Tennessee Solar – Everything You Need to Know

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Information about Solar Panels in Tennessee

Despite the state of Tennessee taking virtually no positive steps to encourage or reward homeowners to go solar, Tennessee homeowners can save over $17k with a mid-sized solar system -- thanks largely to TVA’s Green Power Provider program.

If you're looking for everything you need for Tennessee solar, you're covered! We’ve collected all the necessary information on going solar in Tennessee, including solar policies, available incentives, and savings estimates for average-sized installations. Ready to learn all about Tennessee solar? Let’s do it!

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#1 Are Solar Panels Worth it in Tennessee?

C
Overall Grade
14 years Avg. Payback Time (For Cash Purchase)
6.3 % Estimate IRR (Return on your investment on cash purchase over 25 years)
$14,189 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 Tennessee

With the legality of third-party ownership like solar leases and PPAs unknown, Tennessee residents must turn to financing solar in cash or through loans – both of which are better options than leases anyway.

Cash Upfront

There’s a lot of advantages to purchasing your solar installation in cash. Let’s take a look at at few:

  • High savings. Over the life of your solar installation, you’ll be able to save much more money than with a solar lease or loan, as you won’t have to deal with pesky interest payments.
  • Own the system. Since you’re paying in cash you’ll own the installation, which allows you to take advantage of the federal tax credit and also add value to your home.
  • Safe investment. Think of solar like buying stocks in a stable, well-known company – it’s considered a safe, long-term investment. Over the next 25 years or more, your installation will produce reliable electricity and your utility will likely continue to raise rates (more on that later).

Of course, there’s that one big drawback to paying for a big ticket item in cash: you have to actually have (and part with) that cash. That’s not a huge deal for a TV or refrigerator, but for solar it’s a big purchase!

But unlike a TV or refrigerator, purchasing a solar installation enables you to make your money back and actually start saving money as well. Let’s run through a quick example to show you what it’s like installing solar in Tennessee:

An average-sized 5kW installation in Tennessee costs about $17,116, or $11,981 after applying the federal tax credit. Once you’ve paid for the installation though, you’re done! While everyone else is dealing with rising electricity prices, you’ll be sitting pretty. By year 14, you’ll make back your investment and actually start making money. By year 25 (the estimated life of solar installations), you’ll have saved $14,189, a return of 6.3%!

Bottom Line: If you’ve got the cash sitting in your bank, solar is a safe investment that can bring back a pretty penny to you later on.

Leases

Solar leases are not an option in Tennessee. The legality of third-party owned solar (like leases and power purchase agreements) is unknown and the national installers that offer leases (like SolarCity and Sunrun) don’t work in the state.

That being said, installers typically claim you can only knock off about 20% of your electricity costs by going solar with a lease – a far cry from the huge savings you can see with a cash purchase.

Bottom Line: Solar leases are currently unavailable in Tennessee, but you’ve got better options anyway.

More: Solar Leases

Loans

Loans are a good mix of the benefits of a cash purchase and a solar lease. With a loan, you own the system, are eligible for the federal tax credit, and add value to your home — just like a cash purchase. Taking out a loan, though, allows you to avoid paying that $17k up front which, let’s be honest, most of us just don’t have lying around.

You can’t forget the biggest drawback of a loan however: interest. Depending on your interest rate and loan length, interest payments can really affect your total savings.

For example, let’s say you take out a 15-year loan with 5% interest to pay for the 5kW installation above. At this interest rate, you’d add $7,247 to your total investment. This drops your savings over 25 years to $6,942, with an internal return of 2.3%. You’re still saving money, but it’s much lower than with the cash purchase.

Of course, if you’re able to find a loan with a lower interest rate or can pay off your loan early, you can avoid a lot of those interest payments. It pays to ask around with a few different installers, banks, and credit unions to find the best possible deal.

Bottom Line: You won’t save as much when compared to a cash purchase, but loans allow you to go solar without that huge initial investment. Just be sure to do your homework beforehand.

More: Solar Loans

#3 Tennessee Solar Policy Information

Yikes. We could’ve summed up this section on Tennessee solar policy in one phrase: there isn’t any solar policy. Read on for explanations why.

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Renewable Portfolio Standard

You’re probably not familiar with Renewable Portfolio Standards (RPSs), but if you live in a state with solar on every other rooftop, you’ve seen the benefits!

RPSs are simply mandates – passed by the state – that a certain percentage of electricity utilities sell must come from renewable sources, typically wind or solar, by a certain date. Some states go even further, saying that a certain portion must come from solar or ‘distributed’ energy (ie rooftop solar). This is known as a ‘solar carve out’.

