Washington Solar – Everything You Need to Know

washington-solar

Information about Solar Panels in Washington state

Installing solar in Washington is unlike any other state. With the lowest electricity prices in the country, homeowners interested in installing solar will need to choose their financing carefully to ensure they come out ahead. Thankfully, we’ve got all the information you need for Washington Solar!

Take a look below at savings estimates for both cash purchase and loans, as well as information on solar policy and available incentives.

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#1 Are Solar Panels Worth it in Washington?

D
Overall Grade
19 years Avg. Payback Time (For Cash Purchase)
3.2 % Estimate IRR (Return on your investment on cash purchase over 25 years)
$5,982 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.

In Washington, saving money with solar is hard. The reason it’s hard is somewhat ironic - with so much renewable energy (hydro) already in place, Washington’s electricity prices are dirt cheap. In fact, they’re the cheapest in the country! This means you’ve got to weigh your financing options carefully to find what suits your needs the best and optimizes your savings.

#2 Options for Buying Solar Panels in Washington

In Washington, cash is king.

Cash Upfront

If you want to go solar in Washington, think cash first. With Washington’s electricity prices being so low, the name of the game when installing solar is cost reduction. Take advantage of each and every tax credit, rebate, and financial incentive (see later sections for info on all these) and only finance if you must.

By avoiding interest rates and all the other fees that go with loans, you’re setting yourself up to save as much as possible. (In fact, loan interest can be the difference between a good and bad investment in this state.) Sure, if you purchase outright you have to bring all that money to the table at the very beginning, but for some installations, it might be the only way to really save any money.

When we average out Washington installation costs from various sources, we find they are a bit on the high side – about $4 per watt, compared to Oregon’s $3.72/watt and California’s $3.61/watt. At this rate, if you installed an average-sized 5kW installation in Washington, you’d dish out $19,850 before incentives.

After applying the 30% federal tax credit as well as the estimated state-sponsored performance payments (for 3 years, 2017-2020, more on this later), that total investment drops to just $11,444. That’s a discount of $8,406. With these incentives, you’re on the right path to save some money!

Over 25 years (the average lifespan of solar installations), you can expect to bring in about $5,982 in net savings, with a payback time of 19 years, for a cash purchase. Yes, you read that right. 19 years. It’s a long time to wait for an investment to pay off. It’s a hard sell and one that probably doesn’t fit a lot of people’s lifestyle, especially if you move around a lot.

Bottom Line: If that long ROI doesn’t scare you, you’ll have free electricity for the rest of your installation’s life and will decrease your carbon footprint at the same time. Not only that, but you’ve added some serious value to your house as well (see section on incentives for more info).

Leases

The legality of third-party ownership financing – which includes leases and power purchase agreements – is murky in the state. National installers like Sunrun and SolarCity, for whom leases are their bread and butter, aren’t active in Washington and seem to have no real plans to change that.

With electricity prices so cheap, it would be hard for homeowners to save money with a solar lease – which is much more expensive in the end than cash purchases. Therefore, these national installers’ business models (which rely on leases) simply wouldn’t work in the Washington market.

The age of solar leasing seems to be fading anyway, as solar installation costs are constantly dropping and new lenders are popping up to offer the increasingly-popular solar loans. In fact, analysts predict that solar loans will account for 50% of all solar by 2020.

Bottom Line: Don’t be too sad that leases aren’t available in Washington. Loans offer the same benefit as leases – requiring little or no money down – but offer many more pros, including higher savings and increased home value.

More: Solar Leases

Loans

If $20k is just a bit too high to shell out, take a look at solar loans. They give you the benefits of ownership – the eligibility for tax credits and increased home value – without that upfront payment. However, your savings greatly depend on the loan’s interest rate and length. You’ll need to be very discerning before signing up for any solar loan.

Let’s take a look at a few examples to really drive this point home:

For the same 5kW installation above, if you took out a fairly standard 15-year loan with 5% interest to finance your solar installation, you’d be looking at a total cost to go solar of $19,849 ($11,444 install cost + $8,405 in interest).

With this loan, you’d see high savings in other states, but because of Washington’s low electricity rates, you actually lose money, to the tune of -$2,423 after 25 years! Does this mean that all solar loans in Washington are a wash? Not necessarily. If you can find a loan with super low-interest rates and a short time frame, you could still be in the positive.

Let’s take a look at another loan with better terms. Washington’s Clark Public Utilities offers 7-year loans with a 3.5% interest for solar installations that cost between $10k and $30k. If you financed that 5kW installation with this loan, you’d add just $2,560 in interest and see a positive savings of $3,422 after 25 years.

This just illustrates the fact that, with solar loans, it’s all about the details! Be sure to shop around. Talk to a few banks, credit unions, installers, and even your utility company to see what they offer and what their terms are.

Bottom Line: Even if you don’t save thousands of dollars (which is difficult to do in Washington even with cash purchases), you’re still contributing to a cleaner, healthier environment. Isn’t that what it’s all about?

