New York Solar – Everything You Need to Know
Information about Solar Panels in New York
New York comes out very highly rated concerning the overall grade for anyone interested in purchasing a solar system. They have the solid support of the state government for now and in the years to come and they also have significant rebates, credits, and exemption policies. Read on to see how the government is practically begging you to invest in solar and make a handsome return!
#1 Are Solar Panels Worth it in New York?
* 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 York
There are three main ways to get access to a brand new solar system: paying cash, taking out a loan, or leasing it from a third party. Each of these methods carries its own set of pros and cons, but we’re going to dive into each and see how they look financially to determine which is best for you.
Paying cash is the most straight-forward method to use to purchase your new solar system. Using this method, you won’t have to worry about things like interest, leasing terms, or any other strings that could start to over-complicate the installation. Because there is no interest, cash can also deliver the highest actual return on your investment providing that you have money to burn up front. Let’s see what purchasing a solar system with cash would look like.
For all of these examples, we will use a 5kW system that has a before-discount price of $16,900 (our average price for this area).
Starting with $16,900 you will then:
- Take 25% off the top to account for the New York state tax credit – $4,225
- Take 30% off for the federal tax credit – $3,802.50
- Apply your state rebate on the original purchase price – $2,000
After we deduct those costs, we arrive at $6,872.50 – Wow!
But don’t stop there because you will also be saving money on your yearly electric bills. Your first year’s savings (basically, how much you would’ve paid the utility for the electricity your solar produces) should be around $1,190.58 so you can take that off the top as well to arrive at $5,681.92. So after all is said and done, you’re basically paying a third of the price for your solar panel system after the first year. That’s pretty amazing! Also, New York utilities generally raise their rates about 1.7% each year, so your yearly savings will continue to grow as well!
To put this in terms of an investment you will:
- Pay off your system in about 6 years.
- Make about $26,284 in profit over the 25-year life of your system.
- Have about a 17.9% IRR on your initial investment.
For those of you with little cash to spend or equity to use for a solar loan, leasing a system is still an attractive option. In fact, more than 50% of the residential solar systems in New York were owned by and leased from a third party in 2014 (although that trend has been changing over the last few years as prices come down). Leasing is attractive because it requires literally no financial capital other than your monthly payment. If you qualify for the lease, you will pay a set amount per month over the entire length of your contract. An important thing to note, however, is that because you won’t actually own the system, you won’t get any of the tax credits, rebates, or exemptions on the equipment and installation. Your installer will get all of that money.The specifics of every contract is a little different, but with a lease, you will end up:
An important thing to note, however, is that because you won’t actually own the system, you won’t get any of the tax credits, rebates, or exemptions on the equipment and installation. Your installer will get all of that money. Something else to consider is that you often won’t be responsible for any maintenance, repairs, or replacements under a leasing agreement – your installer will have to take care of any issues!
The specifics of every contract is a little different, but with a lease, you will end up:
- Paying around $600-900 per year for your system
- Saving around $1,190 per year with your system
- Coming out about $290-590 ahead each year, which will rise over time with increasing utility costs
Those amounts might not seem that great, but it is essentially money in your pocket just for having a solar system on your roof. Also, you’ll come out further and further ahead as time passes. Add to this the fact that you won’t be responsible for any upkeep on the system and you are looking at an awesome low-risk, low-reward scenario.
Keep in mind that leasing a unit can complicate things if you choose to sell your home before the agreement is up. If your purchaser doesn’t want to transfer the lease, it could be costly to cancel.
More: Solar Leases
Getting a loan to pay for your solar system is an attractive option because you won’t have to put any money down up front, but you will still get to take advantage of all of the various tax, rebate, and exemption goodies available to a cash buyer. Essentially, you will take out a loan for the entire purchase and install price of the system and start making payments. At the end of the year, however, you’ll get the tax credits and rebates applied to your income tax bill, and you will still be exempt from paying sales tax at the time of purchase and your property taxes will not increase because of the additional home value.
Although you won’t come out quite as ahead as the cash example, we’ll crunch the numbers to see how it will all play out:
Starting with the $16,900 system cost, you’ll take out a loan for the full amount (we’ll assume it’s a 15-year loan at 5% – it’s entirely possible that you could get better terms).
