Tucson Solar – Everything You Need to Know

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Information about Solar Panels in Tucson

Tuscon, AZ has a lot of very solid incentives for its residents to go solar. Between their state energy policies and preferential tax treatment, you will find a lot of ways to save money no matter how you go about installing your new solar panel system. Read on to find out why Arizona is one of the fastest growing hotspots for solar in the US!

For a broader state overview, see our Arizona Solar Energy page.

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#1 Are Solar Panels Worth it in Tucson?

C
Overall Grade
11 years Avg. Payback Time (For Cash Purchase)
9.3 % Estimate IRR (Return on your investment on cash purchase over 25 years)
$20,568 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.

#2 Options for Buying Solar Panels in Tucson, AZ

In Tuscon, you’ll have access to all three major methods of purchasing solar power:  cash, purchase power agreement, and loans. Which method works best for you depends on your individual circumstances, but we’ll take a look at all three to highlight the pros and cons to each route you could take. All three options offer some type of financial benefit, but these benefits will be higher or lower depending on your selection.

Cash Upfront

There are always clear benefits to paying for something up front and having cash in this situation it offers great results.

In the purest sense, paying cash for means you’ll avoid any type of interest-bearing loan and there will be no strings attached once you’ve made the payment. You could sell your house the next week and wouldn’t have to worry about transferring a loan or lease to the new homeowner. It could also allow you for more wiggle room when you are hammering out the details with your installer.

Writing a check for $16k out of your pocket to pay for a solar system outright might sound a little scary, but let’s look at the math and see how it plays out.

  • If you use cash, you’ll spend about $17,583 up front to pay for your solar system during the first year of ownership. This is a huge upfront cost, but let’s see what happens next.
  • When filing your federal income taxes for the year you’ve purchased your system, you’ll be able to take advantage of the amazing 30% federal renewable tax credit for $5,275. 
  • The state of AZ has an awesome tax credit of 25% up to $1,000.
  • You will be saving about $1,023 during your first 12 months electricity bill costs.
  • That takes your upfront costs down to about $10,285 that first year.

Your solar system will generate about the same amount of energy year after year in its lifetime, but the cost of generating this energy will stay mostly the same (just maintenance costs).

The energy from your local utility provider, as we’ll discuss below, will normally increase by around 2.6% per year on average. TEP, Tuscon’s electric company, has proposed rate increases of about 9% in 2017 for the average homeowner (utilities typically increases rate every 2 to 3 years, so a 9% rate that lasts for 3 years averages out to a 3% increase annually). With solar, you will only be saving more and more money when your energy company raises their rates!

Bottom Line: Looking at the cash method summary, your system will generate about $20,568 in savings over its lifetime and pay for itself after about 11 years of operation. From that point, you’ll be making money each and every year!  From an investment perspective, you’ll be earning an IRR around 9.3% over the lifetime of your system, which is not too shabby.

Leases

For those of you that do not have access to a lot of cash, don’t want to obtain a loan to purchase a system, or for whatever other reason do not wish to actually own your solar panel system leasing is an option that can provide the least amount of hassle on your journey towards solar. When you lease a solar system, someone else (usually your installer or utility company) will actually own all of the equipment installed on your home. They will install it, monitor it, service it, and replace any parts that fail due to normal wear and tear.

Because you won’t be responsible for the system after it’s installed, leasing can be the least stressful option to go solar. But because someone else owns the equipment, you won’t get the full financial benefits of going solar such as the tax credits and rebates.

In Tuscon, the local utility company, Tuscon Electric Power, actually has its very own residential solar leasing program. Under their terms, you will pay a small fee to have your system installed and then you will pay a fixed cost on the system over the duration of your lease based on your previous 12 months of usage.

Bottom Line: This will allow you to get the non-financial benefits of solar (environmental protection, peace of mind) while still mostly breaking even on your energy costs. We’ve seen that the typical monthly electricity payment in Tuscon, AZ is about $131 per month so we can assume that this would be the average cost of a solar lease. The one financial benefit is that your lease price is locked in so as utility prices increase over time you will still keep your monthly bill about the same!

More: Solar Leases

Loans

Taking out a loan to pay for your solar system has a clear benefit:  you won’t have to pay a large sum of money upfront. In this scenario, we’ll consider that you are borrowing money from a bank (or equity in your home in the case of an HELOC) to pay for the system, but you still get all of the tax benefits associated with solar. It’s a little counter-intuitive to think that financing a purchase like this will make you money over the long term, but because the potential for energy savings with solar increases over time there is a substantial financial opportunity.

