South Dakota Solar – Everything You Need to Know
Information about Solar Panels in South Dakota
South Dakota probably isn’t the first state to pop in your mind when you think of renewable energy, so you might be surprised to learn that clean energy makes up over 70% of all electricity in the state. On top of that, South Dakota uses about 30% less coal than the national average as well.
Despite all this, solar in South Dakota is still in its nascent stage – not even crawling yet. Almost all of that clean energy comes from hydro and wind - solar is installed on just 53 homes in the entire state.
Even though South Dakotans aren't chopping at the bit to install solar - maybe they should be, as installing solar your roof can help you save over $13k in the state.
Want to jumpstart the solar revolution in South Dakota? We’ve got savings estimates and info on financing, solar policy, and a list of all available incentives to help you lower your cost as much as possible. So, get to it!
#1 Are Solar Panels Worth it in South Dakota?
Avg. Payback Time (For Cash Purchase)
Estimated IRR (Return on your investment on cash purchase over 25 years)
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 South Dakota
You’ll need to either pay in cash or take out a loan to finance your South Dakota solar installation. And each of these has its own benefits.
If your bank account can handle paying cash for your solar installation, you’ll have many rewards waiting for you. First off, as the solar owner of the system (unlike a solar lease), you’re eligible to receive the federal tax credit to lower your total investment by 30%.
Secondly, by avoiding interest or lease payments, you’ll save more than with any other financing type. Lastly, you’re adding a valuable asset to your home that can recoup a major portion of your initial investment if you go to sell your property.
Exactly how much you can save depends on your installation costs, utility rate, system size, and weather. Let’s run through an example of a typical South Dakota solar installation, so you can get an idea of what to expect.
If you installed an average 5kW installation in South Dakota, you’d pay around $17,650, or $12,355 after applying the 30% federal tax credit. With South Dakota’s sunny skies, your installation would produce about 7,500 kWh in the first year. The average electricity price in South Dakota hovers just under $0.11 per kWh (as of May 2018), so you’d avoid paying about $807 on your utility bills in the first year.
As your utility rates climb each year (historically, at a rate of 2.9% annually in South Dakota), your solar production will also degrade by about 0.8% each year, mainly due to weathering and age (this is normal and unavoidable). With utilities raising rates faster than your solar panels degrade though, you’ll actually be savings about $20 more each year, adding up to $13,752 in savings after 25 years, and paying off your initial investment after 14 years.
This equates to an internal return of 6.2% – not bad considering you’re helping the environment and adding value to your home as well!
Over the last 10 years, thousands and thousands of homeowners across the country have gone solar through a solar lease or power purchase agreement (PPA). They typically work with a big solar installer like SolarCity or Sunrun, that can both finance and install the solar system. In 2014, at the height of the solar lease’s popularity, over 70% of all residential solar was financed via lease/PPA.
Today, that number has dropped to less than 50%. We can thank (or blame) a few different reasons for this drop in popularity. First, installation costs have decreased to the point where many can pay in cash. Second, as solar becomes ‘mainstream’, more banks and credit unions offer loans for solar installations. And lastly, more and more homeowners are seeing the benefits of actually owning their own installation (namely better financial savings).
Still today in 2018, solar leases have yet to catch on in South Dakota. First off, the legal status of solar PPAs is unclear in the state. On top of that, big installers like Sunrun who offer solar leases have yet to enter the area– so even if you wanted to lease your solar installation, there aren’t any companies in South Dakota that offer it.
Though leases typically require no money down, you save the least with this financing mechanism. as there are additional costs and fees that leases require. Sunrun claims that, even in the best states for solar, you can expect to save about 20% of your electricity costs by entering a solar lease. In a less-than-perfect situation like South Dakota, both you and the installer/financier would have a hard time making any sort of profit.
More: Solar Leases
If your wallet’s feeling a bit too light to pay for your solar system in cash, look into loans as the next best option to finance your installation. With the boom in solar over the last 10 years, banks, credit unions, and even special lenders dedicated to solar all offer loans for solar installations. The options are pretty wide-ranging. You can even take out a HELOC or HELOAN from your local bank to pay for it.
Of course, you’ve got to pay that pesky interest – which certainly eats into your savings – but you’re still eligible for the 30% tax credit to lower your total investment and your installation still adds value to your home as well.
Exactly how your loan will affect your savings depends on all the factors we mentioned above for a cash purchase (namely install price, energy production, and utility rate), but you’ll also need to account for loan details like the interest rate, loan term, and any additional fees your lender tacks on.
Let’s say you shopped around for a loan and settled on a 15 year, 5% interest loan to pay for the 5kW installation above. Over the next 15 years, you’d pay an additional $7,001 in interest (making your total investment $19,356 after tax credit), in turn lowering your total savings to $6,751 over the 25 year lifespan of your installation. At this rate, you’d need a full 20 years to make your money back and start saving.