From then on you will:
- Make payments of about $129 per month on your system over 15 years
- Earn about $99 per month in electricity savings ($1190 divided by 12 months) during the first year with steady increases until you start to break even with the loan payment around year 9 (this means initially you’re paying about $30 a month for your solar panels)
- Pay about $6,895 in interest over the course of the loan
- Make about $19,389 in profit over the 25-year lifespan of the system (total savings – total loan payments)
As you can see, the downside to this method is that you will actually be paying an extra $34 per month for having a solar system for the first 15 years. The huge advantage, however, is that you will be getting about $10,027 back from the credits and rebates after the first year (or multiple years if you can’t use all the credits at once). This money means that you are “earning” an enormous upfront payment from going solar because you didn’t have to use any of your own money besides the loan payments. In this scenario, even though it will take 15 years to pay off your system, you will never be “in the red” because of that large initial payment.
You can see that all of this makes going solar with a loan a great investment opportunity!
More: Solar Loans
#3 New York Solar Policy Information
The state of New York has become extremely enthusiastic about renewable energy over the past couple of decades. According to their state website, they feel very strongly about preserving the environment, acting on climate change, and keeping nature safe from pollution. It’s always very encouraging to see this level of involvement by local governments to make sure that solar power gets a chance to shine!
Renewable Portfolio Standard
Briefly, a renewable portfolio standard (RPS) is the set of rules and policies that govern how a state handles its renewable energy. They can set targets for the future, specify how much energy should come from residential sources and more. It’s important to have these policies in place because solar power is not usually a moneymaker for the big utility companies. They have to spend more money on infrastructure to produce the same amount of power from fossil fuels as well as potentially pay their customers for extra energy generated from their homes and businesses. You can see why it often takes a federal and state government to help point them in the right direction.
Luckily, New York has a grand plan for its energy policy called the Reforming Energy Vision (REV). Within this vision, they include an aggressive RPS which includes the following by 2030: a 40% reduction in greenhouse gas emissions, a 23% decrease in energy consumption in buildings, and a whopping 50% of electricity must come from renewable energies. With less than 15 years until time is up, it’s clear that New York won’t be doing much to slow down the growth of solar in their state!
More: Renewable Portfolio Standard (RPS)
The price customers pay for electricity isn’t necessarily set by state policy, but the local energy landscape and regulations will affect how much people are paying on their power bills. This price is critical because it is the utilities’ price that you will be offsetting with your solar energy system. The higher the price-per-kWh, the more money you could be saving. Customers in New York paid an average price of 18.28 cents per kilowatt-hour in October 2016 which is much higher than the national average of 12.45 cents and ranks 8th-highest in the country.
These prices mean that New Yorkers stand to profit nicely from installing solar compared to other states. Also keep in mind that utility companies usually increase rates on a regular basis to keep up with inflation and costs. In New York, utilities typically raise rates about 1.7% each year on average. The beauty of solar is that once you install your system, you will be mostly immune to any of these price hikes and it will only increase the return on your investment.
One of the most amazing things about going solar is that you have the opportunity to act like a tiny power plant for your community. It’s possible, depending on your system size and energy use, that your system will produce more power than you are using at any given time. The way your utility company handles this excess production is outlined in the state’s net metering rules. In New York, your utility companies are required to provide net metering availability for any residential systems that are 25kW or smaller. For most people reading this, there will be no problems fitting in under this maximum.
As far as rating net metering services go, it all comes down to whether or not your utility allows it and then how much money the utility will give you for the power you’re producing. New York requires that utilities pay the “full retail” price to customers for their energy. Over the course of the year, all of the excess power you generate will is tallied up and paid to you at the end of the year as an “avoided cost” payment.
Although still in the exploration phase, New York state has also started looking at more thoughtful ways of looking at net metering, power bills, and energy production in general. If these proposed changes were to come into play, it would make a significant impact on the way customers deal with their utility companies.
More: Net Metering
Although going solar might conjure images of secluded cabins in the woods relying solely on their own energy production without a power plant in sight, the reality is that most residential systems will need to or even be required to connect to the local grid. Assuming that you aren’t required to hook up, it’s likely that while your system will generate enough energy for your home during the day that it won’t have enough juice during the nighttime periods to keep you running without a system of battery backups. Also, any technical hiccup in your system could mean that you would be without power until the situation resolves. In this way, the local grid remains in your life as the ultimate backup generator.