More: Solar Loans

#3 Washington Solar Policy Information

Washington’s got all the pro-solar policy you’d ever want: RPS mandates, great net metering and interconnection, and even solid solar access rights.

washington-state-flag

Renewable Portfolio Standard

In 2006, residents of Washington were the second (after Colorado) to pass legislation to adopt a renewable portfolio standard (RPS). Utilities don’t have a lot of reasons to adopt renewable energy, so when states and their residents want to decrease emissions, they set RPS mandates that a certain percentage of electricity sold in the state must be sourced from renewables by a fixed date.

The responsibility to meet these goals falls on the utilities, which are fined if they don’t comply. In Washington, that fine is $0.05 per kWh. With electricity costing $0.09 per kWh to the customer, Washington is serious about their RPS!

The state requires that 15% of all electricity come from renewable sources by 2020. This rule applies to all utilities with more than 25,000 customers. Of the 62 utilities in Washington, this means 17 must comply with this law, which accounts for about 80% of the state’s electricity.

More: Renewable Portfolio Standard (RPS)

Electricity Prices

Saving money with solar is all based on the idea that installing a solar system on your roof that lasts 25 years is cheaper than buying electricity from your utility for those 25 years. The higher the utility’s prices, the more money you can save. The lower the prices, the harder it is to save.

Washington has insanely low electricity prices. As we already stated, they are the lowest in the entire country! Just to show you how incredible they really are, here are a few average electricity prices in different states:

  • Alaska: $0.215 per kWh
  • Arizona: $0.117 per kWh
  • Washington: $0.092 per kWh
  • US Average: $0.129 per kWh

As you can see, Washington’s electricity is almost four cents cheaper than the national average, and half the price of Alaska!

One thing that is higher is Washington’s average yearly increase in utility rates. While the national average electricity price rises 2.6% each year, Washington’s rises 3.4% each year. This means that, while Washington’s electricity prices are extremely low now, they are rising at a faster level than in many other states.

The state has done a great job of harnessing renewable energy and we can thank Washington’s abundance of hydroelectric power for these low prices. Ironically though, because of this renewable energy – and the low prices that it leads to – it’s hard to save money by going solar!

Net Metering

Washington has passed fantastic net metering laws. Not only do privately-owned utilities have to offer net metering (Avista, PacifiCorp, and PSE), but also municipal utilities and electric cooperatives are required as well! This means that all homeowners, regardless of their utility, are eligible for net metering – a very rare occurrence across the nation.

Under net metering agreements, utilities must credit – at retail cost – net metered customers for any excess electricity they produce that goes into the grid. These credits are added to your account for your use in the following month.

The bad part of this set-up is that on April 30th of each year, all credits that you’ve saved up are handed over to your utility without any compensation for you. If your installation is sized to meet 100% of your energy needs or less, this really shouldn’t affect you at all. However, at the end of each year some states pay net metered customers their avoided cost (which is the cost to produce that same electricity, typically around $0.02 to $0.03 per kWh) for any leftover credits, so it would be nice to see something like that.

In the end though, getting the full retail rate for excess generation is the perfect net metering situation – you’re getting greedy if you’re asking for anything more.

More: Net Metering

Interconnection Rules

Interconnection, or the approval process to connect your solar installation to the utility grid, can differ from utility to utility, creating very different experiences for homeowners under different utilities, even if they are in the same state. To alleviate this issue, many states pass regulations that standardize this interconnection process and ensure that all homeowners can go solar as easily and cheaply as possible.

Washington passed interconnection standards in 2007. Systems under 25kW (which includes almost all residential installations) fall under Tier 1, which has the easiest, most streamlined process. The application fee is capped at $100 and Tier 1 installations also don’t need any external disconnect switch (for added safety, typical of larger installations) or additional liability insurance, which decreases your overall financial burden and therefore increases your savings.

Your solar installer will actually take care of the interconnection process for you, so it will be fairly hands-off on your end.

One important note: These rules apply to only the privately owned utilities in the state (Avista, PacifiCorp, and PSE). If you’re part of a municipal utility or electric cooperative, you’ll need to call them up to see what their interconnection process is.

Homeowners Associations

Similar to many other states in the west, Washington has passed legislation that protects two key rights for solar homeowners.

First, along with many other states in the late 1970s, Washington began allowing solar homeowners to create voluntary solar easements with their neighbors. These easements protect the airspace directly in front of the panels, so neighbors or developers cannot plant trees or build structures that would otherwise shade the panels.

Secondly, in 2009, the state passed legislation which restricted HOAs and any other covenants from blocking solar installations. The HOA can place stipulations around where the panels can be installed for aesthetic reasons, but cannot outright ban or block your solar installation.