Currently 29 states, 3 territories, and Washington DC have passed RPS goals, ranging from a few thousand megawatts (pretty small) to 100% renewable. Most, though, fall somewhere around 20% to 30%. For example, Colorado requires 30% renewable by 2020, with 3% coming from distributed generation. Nevada requires 25% by 2025, with 1.5% coming from solar.

RPSs typically jump start the renewables industry in any state. To prove they’re complying with the RPS mandates, utilities collect renewable energy certificates (1 MW of renewable energy = 1 REC) which they then hand over to the state for inspection.

To collect these RECs, they’ve got a lot of options. They can build their own renewable power plants. They can purchase renewable electricity (and the accompanying RECs) from an independent generation company. Or they can – and this is where you come in – purchase RECs from solar homeowners or businesses. This can add thousands of dollars in savings over the life of your system!

Unfortunately, Tennessee hasn’t passed any RPS goals, thereby leaving the solar industry to grow meagerly at its own pace, instead of blasting it into the future.

More: Renewable Portfolio Standard (RPS)

Electricity Prices

Tennessee residents enjoy low electricity prices of around $0.11 per kWh – about 15% lower than the national average – thanks to the state’s high percentage of hydropower and nuclear, which together account for 46% of all the state’s electricity (though coal accounts for almost all of the rest).

We can’t complain about low electricity prices – especially when they’re the offspring of awesome, old-school hydro projects – but there’s a catch when it comes to solar. As your electricity prices increase, your solar savings grow, since you’re avoiding paying those high prices.

With Tennessee’s low electricity rates, your savings just won’t be as high as homeowners in neighboring Alabama or South Carolina, where electricity is more expensive.

But that’s not the whole story. With solar installations lasting 25 years or so, you also need to look at future prices as well to get an accurate estimate of solar savings. In this case, Tennessee isn’t looking too bad, as electricity prices are rising 3.4% annually on average according to EIA data – much higher than the national average of 2.6%.

While Tennessee electricity is cheaper than most states now, it’s actually rising at a faster rate than other states. Installing solar would then allow you to avoid those high prices later on!

Net Metering

Ouch. This just isn’t good. Tennessee is one of just 6 states (Nevada reinstated net metering in 2017) that have yet to pass any statewide net metering regulations. As a basic cornerstone of solar savings, net metering is extremely important to the growth of solar.

Net metering is actually a pretty simple concept. Your solar installation doesn’t produce energy all the time, and often it’s producing when you’re not even home to use it (while you’re at work, for instance). With net metering, when you can’t use that electricity, it goes into the grid and your utility credits your account, typically at retail rate (ie what you pay the utility for electricity).

At the end of the month, if you have credits left over, they are typically added to your account for use later on. Once you’ve built up some credits, you’re able to pull from them on rainy days (literally) or during the winter, when your installation isn’t producing as much.

Unfortunately, net metering doesn’t exist in Tennessee. TVA claims that net metering is against their regulations, as all the local power companies they work with must buy all their power from TVA.

TVA does offer solar homeowners a program they call Green Power Providers, wherein they purchase all the electricity you produce at retail cost. It’s quite a different offering than net metering, but the closest thing you’re going to get. See the appropriate section below for more details.

More: Net Metering

Interconnection Rules

To ensure homeowners can go solar as easily and quickly as possible, many states standardize the interconnection process, or approval process (with your utility) to connect your solar installation to the grid.

Typical regulations to help homeowners include fast tracking for smaller installations (usually systems under 10kW in size), banning utilities from requiring additional safety disconnects or homeowners insurance (which adds costs), and requiring utilities to respond to applications within a certain timeframe.

Tennessee has yet to pass interconnection standards, though of course they would really only affect one utility (TVA). If you’re going solar, applying for interconnection is rolled into the larger Green Power Provider application process.

Homeowners Associations and Solar Access Rights

If you haven’t heard of ‘solar access’ before, you’re probably thinking ‘access to what?’ When we talk about solar access, we are actually talking about two separate ideas:

  1. The right to install (or ‘access’) solar on your roof or property. With solar being a new and still-too-frequently misunderstood phenomenon, many homeowners associations (HOAs) have attempted to block installations on the grounds that they decrease the aesthetics of the neighborhood or negatively affect home prices.
  2. The right to access sunlight. Once you’ve installed solar, wouldn’t it be terrible for your neighbor to add a 2nd floor or plant trees that shade your panels? Believe it or not, this has happened, with the battle ending in court!

Many states have passed laws to protect solar homeowners in one or both of these situations. While Tennessee residents have nothing to protect against the first problem, the state does allow homeowners to create easements with neighbors on the airspace directly in front of their solar panels. Once the easement is in place, your solar panels’ sunlight is legally protected!

Even with an easement, the best course of action is still to talk to your neighbors and HOA about your plans. Discuss in full your design, how it will look, and if it will affect (or not affect) your neighbors. If they’re skeptical of the benefits, show them this article!

