Solar in Phoenix, AZ

solar-phoenix

To give you a running start with Phoenix solar, we've compiled this handy guide.

Going solar in Phoenix is a great choice, as there are a lot of solid incentives for those of you looking to jump into the solar market. A state that offers favorable rebates, state tax policies, and a utility company that offers incentives to their customers, combine into worthwhile savings for anyone paying cash or taking out a loan for their solar panel system.

For a broader overview see our Arizona Solar page.​

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#1 Overall Solar Grade

B+
Overall Grade
8 years Avg. Payback Time (Cash)
13.2 % Estimate IRR (Return on your investment on cash purchase over 25 years)
$28,589 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). This estimate was made for a 5kW solar array for a homeowner.

#2 Options for buying solar panels in Phoenix

single-axis-solar-tracker-phoenix-arizona

There are numerous financial advantages to going solar in Phoenix right now and with our guide you will find a great system that will save you money over the short and long term. 

Cash upfront

You’ll have a lot going for you if you are able to purchase your solar panel system with cash in Phoenix. This is because you will be able to take full advantage of all financial incentives available to you such as rebates, tax credits, and tax exemptions. Don’t forget, though, that you will still have to pay a very large sum of money up front before you are able to get those rebates back!

With cash, you’ll be spending about $16,283 on your new 5kw system out of pocket during the first year that you install it. After this big upfront payment, however, you’ll be able to capture savings from several areas. You will be able to get the 30% tax credit on your first year’s taxes which will be good for $4,884. If you purchase your system through one of your utilities (Salt River Power) partners then you can also get a free power inverter included in your system worth $2,500! This could bring your total cost down to around $8,899. Throw in your estimated $1,086 in electricity savings during your first year and you will be saving even more!

After this first year, your system will continue to produce about the same amount of energy each year going forward. Your savings on this energy, however, will start to increase each year as SRP will tend to increase energy prices each year by around 3% per year on average.

With the cash method, your system will pay for itself after about the eighth year and you’ll see about $17,588 in total income over its lifetime! Compared to using your hard-earned cash to go towards another investment, you’ll be earning about 13.1% return on your solar panel system. Sounds like a real winner!

Leases

Leasing solar panels is a low cost, low reward option for installing solar. Basically, you will be contracting a solar installer to place solar panels on your roof to generate power for you in exchange for a monthly lease agreement payment.

The benefit for you as a consumer is that your lease payment will typically be low enough and your energy production will typically be high enough that you will be able to lower your monthly bill by a small amount. Although the amount is small, over time this amount will add up to some serious savings. You’ll also begin to save more money over time as your lease payments will typically be locked in or only increase by a very small amount over the course of the lease while your utility rates will increase at a faster rate.

These minor advantages can add up to thousands of dollars over the duration of your lease just for having a roof and allowing someone to install solar panels! At the end of your lease you’ll have the option of buying your system or simply uninstalling it. It’s also possible to transfer your lease to another person should you move or sell your home.

More: Solar Leases

Loan

phoenix-solar-loan-calculation

Solar Loans are great for those of you that don’t necessarily have the cash available to purchase your system outright but still want to capture all of the financial benefits available to cash buyers. When you take out a loan for your system, you still own the equipment which will entitle you to the tax credits, tax exemptions, rebates, and any other incentive out there!

Let’s look at the $16,283 price of our cash system earlier.  In this scenario, we’ll take out a 4.5% interest, 15-year loan for our system.

A few things will happen over that first year:

  • You will get $4,884 back for your federal 30% tax credit.
  • You may get $2,500 for using a free power inverter through your utility’s partners.
  • You will save about $1,086 in electricity costs.
  • You will pay about $125 per month to service your solar loan.

Since you are paying for your solar loan each month, you’ll still end up paying about $24 per month for your solar power, but if you consider the fact that utility prices tend to increase their rates by 3% per year, you will realize that you will soon be in the positive. In fact, once you pay your loan off you’ll be able to capture a whole lot of additional income off the life of the system.

Loans are a great way to get into solar without a lot of cash on hand!

More: Solar Loans

#3 Solar Policy Information

solar-array-phoenix

The Phoenix state government has a lot to do with making it easy and cost-effective for you to purchase and install a new solar system. 