Obviously, 20 years is a very, very long time to wait to make your money back, so we’d really only recommend this route if you 1) aren’t planning on moving anytime soon, and 2) value the environmental benefits of solar just as much as the financial benefits, since you aren’t going to see savings for quite a while.
More: Solar Loans
#3 South Dakota Solar Policy Information
Despite South Dakota passing very few laws to bolster the local renewable energy industry, clean energy makes up a huge chunk of the state’s electricity production – but it’s not solar.
Renewable Portfolio Standard
In an effort to curb harmful emissions, 29 states in the US have passed laws instigating renewable portfolio standards – mandates that utilities must adopt or buy a specified amount of clean energy or RECs by a specified date. If utilities fail to meet these standards, they typically face stiff financial penalties or fines.
Without RPSs, most utilities have little desire to adopt renewable energy on their own or encourage their customers to make greener choices. Adding renewable energy into a utility’s generation mix creates a much more complicated situation, and utilities tend to be very traditional businesses, so some believe it’s best to leave all this new-fangled green stuff alone!
Unlike neighboring states Montana (15% renewable by 2015) and Minnesota (26.5% by 2025), South Dakota adopted a voluntary renewable portfolio goal – not a standard – in 2008. This goal requests all utilities operating in the state to source 10% of electricity from renewable sources or conservation (ie avoided electricity use through energy efficiency) by 2015. However, as the goal wasn’t mandatory, there were no penalties for utilities that did not cooperate.
Even still, according to a December 2017 report submitted to the state legislature by the South Dakota Public Utilities Commission, most utilities met or exceeded the 10% goal – with MidAmerican Energy sourcing over 41% of electricity from renewables and conservation! Others, however, failed to adopt any renewable measures at all. (PDF p.3)
South Dakota actually enjoys some of the highest levels of renewable energy in the country. Hydro and wind power play a huge role in South Dakota’s electricity generation, accounting for 40% and 30% of all generation respectively. Coal accounts for just 20% of total generation – a full 1/3 lower than the national average!
So even without a mandatory goal, South Dakota’s electricity generation is already pretty clean, thanks to abundant wind and water.
As of early 2018, the average electricity rate in South Dakota is $0.11 per kWh – higher than neighboring North Dakota’s $0.09, but not quite as bad as Minnesota’s $0.13 per kWh. And with the US average around $0.13 as well, South Dakotans enjoy pretty cheap electricity.
Low-cost power is obviously great – that’s more money you can save or spend elsewhere – but, it’s also a likely reason why solar hasn’t really caught on in the state. Higher electricity prices make it easier for homeowners to save money by going solar. Lower electricity rates means lower monthly savings and a longer return on investment.
Of course, current prices aren’t the only consideration. While South Dakota electricity is pretty cheap right now, it’s actually increasing faster than in other states. Over the last 10 years, electricity prices have increased 2.9% each year, compared to 2.6% for the national average.
With these low prices, it’ll take you longer to recoup your initial investment, but as the price increases each year, you’ll save more and more – and at a faster rate than many other areas of the country.
South Dakota is one of only three states (including Alabama and Tennessee) that have yet to pass any form of net metering regulation. (For context, 38 states, Washington DC, and 3 US territories have passed mandatory net metering regulations.)
Without any state-wide net metering standards, utilities are free to choose how or if they want to compensate solar homeowners and businesses for all the clean electricity they produce but don’t use and send to the grid.
Thankfully, even without net metering rules, you’re probably not at a total loss. Even in states that don’t require utilities to offer net metering compensation, many utilities will still pay you for your excess electricity at their avoided or wholesale cost – the price they would pay to generate that same electricity.
Avoided cost is usually about a 1/3 of the retail rate you pay, so while you’re not going to save as much as homeowners in states that enjoy full retail rate net metering, you’re certainly not out on your own either.
As South Dakota doesn’t have a statewide policy, your exact compensation depends on your utility’s regulations, so talk to them as well as your solar installer before making any decisions.
More: Net Metering
When a state wants to make the process to go solar as easy as possible, they’ll often pass interconnection standards. These standards create a uniform approval process that all utilities must follow when granting permission for a solar homeowner to connect to the grid.
Without interconnection standards, utilities can basically do whatever they want. They can require homeowners to pay any application fees they choose. They can take long lengths of time to approve the interconnection request. And they can even require you to install additional equipment that adds cost to your already pricey installation.
In regards to interconnection standards, there’s good and bad news here for South Dakota residents. First off, the good news: South Dakota passed interconnection standards in 2009. They set out ‘reasonable’ time frames for approval that utilities must follow.
The bad news is that these interconnection standards almost seem designed to protect the utilities more than homeowners. Under these regulations, homeowners are responsible for all interconnection expenses, including necessary equipment and even utility infrastructure upgrades if needed.
On top of that, utilities are allowed to require solar customers to install an external disconnect switch, which adds expense to your installation and which many states expressly forbid in their interconnection standards (at least for residential installations). All solar homes/businesses are also required to have insurance, though the amount of insurance depends on the size of the installation.