#4 Tennessee Solar Incentives, Rebates, and Tax Credits

While Tennesseans aren’t eligible for many incentives to lower installation costs, the federal tax credit more than makes up for this drought!

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Federal Tax Credit

Even though the state of Tennessee offers little help to lower the cost of going solar, the federal government has stepped in and offers an income tax credit worth 30% of the total cost of your installation. With a 5kW system, this equals $5,134 ($17,116 X 30%) that you can avoid paying the next tax season.

As a non-refundable credit, you’re not going to get a check if your taxes are below zero, which is kind of a bummer, but there is good news though. If your tax liability isn’t high enough in a single year to claim the whole amount, you can break down the credit into chunks and claim pieces over several years.

This awesome credit was originally set to expire in 2016, but at the last minute, the federal government extended the full credit until the end of 2019. The credit then drops to 26% throughout 2020, then 22% throughout 2021. In 2022, it’s toast.

More: Solar Federal Tax Credit

State Tax Credits/Rebates

The state offers no tax credits or rebates for solar installations. With Tennessee not even collecting income tax, it would be hard to offer a tax credit anyway.

Utility Based Incentives

No utilities in Tennessee currently offer incentives for homeowners going solar.

TVA Green Power Providers

TVA offers their Green Power Provider program in Tennessee as well as a handful of other states like Georgia and Alabama. If you enroll in this program, TVA will purchase 100% of the electricity your solar installation produces at retail rate (so if you pay $0.11 per kWh, TVA will pay you $0.11 per kWh).

This program is kind of like TVA’s substitute for offering net metering. In regards to compensation, it’s actually very similar to a good net metering policy, but that’s where the similarities end.

In a net metering agreement, your utility only credits you for your excess electricity that you don’t use and which goes to the grid. With the Green Power Providers program, you sell ALL your electricity to TVA.

If you’re looking at solar purely from a investment standpoint, this program definitely makes sense. However, if you were excited to actually use some of the clean energy you produce, you’re going to need to look elsewhere.

For 2017, there’s a cap of 5 MW (pg. 9)for residential installations (for reference, that’s equal to 1,000 5kW systems). The first step in applying is to take a look at this list of TVA’s partner utilities that offer the Green Power Provider program to see if yours is on there.

Property Tax Exemption

Unlike many other states, Tennessee offers no property tax exemptions for the value solar adds to your home. With a 5kW installation potentially adding $20k in value (see section below) and Tennessee seeing an average property tax rate of 0.774%, an exemption would save you about $155 in your first year alone.

Maybe one day, Tennesseans!

Sales Tax Exemption

The state of Tennessee actually does offer one benefit for solar homeowners. It exempts all solar equipment from sales tax. While you the homeowner won’t apply for this exemption directly, your total installation cost will be lower since you’re avoiding the sales tax your installer would’ve passed on to you.

Solar equipment accounts for about 40% of your total installation costs, so you’ll be successfully avoiding about $480 on a 5kW installation (with the 7% state sales tax). Awesome!

General Increase in Home Value

We’ve mentioned throughout this article that installing solar on your roof adds value to your property and it’s finally time to talk about it.

In 2015, the federally-funded Lawrence Berkeley National Lab (LBNL) published a report on solar home values that found homebuyers were willing to pay a premium for homes with solar installations owned by the homeowner (no leases!)

For the study, they analyzed 22,000 home sales across 8 states from 1999 to 2013. While the amount varied based on the age of the installation, solar added an average of $4 per watt to the value of the home. At this rate, you’d be adding $20k in value to your home with a 5kW installation.

This is great news for solar homeowners, but the study didn’t look specifically at Tennessee, so be sure to talk to your solar installer, real estate agents, or friends who’ve sold their solar homes for a bit more insight into your area.

Even at half this rate, though, ($2 per watt), you’d be making back almost your entire initial investment – not too bad!

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.

#5 Nashville Solar Informationnashville-wall-mural

If you live in the Nashville area, going solar isn’t going to be too different from what we describe above. As the local power company working with TVA, Nashville Electric Service (NES) offers the Green Power Provider program, and solar installations must conform to all of TVA’s requirements.

NES’ rates are $0.10 per kWh as of summer 2017 and decrease slightly during the winter when demand is lower. NES also charges all residential customers a set fee of $11.83 per month regardless of how much electricity you use, so be sure to calculate that into your savings estimates.

What to Do Next?nashville-tennessee

Hopefully, you’ve now got all the information you need to make the first foray into solar. Going solar in Tennessee can be a good decision, but just like any investment, you need to do your homework first to make sure it’s the right call for you. Step one is to call a few installers for quotes or savings estimates.

Image Credits under CC License via Pixabay - 1, 2, 3, 4, 5

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