Los Angeles Solar – Everything You Need to Know

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Information about Solar Panels in Los Angeles

Installing solar panels in Los Angeles is almost a no-brainer - a win-win-win situation no matter how you look at it.

With sunny skies, high utility rates, and excellent rebates and tax credits, homeowners can make out like a bandit (and contribute to a cleaner world) by installing solar panels in Los Angeles. In fact, Los Angeles residents are eligible for one of the best incentives in the state for going solar!

For a broader state overview, see our California Solar Overview.Click to replace anchor text

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#1 Are Solar Panels Worth it in Los Angeles?

B
Overall Grade
8 years Avg. Payback Time (For Cash Purchase)
13.5 % Estimate IRR (Return on your investment on cash purchase over 25 years)
$32,033 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.

With excellent solar policy and incentives, coupled with great weather and high utility rates, Los Angeles homeowners can easily save thousands by going solar, leading us to give the city an overall grade of ‘excellent’.

Homeowners can take advantage of the state-wide solar policy that ensures an easy installation process, and Los Angeles Department of Water & Power (LADWP) offers great rebates to customers who go solar. And of course, LA residents are eligible for the 30% federal tax credit as well. If you’re thinking about installing solar panels in Los Angeles, just do it!

#2 Options for Buying Home Solar Panels in Los Angeles, California

Los Angeles homeowners have several options available to finance solar installations.

Cash Upfront

If your #1 priority is saving money, paying upfront in cash is your best bet.

Installing solar in Los Angeles costs around $3.61 per watt, so an average 5,000 kilowatt (kW) installation would cost $18,050. To find how much a solar installation cost in LA, we looked at several sources, including the National Renewable Energy Lab, and calculated the average of all the different cost estimates.

$18,000 is quite a lot of money, but the federal government offers a 30% tax credit equal to a dollar-for-dollar discount and the Los Angeles Department of Water and Power also offers rebates of $0.30 per watt for solar installations. Adding these incentives into the mix drops our total installation cost to just $11,123.

Yes, we know $11k is still a lot of money to invest, but the real question is how much can you save by installing solar? With Los Angeles’ clear, sunny skies and California’s high utility rates, installing a fairly average-sized 5 kW installation can save you $32,033 over 25 years (the estimated lifespan of a solar panel in Los Angeles or anywhere else), with a payback time of just 8 years and a 13.5% internal rate of return.

We calculated these savings by comparing the total installation cost for solar to how much you’d pay the utility for the same amount of power over 25 years.

You can save so much, but paying cash does have its downsides. First, you need to have a large sum of money sitting in the bank, ready to invest. Unfortunately, not all of us are in this situation. Secondly, as the owner of the installation, you are responsible for monitoring your installation and fixing any malfunctioning equipment. Solar installations are pretty hands-off and don’t require much maintenance, but it’s certainly something to be aware of.

Bottom Line:

If none of the above scares you away, paying cash for your solar system allows you to save over$30k! That seems like a good trade-off to us! If shelling out that much cash doesn’t sound doable, take a look below at the other financing options available.

Leases

Lease and power purchase agreements (PPAs) quickly became the dominant financing option for residential solar after solar companies introduced them in the late 2000s. While their popularity is waning amongst homeowners as more and more choose cash purchases, leases and especially loans; PPAs (collectively known as third-party ownership) still offer homeowners a great way to go solar without putting up any of their own money.

As you can imagine, you won’t save as much if you finance with a lease or PPA than if you paid cash for your own installation – third-party ownership is typically less cost-effective compared to cash purchases and loans. And many of the financial incentives for going solar go to the owner of the installation – not the owner of the house – so the federal tax credit and other breaks go to the solar company since they own the installation.

It’s not all bad news, though. The savings you miss out on are balanced by the ease of the whole process. Since the solar company retains ownership of the installation, you don’t have to worry about monitoring the system for drops in production, or equipment breaking. If anything goes wrong, the solar installer will likely be aware of it before you are and will fix or replace equipment out of their own pocket.

Leases and PPAs typically last for 20 years and you make small monthly payments throughout the term. Payments can either remain fixed throughout the 20 years, or increase slightly each year (known as an ‘escalator’ in the solar industry). Fixed monthly payments are generally higher at the beginning, but can allow you to save more over the life of the installation. Talk to your installer to figure out which makes sense to you.