Residential systems under 10 kilowatts in size (which includes most residential installations) only need general liability homeowners insurance. That’s good news as most of us have homeowners insurance anyway (hopefully at least). If your system is larger than 10kW, you’ll need to list the utility as an ‘additional insured’ on your insurance policy.
Important Note: These standards only apply to investor-owned utilities, so if you’re part of one of the many electric cooperatives or municipal utilities in South Dakota, these rules don’t necessarily apply. You’ll need to contact your specific utility for details. Your solar installer should also be very familiar with their regulations as well, so be sure to discuss the procedure with them.
Solar Access Rights and Homeowners Associations
Since 1996, South Dakota has allowed solar homeowners to create property easements for the airspace directly in front of their solar panels. This protects the homeowner’s expensive solar investment in case a neighbor decides to plant trees or build an extension that blocks sunlight from hitting the solar panels, rendering them useless.
The solar homeowner and neighbor must jointly agree to the easement, which has a max term of 50 years and must be filed in writing with the county register.
Some states also pass laws banning Homeowners Associations (HOAs) or other covenants from refusing approval for solar installations, but South Dakota has yet to pass such a ruling. Until then, if you’re part of an HOA, the best course of action is to start talking with your HOA approval board as early as possible, stay friendly and flexible, and show them how great solar is for the neighborhood!
#4 South Dakota Solar Incentives, Rebates, and Tax Credits
Beyond the federal income tax, South Dakotans also benefit from a statewide property tax exemption for solar installations.
Federal Tax Credit
You’re probably already aware of the federal income tax credit for solar installations, also known as the Investment Tax Credit or ITC. If you had to choose a single incentive to drop the price of your solar installation, this is a pretty good one as it’s basically a 30% discount on your installation costs. However, there is one big caveat.
As a tax credit – not a deduction – this incentive decreases your federal income taxes at 30% of the cost of your installation. So if you paid $17k to install solar, you’d be able to claim $5,100 as a tax credit. Pretty awesome, right?
However, what many in the solar industry like to gloss over is that this is a non-refundable tax credit. Let’s say you only owe the feds $2,000 this tax season, but you have that $5,100 credit. As a non-refundable credit, the ITC only brings you down to $0. The federal government won’t give you a check for the remaining $3,100.
To help out with this issue, you are allowed to break the credit down into smaller chunks and claim a portion each year over several years, so you’re not at a total loss. But if you’re retired or typically don’t owe a lot at tax time, talk to a tax adviser before you install your system to make sure you can benefit from this awesome incentive.
And don’t forget that the full credit expires at the end of 2019. At that point, it drops to 26% for a year, then 22% for a year, until completely dying off at the beginning of 2022.
More: Solar Federal Tax Credit
South Dakota Tax Credits/Rebates
While becoming less and less common, some states offer state income tax credit for renewable systems similar to the federal tax credit. Unfortunately, South Dakota offers no such tax credits for solar installations at this time.
Property Tax Exemption
We’ve mentioned that solar installations add tangible value to your home. That’s great for the resale value, but your property taxes increase as well. In an effort to encourage renewables in the state, South Dakota exempts from property tax the additional value solar or other renewable systems add to your property, with a cap at $50,000 or 70% of the assessed value of the property – whatever is greater.
With the average property tax rate in South Dakota at 1.28%, this exemption adds up to $218 savings in the first year for an average-sized solar installation that costs $17k. Not bad for just a property tax exemption – every bit helps!
Sales Tax Exemption
Some states also exempt solar equipment, and possibly labor costs, from sales tax as well. South Dakota is not one of those states.
General Increase in Home Value
In 2015, the Lawrence Berkeley National Lab published a 14 year study of home resale value across 8 states. They compared the cost of similar homes with and without solar and found that homes with solar sold for $4/watt more on average. Homes with newer installations commanded closer to $6/watt, while older systems were closer to $2.50/watt.
The study didn’t focus on South Dakota, where solar installations are probably valued lower than in other areas with high electricity prices, but even at just half the rate above – or even just a quarter of the rate – you’ll still recoup much of your initial investment by simply selling your home.
Be sure to talk to a local real estate agent and your installer for the inside scoop on resale value, but you should certainly see some added property value when it comes time to sell.
If you’d like to dig even more on local incentives and rebates, check out the DSIRE database.
#5 Sioux Falls Solar Information
If you live in South Dakota’s most populous city, you might be wondering if you need to know anything special about going solar in your area. With electricity provided by the City of Sioux Falls (a municipal utility), you’ll need to contact them directly for their regulations around interconnection and net metering (remember how the state’s interconnection standards only applied to investor-owned utilities and there’s no statewide net metering regulations?)
Going solar in Sioux Falls – and South Dakota in general – can be a great decision for both your wallet and the environment. To squeeze out as much savings as possible though, be sure to talk to several installers before moving forward and try to get the best terms if you take out a loan. Like we’ve seen above, you can see good savings going solar in South Dakota, you just need to remember that it’s a long-term investment – not a get-rich-quick scheme.