Let’s use the $17,583 system cost from our earlier cash example. Let’s also assume for our math that we’re getting a 5% interest rate on our loan and it’s over 15 years. But remember how I said that you will still get the tax benefits when you take out a loan?

  • After the first year, you’ll get back $5,275  from your federal taxes and $1000 for you state taxes.
  • The issue with taking out a loan is that you will have to service this loan and its interest each month. Because of this bill, you’ll probably spend about $139 a month on your loan payment. This is $1,670 per year.
  • Your savings for the first year will only be about $1,003, leaving you with about a $56 per month cost for your solar energy over the first year. Don’t forget that your electricity bills will tend to increase over time and you will end up paying relatively smaller amounts for your energy.
Bottom Line: Looking at it from this angle, you’ll pay about $7,445 in interest on the loan, and bank about $13,123 in savings with this system over the 25-year lifetime, simply by installing it and paying for the loan. It’s almost like printing money.

More: Solar Loans

#3 Tucson Solar Policy Information

A bit of good news for anyone living in Arizona is that their state government is relatively enthusiastic about endorsing solar energy production in the state. The bad news is that the utility companies in the state are actively fighting against the friendly solar policies now in place. These utilities, including the Tuscon Electric Power company, are attempting to make going solar less attractive to citizens by lowering the amount of money paid for excess electricity fed back into the grid and increasing minimum charges on power bills.

Renewable Portfolio Standard

A state’s renewable portfolio standard (RPS) can be defined as the policy that outlines exactly how much production energy the government wants utilities to generate from renewable sources by a certain date. Basically, this is a way for the state government to set out a goal for renewable energy and force their utility companies, who might not otherwise be incentivized, to start investing in renewable sources. For anyone interested in going solar in Arizona, it’s great news for your that your state has an RPS because it means that the government is enthusiastic about solar power generation.

Arizona’s RPS was passed in 2006 and outlines a plan for the state to generate 15% of their total energy production from renewable sources by the year 2025, with 30% of that coming from distributed energy technologies (basically on-site energy production like a home solar unit). Of that 30% mandate, half should come from residential sources alone!  This isn’t the most ambitious policy, but it is definitely a step in the right direction and a firm foundation for the future. We would love to see them update their plan with more ambitious goals, a longer timeline, or a greater requirement for residential solar.

We would love to see them update their plan with more ambitious goals, a longer timeline, or a greater requirement for residential solar.

Electricity Prices

The price you pay for your electricity matters a lot when discussing solar power because this is the cost that you will be offsetting by installing a solar panel system. On average, citizens of Arizona pay about 12.7 cents for each kilowatt-hour on their electric bill, while those living in Tuscon should be paying closer to 11.5 cents depending on their usage levels. The US average, meanwhile, is about 12 cents. This means that you are usually paying a smaller amount than the rest of America for your electricity.

It also means that you will be saving an average of $1,114 per year on your electricity bill in Arizona with a 5-kilowatt system.

It is also important to remember that utilities tend to increase their prices by about 2.6% per year nationally, but some areas can see increases of much, much more. The good news for you is that the electricity you are producing with your home system won’t cost any more to you as time passes, but you’ll be able to increase your utility savings every year during the life of the system.

Net Metering

As an owner of a solar panel system, you are basically the owner of your very own power plant. What this means is that your home will obtain its energy from your solar system first and then draw any extra power required from your normal utility company. If you have a powerful system or you are very frugal with your energy use then you might actually be generating more kilowatt-hours than you are using.

In this scenario, net metering is extremely beneficial to you because it will allow any excess power to be given back to your cities electrical grid. It also creates a system in which you can be paid for the excess electricity you generate. Because solar panels generate most of their energy during the daytime, it is essential that you are able to use this system of give-and-take in order to keep your home reliably powered.

In Arizona’s state net metering policies, you’ll see no limit to the amount of people that can plug into the system and they will actually pay you for any excess energy that you deliver to the grid. Of course, there are a few odd exceptions, but generally, the utility company will pay you the retail rate (what you would normally pay them) for any power you generate. Excess energy will be credited throughout the year and any remaining credits will be paid on your last monthly bill of the year as an avoided cost payment.

For anyone in Tuscon, please keep an eye on your local battle over net metering and be sure to submit your opinion to any local politicians that can help keep net metering safe!

More: Net Metering

Interconnection Process

These rules determine how exactly someone can connect their solar panel system to their local electrical grid. There are a lot of technical details in these rules that may or may not apply to you, but we’ll go over a couple of the most important aspects.

