find a buyer who is not only willing to take over your lease payments, but also qualifies according to the installer’s credit requirements. Barring this, you could buy out your lease – or buy out the equipment – but these costs can add up alarmingly fast, to the tune of $20,000 or more. In general, if you’re planning to sell your home within five to seven years, solar may not be a good investment. If you’re planning to sell your home at all, solar leasing is probably not the best option, and definitely not unless you’re planning to wait at least until your contract is up. 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.
How to Find a Qualified Solar Installer in New Jersey
Finding a reputable solar installer is like finding any other trustworthy contractor to perform a home improvement job. There are certain things you want to be sure of in order to ensure you’re getting a qualified professional with plenty of experience. Some things to consider when choosing a New Jersey solar installation company:
• Does at least one team member have full NABCEP certification? This is the North American Board of Certified Energy Practitioners and certified providers must have a minimum of two years’ hands-on experience in the industry, as well as pass a rigorous examination. • Is the company willing to provide references to past customers? • Are they licensed, insured, and bonded in the state of New Jersey? • How long have they been installing photovoltaic systems? • Do they provide a warranty, and what is included? • Do they offer financing and/or lease options? • Do they offer assistance selling SRECs? • How long will the installation take, and when can they begin? • Will any subcontractors be involved in the project? • Do they provide instructions on operation and maintenance procedures?
You should also ensure that your installer is able to guide you on insurance issues and details of the net metering program in your area. If you’re planning to lease your system, you will need to inquire as to the minute contract details – do they handle maintenance or do you? What happens when the inverter needs to be replaced? Are there any hidden costs associated with the installation and service aside from the monthly lease payment? The New Jersey Board of Public Utilities provides a guide to renewable energy providers through their Clean Energy Program’s website. While this listing does not imply endorsement of a specific company, it’s a good starting point to find installers in your area.
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.
Crunching the Numbers
Following is a breakdown of some of the numbers you’ll want to know as you make your decision about going solar in New Jersey:
• Average upfront cost of installing solar in NJ: depending upon size of the system and available rebates, installation may cost between $12,000 and $26,000. • Average long-term savings on energy bills: total savings – between monthly electric savings, plus the sale of SRECs, may amount to over $30,000 over 20 years, way more than enough to offset the cost of the system. • Average ROI (Return on Investment) over 20 years: 200% for a typical 6kW system; compared to a 20-year investment in the S&P 500 with an average ROI of less than 160%, or a CD at roughly the same ROI • Average time of payback on a solar energy system in NJ: the state boasts one of the shortest estimated payback times for solar, at an average of seven years.
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 the benefit of knowing that you’re saving 106 trees for each year your system runs, and making the world a cleaner, better place for everyone.