The state government control things like mandatory renewable energy mandates, connection rules, and how excess solar electricity is handled. They do this by setting policies for the state and forcing state utility companies to comply. The good news is that Arizona has a relatively nice set of policies that show the government wants to support solar adoption in their state. Unfortunately, many of the utility companies, including Phoenix’s own Salt River Project, are actively engaged in reducing the benefits given to consumers from current policies.

Let’s see what Arizona’s current policies look like:

Renewable Portfolio Standard

If a state government wants to ensure that a certain amount of energy is supplied from renewable sources then they will draft a renewable portfolio standard (RPS). In this document, they can outline what percentage of total energy production should come from renewable energy in general, specify the amounts from individual sources such as solar, and even mandate that a certain amount of energy is produced from residential sources. An RPS is a bold statement that shows exactly how enthusiastic they are about bringing solar into their state. Usually, utility companies won’t do much to grow solar energy production unless they are forced to and rapid growth usually follows a generous RPS policy.

Arizona passed its renewable portfolio standard in 2006 and in it outlined their plan for the state to generate 15% of their total energy from renewable sources by the year 2025. Within that total, they also specify that 30% of that renewable energy should come from distributed energy technologies (any type of system installed on-site to generate power for a home or business). They also say that half of that 30% (we’re starting to get into weird fractions here) should be from residential sources alone! Effectively, that means that Arizona wants 2.25% of the total energy produced in the state to come specifically from residential solar sources.

An updated RPS with more ambitious goals would be a great thing to see from Arizona in the future to ensure that growth stays on the rise.

Electricity Prices

Electricity prices are extremely important if you are interested in going solar. The reason for this is simple: if you are generating solar electricity on your own then the money you are saving is equal to the price you would be paying your utility for that electricity. With that perspective, it makes the most financial sense for people that pay extremely high electric rates to start producing their own energy.

In Arizona, people pay about 12.7 cents per kilowatt-hour on their electricity bills. In Phoenix, you tend to see slightly cheaper rates, at 11.96 cents, so you’ll be paying a little bit less than the national average of 12 cents per kilowatt-hour. With your current prices, you should expect to save an average of $1,086 per year on your bills with a 5-kilowatt system.

Please remember that one of the major perks of owning a solar system is that your cost of producing power does not go up each year, but utility companies tend to increase their prices by about 3% annually. This means that you will continue to save more and more money as the years go by with solar power and you won’t be victim to major swings in your local utility prices.

Net Metering

Consider for a moment that installing a solar panel system on your home means that you basically have a tiny, self-sufficient power plant attached to your roof. Just like any other power plant hooked up to the grid, your system can actually produce more energy than is necessary for the moment. That excess energy is able to flow back into the grid and it is measured by a system called net metering. Because solar panels typically generate the majority of their energy during the day, there will usually be an excess during those hours and a deficiency during the night. This give-and-take system allows solar producers uninterrupted electrical coverage in their home.

Arizona drafted their state net metering laws back in 2009 and they state that there is no maximum amount of people that can tie into the grid and that the utility companies must pay you retail value for any excess electricity that you produce with your system. The retail rate is exactly what you would normally be paying for the energy if you had been using it from the utility. Energy is credited throughout the year anytime there is an excess and it is paid to you on your final yearly bill as an avoided cost payment from your utility.

There is currently a bit of a war going on between Arizona utility companies like Salt River Project which services most of Phoenix. Keep an eye on the changes in case they affect you!

More: Net Metering

Interconnection Rules

Purchasing and installing a new solar power system to provide energy for your home is only one part of the entire process. Once the installation is complete, you’ll need to connect your system up to the local grid to ensure that you are still abiding by local laws and regulations. How your system connects to the grid forms the interconnection rules in your state. There are normally lots of technical details buried within these rules, but we’ll hit a couple of the most important parts:  who can connect and are there any special stipulations.

To complicate matters a little, Arizona has actually yet to officially sign any interconnection rules into legislation. They have drafted a document that includes policies that they are currently debating and have offered the document up as a guideline to the state utilities, who are in charge of their own rules, for how to handle them.

