Does Going Solar on Your Michigan Home Make Sense?
According to the Swanson effect as seen in the infographic below, cost of energy provided by solar panels in Michigan has plummeted. If you are thinking of going solar, there’s never been a better time. The price of solar per watt has gone from $76.67 to an extremely affordable rate of $0.36! More often than not, this is less than you’re paying for grid energy!
Michigan has been a key US state for solar innovation, panel production and renewable energy investment. As the above Swanson chart shows, that innovation has lowered the cost of solar panels to where it is a smart energy choice for Michigan.
Think that Michigan is too cold to use home solar? Nope. The generous amount of daily sunlight (over 4 hours per day) coupled with the low average temperatures are actually ideal conditions for solar energy production. Converting the sun into electricity gets more efficient at lower temperatures.
With over 200 solar power-related companies in Michigan, solar has been one of the few bright spots in an otherwise troubled state economy. Installing residential solar panels on your Michigan home not only adds value to your property and lowers your monthly energy bills, it protects the Michigan environment and supports much-needed jobs directly in the local economy. Everyone in the community wins with solar in Michigan.
With the obvious benefits of home solar panels to the Michigan economy and environment, it is surprising that the state has not done more in the way of incentives to encourage participation. Even with the lack of local incentives, every resident of Michigan is still eligible for the Federal 30% tax credit. This makes a home solar system practical and affordable for many Michigan homes.
Let’s take a look at the different solar panel options available to Michigan residents.
Comparing Michigan Solar Panel Options
The chart below gives you an idea of the costs and returns for each solar option available to Michigan residents – purchase, purchase with credit, and solar leasing.
Cash Purchase
A cash purchase always delivers the most immediate, largest savings. With no loan payments, you realize 100% of the energy savings immediately, along with the Federal 30% tax credit.
Considering an average installation price of $20,000 for a 5kW system, you will see an immediate return of $6000 (Federal rebate) and an estimated first-year savings of around $760 in energy costs.
Taking into account expected energy price inflation, your yearly savings should be an estimated $1300 within 15 years. This should completely pay for the system within 15 years, but you still own the added value of the system to your property, and you are supporting local jobs and the environment too!
Purchase with Credit
Years ago, the only way to buy home solar was to pay cash. As the lifetime of the system has gotten longer and the efficiency has grown, you no longer have to lay down $20,000 cash to buy your solar system. In fact, as a return on cash invested, financing is actually more sensible than paying cash.
Low interest rates along with the Federal tax credit give solar financing the largest actual returns. You get all of the benefits of solar, without any cash out of your pocket!
Let’s assume a home equity loan of 5% for a $20,000 system. While there will be a few years in the beginning where the loan payments are greater than the savings in energy costs, energy inflation will quickly outpace your loan payment. As Michigan has one of the higher energy costs in the US, your savings will also be higher than other states.
With an average $20,000 installation price, a purchase on credit makes perfect financial sense. Year one, you should save about $760 in energy costs, and have loan payments totaling about $1900. This means around $95 per month out of pocket your first year, but remember, you got $6000 in tax credits. That tax credit means you are $4860 ahead the first year!
With each year, your savings increase and your money out of pocket decrease, until at year 15, you are saving approximately $1400 per year. After 25 years, you will have a net profit of around $7300, even after paying for your system.
If you would like a custom quote based on your energy use, click here for a quote.
Leasing Option For Solar Panels
Solar leasing is a great way to go solar if you are short of cash or if you don’t have the ability to take a loan. As you can see above, the immediate returns are not as impressive, but due to the relatively high Missouri energy costs and the normal energy cost inflation, your savings multiply year after year!
With solar leasing, you generally have two distinct options.
With standard leasing, you basically pay a rental payment for a solar roof system. The system is installed and maintained by the solar company on your roof. Depending on the amount of sun you get, the lease payment plus the new, lower electric bill should be less than what you are currently paying.
With a Power Purchase Agreement (PPA), you agree to allow a company to install home solar on your roof. You then purchase the energy your panels produce at a substantial discount to your current residential electric rates. As with a lease, the company maintains the system and assumes all risk. You just collect the savings.
Keep in mind that with a lease, you do not get the residual value of the system to your property, as you do not own it. You also do not receive any of the tax credits or other benefits of home solar ownership, other than lower energy costs.
Michigan’s Renewable Portfolio Standard (RPS) Guidelines
A state’s Renewable Portfolio Standard (RPS) is a plan, based on legislation or regulation, that outlines goals and targets for production of renewable energy in the state. The RPS is the tool that encourages power companies to supply renewable energy rather than using fossil fuels.
Michigan’s RPS took effect in 2008, with a goal of generating 10% of their power with renewable energy by 2015. They have met this goal, but the RPS has run out, and there is no new plan in place.
There has been some progress in crafting a new RPS, but with the condition of the Michigan economy, some legislators have worried that higher standards may have negative consequences. The new plans call for a 40% renewable goal by 2025.
No current RPS leaves Michigan residents with few state incentives, but with your high energy costs, solar still makes perfect sense. Remember, you are not only saving money, you are saving local jobs and the environment!
Additional Considerations for Michigan
Michigan has no “solar carve-out’. A solar carve-out is a guarantee that at least some portion of the energy generated will come from solar. With an RPS in place, there is no mechanism to enforce or plan a solar carve-out.
There are no solar rebates in Michigan. With the expiration of the RPS, there has been no legislation to encourage solar energy. States with rebate programs have seen dramatic increases in residential solar participation.
There are no state tax credits to encourage participation in Michigan. State tax credits are a win for both the state and the consumer. For the state, there is no out-of-pocket cost, and for the consumer, there is an incentive to participate.
Michigan has no property tax exemption for the value of home solar systems. Since 2013, you are taxed for the increased property value of adding solar to your home. Not exempting solar discourages participation.
Michigan has no sales tax exemption for solar. Many states exempt home solar from state sales tax, further reducing the actual cost of the system. Michigan charges state tax on solar. This is a very easy, inexpensive change that would greatly increase participation.
Some Positive Signs for Solar in Michigan
Michigan has some of the highest energy prices in the nation. Why is this good news? Even though there are few state incentives to convert to solar, the actual cost of a solar system is a function of energy prices. The higher the energy cost, the less expensive the yearly cost of installing solar.
There is a strong Net Metering law in Michigan, allowing solar users to sell all unused solar power back to the utility at full retail rates. Every month you have surplus power, you receive a credit on your next month’s bill, and this carries forward every month.
Michigan has a strong Interconnectivity law, governing what utilities can charge or demand in return for you hooking up to the grid, and how simple it is to do so. It is extremely simple and cost-effective in Michigan.
Conclusion
Michigan is not the worst state for solar, but for a state so invested in the success of solar power, they could be doing much more.
An RPS is critical to ensuring a transition to renewable power from solar panels, and Michigan let theirs run out this year. The last RPS was modest, but had attainable goals that were reached on time. It is time to be more ambitious.
Putting in place a stronger RPS will also spur the development of new incentives and tax breaks to push renewable, which will further lower the entry barrier and raise the participation of consumers.
Keep in mind that in Michigan, just about every dollar of tax incentives and bonuses for solar goes right back in the local economy in the way of solar and solar-related jobs!
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