Bottom Line:

At the end of the lease, you typically have several options for your solar installation:

  1. You can have the panels removed at no cost to you;
  2. You can continue the lease month-to-month;
  3. You can purchase the solar installation, usually at little to no-cost.

More: Solar Leases – Buy or Lease, what are your best options?

Loans

Loans offer a midpoint between cash purchase and leases. They take the good parts of each and put them together into one offering. You can purchase your own solar installation –and receive all the accompanying benefits like the federal tax credit – without the high initial investment.

Taking out a fairly standard 15-year loan with 5% interest to fund your 5-kW solar installation adds on a total of $7,636 in interest to your installation cost of $11,123, giving you a total cost that is much higher than a cash purchase. But even with a loan, you can save $24,397 over 25 years by going solar! Your payback period is longer than cash, increasing to 13 years, but after that you still have an estimated 12 years of life in your solar panels to continue creating free electricity for you.

More and more organizations are offering loans for solar installations, including banks, credit unions, and solar loan companies. Often a solar installer will have a preferred lender, so be sure to call a few installers and other organizations to see what kind of loans they offer.

Bottom Line: Interest rates, loan length, and fees all affect the savings you’ll see, so contact several lenders, do your homework, and compare all costs before moving forward with any one company.

More: Solar Loans

#3 Los Angeles Solar Policy Information

California is a leader in pro-solar legislation and it shows. Out of the top 10 states with the most solar installed, California has more solar than the next 9 combined! Take a look below for an overview of the key components of California’s solar policy.

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Renewable Portfolio Standard

Renewable Portfolio Standards (RPS) is just a confusing name Regulators gave to a fairly simple concept: to encourage adoption of renewable energy sources, the state mandates that a certain percentage of all electricity in the state must come from renewable sources.

California has one of the most intense RPS mandates in the country: 33% of all electricity must come from renewable sources by 2020 and 50% by 2030. In comparison, Arizona requires 25% by 2025, and Missouri requires 5% by 2021. Other states, especially in the south, don’t even have any RPS mandates.

RPS goals typically apply to utilities, forcing them to adopt renewable technology that they would otherwise by hesitant to do for financial reasons. In regards to RPS goals, California is at the top of the list!

More: Renewable Portfolio Standard (RPS)

Electricity Prices

At a state average of $0.1797 per kilowatt-hour, California has some of the highest utility rates in the country. This is a full 30% higher than the national average of $0.1275 per kWh and much higher than Oregon’s $0.1075/kWh and Washington’s very low $0.091/kWh.

This probably seems like a bad thing for California homeowners, but if you’re going solar, the higher your electricity prices, the more you can save! And as we saw above, Los Angeles homeowners can save quite a lot by purchasing solar!

Net Metering

The state of California mandates that all investor-owned utilities (SCE, PG&E, and SDG&E) offer residential customers net metering. If you enter into a net metering agreement, you are credited on your next monthly bill for any excess electricity you produce that goes into the grid.

At the end of your 12-month billing cycle, you can choose to continue rolling over credits on a month-to-month basis indefinitely or receive payment for those additional credits (currently around $0.045 per kWh).

In early 2016, the California Public Utilities Commission approved new regulations (known as the Net Energy Metering Successor Tariff) for new residential net metering customers. Homeowners still receive bill credits for any excess generation they produce, but there will be three major changes to net metering agreements:

  1. Customers will need to pay a one-time interconnection fee estimated to be around $75 to $100
  2. Net metering customers must pay monthly utility charges for ‘non-bypassable items’ like low income and efficiency programs, based on total kWh consumption from the grid.

These charges are based on usage and likely to be around $0.02 to $0.03 per kilowatt-hour. Current net metering customers also pay these charges, but they are calculated after subtracting net metering output into the grid.

Here’s an example to help explain the situation: let’s say in one month you used 500 kWh from the grid and sent 100 kWh from your solar installation to the grid. In the old system, your charges are based on your 400 kWh net total use. In the new system, your charges are based on your 500 kWh gross total.

3. All future net metering customers will be placed on time-of-use rates.

PG&E has already begun implementing these changes. For the other utilities, expect to see the changes around summer 2017, so definitely get your net metering application to your utility before then!