Unfortunately, Arizona does not yet have an officially supported and mandated interconnection policy at the moment. They instead have drafted some proposed rules and have asked state utilities to follow their interconnection document as a guideline for their policies. In practice, most of the utilities have adopted similar rules based on this outline.

Tuscon Electric Power (TEP) established its own interconnection rules that go over the specifics of their service area. Generally, the customer must submit an application showing that their system conforms to electrical code, adheres to their local specifications, and includes a disconnect switch. Be sure to discuss these details with your installer and be sure that you are confident that you are conforming to any requirements that your local utility mandates!

#4 Financial Incentives, Rebates, and Tax Credits

When solar first arrived in many states and governments were starting to endorse solar energy production by mandating RPS policies a lot of different rebates started popping up from local utilities trying to ensure that they met their quota.  Arizona’s utilities were no different, but as time passed and quotas started to be filled, these rebate programs started to dry up a bit.

Rebates and Other Incentives

solar-powered-tucson

In Tuscon, you are likely serviced by Tuscon Electric Power for your electricity needs and while their TEP Residential Solar Program started in 2015 was created to help provide leasing options for its citizens, the program is currently not accepting any new participants in for foreseeable future.

Thankfully, Tucson residents are eligible for a variety of other incentives!

Federal Tax Credit

As per usual, anyone that takes the jump into solar will enjoy the residential renewable tax credit. This amazing subsidy by the US government will allow for a 30 percent federal tax credit for any costs relating to the purchase and installation of a new solar system for your home. This allows you to shave 30 percent right off the top of your purchase price if you are paying cash or taking out a loan for your system. Remember that if you lease your system you will not get this credit. It will instead go to the owner of the panels that you are leasing from!

Tax credits are not deductions, but rather a dollar-for-dollar credit that is reimbursed to you for your purchase. This is truly an awesome opportunity that you should take advantage of before it starts to decrease after 2019!

State Tax Credit

Although there are no state or local rebates in Tuscon, the state itself provides an awesome credit for would-be solar buyers. This credit will be equal to 25% of the cost of any solar device purchased, up to a maximum of $1000 for each residence. You can reach this maximum through multiple installations or all at once on a big solar panel system, but you can never exceed the lifetime maximum. You can also carry this credit forward for up to five years if you owe less than the credit amount.

This is nice icing on the federal tax credit cake that we’ll check out below!

Property Tax Exemption

Here is another area that Arizona rates very highly. According to their Energy Equipment Property Tax Exemption policy, citizens are exempted from paying property taxes on any equipment that provides energy to the home through renewable means.  This can include solar panels, but also things like geothermal electric, solar pool heating, hydroelectric, and even anaerobic digestion!

You will receive a 100% exemption if you make a purchase in any of the eligible categories. Remember though, that even though these devices are considered to add no value to the property for tax purposes, it will definitely still add value to your home for the purposes of selling it!

Sales Tax Exemption

According to Arizona’s Solar and Wind Equipment Sales Tax Exemption, you will currently pay NO sales tax on any eligible equipment related to solar energy. This is an excellent benefit because sales tax on a $15,000 system would be $1,215 under Tuscon, AZ’s current tax rate of 8.1%. This is a pretty sizable discount!

General Increase in Home Value

We discussed earlier that your property taxes will not increase due to the installation of your solar system because it does not count as added home value, but a good solar panel installation has been shown to demand a $4 per watt price premium over similar homes!  Looking at the numbers, that means a 5-kilowatt solar system could be adding as much as $20,000 to the value of your home while paying no additional taxes on your property. This makes for a sound financial investment for those of you living in Tuscon. Assuming you pay cash for your system, you could come out way ahead if you sell your home just for the increase in value alone.

Assuming you pay cash for your system, you could come out way ahead if you sell your home just for the increase in value alone. This type of return lumps solar into the category of any other home improvement that can increase the value of your home such as bathroom renovations or additions.

What to Do Next?

For those of you in Tuscon looking to go all-in with solar, I think that the numbers presented in this article make a compelling argument for you to take the plunge. Depending on your current financial state, you stand to come out way ahead in a short amount of time from a home value perspective. Factoring in the lower energy bills and peace of mind that comes from doing your part to help the planet and ensure a safe future for your children, it’s an easy decision.

Arizona currently ranks 5th in solar capacity in the US and it shows no signs of slowing down. As solar prices continue to drop and more people learn about the benefits of installing a solar panel system on their home, the solar environment just gets better and better!

As always, we highly recommend that you reach out to a local installer to give you an actual solar quote for your unique situation. All of our information here are estimates based on state averages.

Photo Credits: CC License via Flickr – 1, 2 

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