#4 Financial Incentives, Rebates, and Tax Credits

With the federal tax credit and state-sponsored incentives, Washington homeowners are eligible for some great perks. You better hurry, though, as the biggest state incentive is set to expire in 2020!

mountain-rainier

Federal Tax Credit

If you’ve read anything about going solar, you’ve probably heard of this awesome incentive. The federal government offers an income tax credit worth 30% of the cost of your installation. This means that if you paid $20k for your solar system, you’d avoid paying $6,000 in taxes the following year!

The full credit is set to expire at the end of 2019, then drop to 26% until the end of 2020, then 22% until the end of 2021, until finally dying completely in 2022. The credit is non-refundable, but if you don’t owe enough taxes to take advantage of the full amount, you can break it down over several years.

More: Solar Federal Tax Credit

State Tax Credits

Washington doesn’t collect income tax, so naturally, they also don’t offer any tax credits for solar installations. Residents are eligible for incentives though. See below.

Renewable Energy Cost Recovery Incentive (Updated July 2017)

Washington residents are eligible for performance incentives for all the electricity their installations produce through the state-sponsored Renewable Energy Cost Recovery Incentive program. Utilities pay solar homeowners between $0.15 and $0.54 per kWh (equipment built in Washington garners higher incentives). In 2017, the state legislature updated the program, which expires in 2020.

Here’s a quick rundown of the incentive structure:

  • Base Incentive: $0.15 per kWh
  • Solar panels manufactured in Washington: $0.36 per kWh
  • Inverter manufactured in Washington: $0.18 per kWh
  • Solar panels and inverter manufactured in Washington: $0.54 per kWh

Incentives are capped at $5,000 per year and the homeowner retains all RECs the installation produces. To be eligible, the homeowner must own the system (sorry – no leases!) The program ceases paying incentives in 2020, so if you’re thinking about installing solar, you’d better act quickly!

A 5kW installation in Seattle produces about 5,400 kWh in a year, so an installation without any equipment made in-state would garner $810 in the first year, and around the same amount each year until 2020. If you used both a Washington-made inverter and solar panels, you’d be looking at $2,916 in the first year and each year afterward, though we can promise you the equipment will be much more expensive than their imported equivalents.

Even in the lowest tier, you could increase your savings by $1,600 total in just 2 years! If you’re financing with a loan, that $1.6k could be a huge help!

Whether or not it makes financial sense to install locally-made equipment is dependent on your utility rates, equipment cost, and installation size. Talk to a few installers to discuss available equipment and costs to discern which direction is best for you.

Property Tax Exemption

Washington offers no property tax exemptions for going solar.

Property tax exemptions don’t offer much savings, but with an average property tax rate of 1.06% across the state, a property tax exemption would mean savings of only $190 in the first year for a 5kW installation. Money saved is money in your pocket though, so it’s too bad this isn’t an option.

Sales Tax Exemption

The state of Washington offers exemptions from sales and use tax for residential solar installations. If your system is under 10kW, you’ll be 100% exempt. Anything larger than 10kW and you’ll be 75% exempt.

These exemptions don’t save you too much money, but with Washington’s low electricity rates, every little bit of savings helps!

General Increase in Home Value

In 2015, a national energy lab studied home values in 8 different states and found that homeowners were willing to pay a premium for homes with solar attached – as long as the solar installations were owned by the homeowner herself.

They looked at 22,000 home sales – of which 4,000 had solar – from 1999 to 2013. Homebuyers were willing to pay an extra $4 per watt on average for homes with solar. This means your 5kW installation could bring an extra $20k in value to your home!

Read 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 Seattle Solarwashington-seattle

If you’re a Seattle resident, going solar can be a great decision. Just like any other utility in the state, Seattle City Light offers incentives through the Renewable Energy Cost Recovery program and net metering as well. They will have their own interconnection procedures, which your installers will be well aware of, so no need to worry about that.

Seattle City Light’s average electricity rate is a little over $0.10 per kWh – a bit higher than the state’s average. While higher electricity prices are never a good thing, it does mean Seattle residents will have an easier time saving money with solar than homeowners in other areas!

The City of Seattle requires electrical permits (pg. 11) for all solar installations, with a permit fee of $190 for systems less than 7kW in size. Building permits are also required if the installation is over 1,000 pounds or the project is valued at over $4k, so you’ll need a building permit as well.

Unlike other cities, Seattle allows solar panels to stick out 4 feet above the ridge of your roof – meaning you’re freer to position and tilt your panels to directly face the sun than in other states (see pg. 12 of the previous link).

What to Do Next?

First things first, talk to installers to get a few quotes. Take a look at the costs and savings of both cash purchases and loans – there might be some choices there you didn’t expect. Think through your own financial and living situation to decide which financing option works best for you.

Installing solar in Washington won’t make you rich, but you’ll hopefully have some extra dough in your pocket and a spring in your step from all the good you’re doing for our environment.

Image Credits under CC License via Pixabay -  1, 34, & Flickr - 2

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