New York’s interconnection rules, like most others, are quite technical and the majority of the details are best left up to your installer and local utilities. For you, just know that there are no direct insurance requirements, external disconnect switches, or net metering required. There is also no system capacity issues as long as your system is below the 25kW threshold. Further, you will be able to use an expedited interconnection process if your system is below 50kW (nearly everyone reading this).
#4 Financial Incentives, Rebates, and Tax Credits
We’ve already seen how enthusiastic New York is able solar at the adoption and connection level, but what about the finances? The good news for prospective buyers in the empire state is that there is a whole host of financial incentives for going solar. Let’s explore all of the awesome credits, rebates, and exemptions that will help you afford your system and come out further ahead on your return!
Federal Tax Credit
Before we get into state-specific information, the federal tax credit must be mentioned. This is because it has been the single-most influential catalyst for residential solar adoption with its amazing 30% credit to your federal income taxes. This is money straight back in your pocket off of your purchase price and on its own often makes a strong case for buying a new system. Do remember that this credit won’t be around forever and it will soon be dropping on a yearly basis before going away completely.
More: Solar Federal Tax Credit
New York Solar Tax Rebate
NY-Sun is a program started in 2012 that aims to improve the efficiency, affordability, and reliability of the energy production systems in New York. Part of this program allows for a state rebate of $400 per kilowatt of installed solar production. The way this works is that each utility has “blocks” of residential solar production that they have to fill over time. As they fill, the next block will offer slightly less rebate than the one before it so time is of the essence if you want to take full advantage of this rebate. The current price should be good for a while, but there are no guarantees!
Another great program offered through NY-Sun is their affordable solar program. This doubles the rebate for households earning less than 80% of the area median income that apply, helping to make solar available to not just the affluent investor.
New York Solar Tax Credit
Just like the federal program, New York state itself offers a generous tax credit for new residential systems under 25kW. Under the terms of the credit, you can get up to $5,000 back for your solar system, assuming that it is grid connected and net metered with your local utility. For those of you keeping count, we are really started to rack up the incentives here! Although the credit is capped, it should be very easy to stay under the $25,000 budget for most residential applications. This credit can also be carried forward for up to five years if you have any excess while doing your taxes.
Interestingly, this credit can also be taken in some form even if you are leasing your system by allowing lease payments to count as taxable expenditures.
Utility Based Incentives
Some states actually mandate that utility companies pay residents for operating a solar system on their home as an incentive to adopt solar. While not the best for the utilities, residents stand to make out like bandits if their utility finds themselves in this situation. Unfortunately, no such payments exist in New York state.
Property Tax Exemption
Because solar power systems are technically additions to your home, it would stand to reason that they would increase your home’s value in some way. Your reasoning would be correct, but many states, such as New York, have added an exemption on their property taxes to provide yet another incentive to go solar. Basically, any value added by your solar system will not be added to your tax basis once property taxes are assessed for the year. You will be able to enjoy the increase in property value when selling your home, but won’t have to worry about your taxes going up!
Sales Tax Exemption
Much like the property tax exemption, many states are also offering a sales tax exemption to provide more incentive to buy solar. In New York, they offer a 100% exemption on any sales tax that would normally be owed on the purchase of any solar-related equipment and labor.
Interestingly, lease payments and the sale of energy from third-party systems are also exempt from state sales taxes.
General Increase in Home Value
Although solar panel installations are relatively new to the mainstream, research is suggesting that there are real value-added benefits to owning a system. A large study by the Lawrence Berkeley National Laboratory shows that most homes could expect to add about $4/W in home value for their system. In this scenario, it is possible to increase the value of your home for a relatively small investment and as mentioned before you will not have to pay property taxes on this extra value!
What to Do Next?
If you are a current resident of New York then you should be happy to see that your state offers a huge amount of incentives for going solar. Between the credits, rebates, and tax exemptions, it’s really a no-brainer!
Remember that our pricing is only an estimate and you should look for a local installer to help give you some more concrete details concerning your individual situation.