Should You Pay Cash for Your Solar Panels?

Are you wondering if paying cash for solar panels is the best option?

You might be considering this because of a recent solar appointment or curiosity about the most cost-effective way to go solar. In this article, we’ll explore why paying cash for your solar system might be a smart move and compare it with other options.

If after reading, you decide that cash may not be the best option for you, feel free to visit our article about a solar PPA and whether or not that may be the right choice for you.

The Short Answer

Should You Pay Cash for Solar Panels?

If you have enough cash to comfortably cover the cost of a solar system without negatively impacting your finances, paying cash is a no-brainer.

Benefits of Paying Cash for Solar Panels

1. Guaranteed ROI

You can count on a steady return on your investment, averaging around 10% each year. That’s better than many other investments! 

For example, let’s say your system costs $25,000 upfront and is a $10,000 net investment after incentives. If it saves you, let’s say $100/month or $1200/year, that’s a 12% guaranteed Return on Investment. 

2. ROI Increases Every Year

Every year, your solar system becomes more valuable as energy prices go up. So, your investment keeps getting better over time. 

Using the same example as above, if electricity rates were to increase, let’s say by 10%, the system would now be saving $110 per month or $1,320 per year, resulting in a 13.2% Return on Investment. Electricity rates are projected to double over the next decade, reaching a point where the Return on Investment (ROI) will be close to 24%.

3. Tax Breaks

The federal government offers a 30% federal tax credit for residential solar energy systems (via Form 5695). This reduces the net investment of your solar system.

As a disclaimer, your eligibility to receive a tax credit may vary depending on individual circumstances. Please consult with a tax professional or financial advisor for personalized advice.

4. State Rebates

In places like New Jersey, you can get rebates for up to 15 years, earning money for every unit of solar energy your system produces. The current program in NJ pays homeowners 8.5 cents for every kWh you produce.

An average system in NJ generates 8,000 kWh / year, which equates to $680/year totaling up to $10,2000 in direct cash back rebates. This increases the return you’d receive on going solar in NJ, a state where the sun isn’t always shining.

Once your system is approved by the state, your rebates are guaranteed or grandfathered in, ensuring that you won’t have to worry about incentives disappearing if the state discontinues the program.

5. Savings with Net Metering

You can earn credits for extra electricity your panels generate, which can lower your future energy bills. It’s like storing up savings for a rainy day. In NJ, you get a dollar for dollar retail credit for power that goes back into the grid and this service is free with the utility company.

6. Boosts Home Value

Homes with solar panels typically command higher prices because buyers love the energy savings and eco-friendly appeal. Since the system is already paid off, this means the system is producing free power for 25+ years. 

7. Property Tax Exemption

Installing solar panels won’t hike up your property taxes. So, you can enjoy the benefits without worrying about extra costs.

8. No Sales Tax

You won’t have to pay any sales tax when you buy your solar system outright, saving you even more money.

I’m sure at this point you are saying to yourself, “well this is nothing ground-breaking, anything paid for with cash ultimately saves you money. After all, cash is king, right!”

Not always!

Comparing Solar Panels to Other Investments

Buying a Car vs. Investing in Solar

Car: A car is a depreciating asset. Its value decreases over time, and it doesn’t generate any income.

Once you drive it off the lot, its value starts decreasing. Sure, owning it outright provides peace of mind and eliminates monthly payments, but it doesn’t generate any income for you.

Solar Panels: Investing in solar panels can potentially turn into a money-making venture. With the right setup and conditions, your solar system can actually generate revenue through energy savings, state rebates and potentially selling excess power back to the grid. This makes it more akin to investing in an appreciating asset rather than just making a purchase. Plus, it produces a commodity (electricity) which increases in value over time. 

Flexibility in Financing Options

Additionally, purchasing later is always an option. If you are waiting to be in a more favorable cash position, you can still go solar for zero upfront costs and accrue savings in the meantime. 

Exploring Power Purchase Agreements (PPA) and Financing

Through a solar Power Purchase Agreement (PPA), you can exercise your right to purchase your equipment at a Fair Market Value (determined by a third party) at any point after year 5. Another option could be to finance the equipment and pay it off at any point without penalties. 

Securing Incentives and Returns on Investment

Both of these options ensure that you receive the benefits of solar and lock in the incentives before they expire. When you are ready, you can then buy out your solar panels and start receiving a higher return on your investment.

Example of a Cash Project

Below is a sample of a cash project we recently installed using conservative estimates. 

Total Contract Price: $65,320 

Minus 30% Tax Credit: ($19,596) 

Net Investment: $45,724

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Annual Savings: $3,768

Annual NJ Rebate: $1,494

Annual Savings + Rebate: $5,262

Annual Return on Investment: 11.5%

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10 Year Savings (6% utility increase): $51,578 

10 Year Rebate (0.5% degradation): $14,612 

10 Year Return (Savings + Rebate): $66,190

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25 Year Savings (4% utility increase):  $160,615

Total NJ Rebate (0.5% degradation): $21,647+

Total Return (Savings + Rebate): $182,262

Wrap Up

Ultimately, the decision on whether you want to buy your solar outright or not depends on your individual financial circumstances, risk tolerance, and long-term goals. But in the realm of investments, a solar system certainly offers unique opportunities that cash purchases of depreciating assets like cars do not. The decision to buy a solar system is more than just a financial transaction—it’s an investment in a brighter, more sustainable future.