Utilities have stuck to these guidelines for the most part and Phoenix’s utility, Salt River Project, has listed its own set of rules for those interested. Generally, there are few special requirements for systems under 10kw which would include nearly all home-based systems. It is important that your installer is very familiar with these rules as well as any permits and licenses that would need to be obtained!

Connecting a solar electricity-producing system to SRP’s grid requires you to join their Customer Generation Price Plan which will change the way your billing works.  Check it out!

#4 Financial Incentives, Rebates, and Tax Credits

phoenix-arizona-view

There are not always a lot of local incentives for going solar depending on where you live, but Phoenix’s main utility, SRP, actually has a couple of programs that can benefit you if you choose to use one of their qualified technology partners.

Upfront rebate

There is a rebate available for anyone that installs a demand management system as part of their rooftop solar system. These systems allow you to monitor your system’s load, optimize your home energy use, and offer some useful programmable features. The rebate for this product is $250 mailed to you within four to six weeks of installation.

Other Incentives

SRP also offers a pretty nice incentive on another piece of equipment that every solar system requires – the inverter. If you participate in their advanced inverter solar study program then you will receive a new advanced inverter with a 10-year warranty (up to a $2,500 value). You’ll also get a participation credit of $10 per month on your bill for the duration of the study. There is no guarantee that you will save money on your overall system cost by going through one of SRP’s partners, but this seems like a good deal!

Federal Tax Credit

Established back in 2008, the residential renewable tax credit offers an amazing 30% credit on your federal taxes for any expenses related to the purchase and installation of a new solar system. In effect, this drops the price of any system you choose by 30% right off the bat if you are paying with cash or a loan. If you are leasing your system, though, remember that company that owns your panels will actually get this credit.

Tax credits like these are truly impressive because you are not deducting costs to reduce your tax bill, but rather receiving cash from the government as a credit! Take advantage of this opportunity before it starts to phase out after 2019!

Property Tax Exemption

Arizona ranks very highly in this area and it is clear that there is enthusiasm in the government over solar. In their Energy Equipment Property Tax Exemption policy, consumers are exempted from paying property taxes on any equipment that provides energy to their homes through renewable means. This, of course, includes systems like solar panels, but also covers technology such as geothermal electric, solar pool heating, hydroelectric, and even anaerobic digestion!

The reason you will not have to pay increased property taxes is that this equipment is not added to the assessed value of your home during appraisal for the purposes of property taxes. Remember, though, that they will still add value to your home for the purposes of selling it. Renewable energy supply is a premium feature of any home.

Sales Tax Exemption

Currently, if you live in Phoenix, AZ you will also qualify for a 100% sales tax exemption on your solar purchase and installation. As stated in their Solar and Wind Equipment Sales Tax Exemption, any eligible equipment related to solar energy qualifies. This excellent benefit will end up saving you about $1,245 on a $15,000 system under Phoenix’s 8.3% sales tax rate. This is a sizeable chunk of any solar purchase!

General Increase in Home Value

Remember when I said that your solar system wouldn’t increase your home’s value for the purposes of assessing property taxes? Well, you’ll be happy to know that the home value appreciation I mentioned can be pretty significant. According to a study of home sale prices, a good solar panel installation has been proven to show a $4 per watt premium over a similar home without one!
 
Looking at the math, a 5-kilowatt system would add as much as $20,000 to the value of your home while you pay no additional property taxes on the value. If you are living in Phoenix, this makes solar not only a good short-term financial move but also a great long-term opportunity as well. If you pay cash for your solar system then this premium will be tacked on to your home’s value immediately without having to worry about a loan or leasing agreement!

What to do next?

If you are living in Phoenix and you are interested in going down the path to solar then I highly encourage to start your journey in earnest. There are tons of great financial advantages to going solar right now and it’s highly possible to find a great system that will save you some serious money over the short and long term.

One caveat is that as the battle between the utility companies and solar continues to be waged, there are possibilities in the future of a less-than-stellar environment for solar. It is likely, in my opinion, that there will be no devastating changes made to the current landscape. Rather, there might be some small, incremental changes as utilities come to terms with a future that includes more renewable resources and a consumer base that care more about their planet and energy sources.

Feel free to ask any questions or provide any comments below!

Images under CC License: 13

Other Images: 2- Mark Florence Flickr, 4 - Jasperdo Flickr

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