More: Net Metering – A Comprehensive Guide

Interconnection Rules

LADWP customers installing solar have it easy. First, the interconnection approval process is integrated into the incentive approval process (more on that in the section below), so interconnection is very streamlined for customers.

The best part about installing solar under LADWP? If your installation is under 10 kilowatts (the vast majority of solar installations), you aren’t even required to complete an interconnection agreement! Talk about easy.

If you are a customer of the big 3 investor-owned utilities, under a state law known rather ominously as Rule 21, you are eligible for the Fast Track interconnection process if you enter into a net metering agreement (which 90% of grid-connected solar owners do). Fast Track requires minimal review and no studies (typically required for large installations and can be quite expensive) so it’s easy and comparatively fast to receive approval.

Solar Access Rights and Homeowners Associations

California has some of the strictest – and most solar-friendly – solar access laws in the country.

In 1978, the state of California passed the Solar Rights Act, which protected homeowners’ access to sunlight and limited the ability of HOAs and other organizations to deny homeowners the right to go solar. The same year the state also passed the Solar Shade Act, which protected solar installations from excessive shade from trees and shrubs, as long as the trees were planted after the solar system was installed.

If you’re worried about your HOA or neighbors causing problems, you can stop immediately!

#4 Los Angeles Solar Rebates, Financial Incentives, and Tax Credits

LADWP offers Los Angeles homeowners one of the last big upfront rebates in the entire state of California! Coupled with the federal tax credit and other incentives, you can drop the price of your installation considerably!

los-angeles-solar-power

Federal Tax Credit

Any homeowner across the country that purchases and installs a solar installation is eligible for the federal Residential Renewable Energy Tax Credit. This credit is worth a 30% dollar-for-dollar discount on the total installation cost of your system. So, if you paid $16,000 out of pocket for your installation, your total tax credit would be worth $4,800!

The tax credit goes to the owner of the installation, so if you pay cash or take out a loan, you are eligible for this awesome incentive. If you finance through a lease or loan (or any other financing mechanism where the solar installer retains ownership of the installation), the installer is eligible to receive the credit.

If you don’t owe enough taxes in a single year to be able to claim the entire credit, you can break it down into smaller chunks and claim just a portion each year over several years, allowing you to reap the full benefit of this credit.

More: Solar Federal Tax Credit

Utility Based Incentives

As noted above, Los Angeles Department of Water & Power offers a pretty good rebate for homeowners going solar, equal to $0.30 per watt. This doesn’t sound like much, but it adds up quickly. This rebate drops the price of an average-sized 5kW installation by $1,500! Add that to the federal tax credit and you’re looking at a 40% discount!

As more Los Angeles homeowners install solar, the rebate amount will decrease, so be sure to check LADWP’s website for up-to-date information on the status.

Property Tax Exemption

Homeowners in California who install a solar system qualify for a 100% state property tax exclusion. This means that if you install a $20,000 solar installation on your $250,000 home, the state continues to base your property tax on the $250,000, not the current $270,000 value of the home with solar.

With the state-wide average for property tax around 0.74%, if you install a 5 ]kW system, this allows you to save around $110 your first year – not a huge amount of money, but every little bit counts!

General Increase in Home Value

If you’re in southern California and you own your solar installation, you’re in luck! Potential buyers are almost always willing to pay a premium for your solar home. Depending on the age of the installation, solar can add between $5.90 per watt for new systems and $2.60 per watt for older systems – with an average of around $4.51. This means that your new 5kW installation you purchased outright could bring an extra $29,500 to the closing price of your home!

The additional value your solar installation adds to your home is largely due to the financing you choose. If you purchase your installation in cash or with a loan, your home value increases in line with the value of the installation. However, if you finance with a lease or PPA, your installation adds little to no value to your home, according to a study by Lawrence Berkeley National Lab. However, they did find that in southern California, leased solar doesn’t negatively affect the home sale, time on the market, or asking price.

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.

What to Do Next?

With great weather, expensive electricity, and fantastic incentives, installing solar panels in California can mean big savings for your home. Be sure to talk to a few installers to choose the best financing for your situation. And be sure to take advantage of all those tax credits! Did we forget something? Let us know in the comments!

Image Credits under CC License from Pixabay - 1, 2, 3

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