Is a Residential Solar System Right for You?

Alternative energy is the wave of the future, and SunPower (NASDAQ: SPWR  ) , SolarCity (NASDAQ: SCTY  ) , and a host of other companies are joining the massive push toward making residential solar systems a reality for millions of homeowners. But does a residential solar system make sense for you and your home?

In the following video, Dan Caplinger, The Motley Fool's director of investment planning, goes through some of the factors to consider in choosing whether to get a residential solar system installed. Dan first notes that it's important to see if your property is well-suited for solar, with south-facing unshaded rooftops being the best but not only option for solar power. Dan also suggests looking at local incentives, including tax credits and installation discounts, that can reduce the cost even further than federal tax credits that apply nationwide. Lastly, Dan goes through the affordability issue, noting that lease options can reduce or eliminate upfront costs, but they involve trade-offs you might not want to make. Dan concludes that as costs fall, more people will find residential solar systems to be a cost-effective way to save on energy costs.

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Read/Post Comments (7) | Recommend This Article (9)

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  • Report this Comment On February 08, 2014, at 1:58 PM, wiserinvestor wrote:

    On the surface, getting a solar system on your roof from a solar leasing company for no money out of pocket might seem like a great deal, but here are the facts behind this type of rental financing. When you sign that solar lease contract you'll be forfeiting the 30% federal tax credit which can typically be worth about $3,500 to $10,000. You'll also be forfeiting any applicable cash rebate or other financial incentives. After collecting both the 30% federal tax credit and any cash rebate, the leasing company will also apply accelerated depreciation. Despite applying all of the financial incentives, on a $0 down 20 year solar lease, the leasing company will then charge you 20 years worth of leasing payments that many times will include up to a 2.9% annual payment escalator that will raise your monthly payment, every year for twenty years.

    The leasing companies will try to convince you that a solar system requires a lot of maintenance and expensive insurance and costly monitoring when nothing could be further from the truth. Modern grid tie solar system require little to no maintenance and the bulk of any repairs are covered by the manufacturer's and installer's warranties. Solar panels and many inverters come standard with a 25 year warranty. Insurance can be added through your homeowner's insurance policy with little to no increase in your premium and many solar systems come standard with built in, web based monitoring.

    The bottom line with insurance, repairs and monitoring is that a leased solar system will typically cost you up to three times more than a purchased solar system, so it is actually you who will be paying for these services, not the leasing company. The leasing companies will try to convince you that these services are free but with a system cost that's triple that of a purchase, these services are absolutely not free.

    The leasing companies will try to convince that their rental financing is the only $0 down option in town, which again is not true. There are plenty of $0 down loans available that even offer tax deductible interest. Solar leases and PPAs do not offer tax deductible interest.

    What's worse is that after paying 20 years worth of leasing payments that amount to triple the amount that you could have paid if you purchased your system instead, you won't even own the solar system. It will still be the leasing company's property. If you want to own it after paying your lease off, you will still need to buy it from the leasing company at fair market value. All this for only a 10 to 15% reduction in your electric bill. This is just the tip of the solar lease and PPA iceberg. For more information simply search the term solar lease disadvantages in any major search engine. There's a lot you should consider before signing that airtight 20 year lease contract.

  • Report this Comment On February 08, 2014, at 6:57 PM, Flaco123 wrote:

    Having previously been in the solar industry for many years I can confirm that the above is true. It is absolutely a better deal to purchase a system outright and take the federal and state tax credits for your benefit instead of wall street getting it. Don't get me wrong, I think solar can be a great investment but I hope people do some research before they sign a lease contract. And yes, there is very little maintenance. Inverters do occasionally have parts failures after years of use but that's about it other than keeping the panels fairly clean to maximize output. Web based monitoring looks neat on your computer screen but you can also walk outside to your inverter and simply scroll through the display and look at your power output history among other features.

  • Report this Comment On February 09, 2014, at 8:53 AM, nvwildoates wrote:

    I brought my system and am enjoying the $10.50 electric payments, even better this month with I got a $3.12 credit...

  • Report this Comment On February 11, 2014, at 5:23 PM, RodgerKing wrote:

    I have bought little solar toys like solar landscape lights, solar water fountain, etc. They work fine for about a year. The economics of these solar systems are based on 25 years of operation. I really doubt if they will last anywhere near that long and I doubt the warranty is any good. What happens if they are begin to fail in 10 years - the companies will not be able to honor their warranties.

  • Report this Comment On February 14, 2014, at 10:00 AM, Wolfn1 wrote:

    I recently purchased outright a 3 Kilowatt system for my home and I'm about to enjoy the 4000 dollar tax credit. I did it as a part of my investment strategy. I'd been looking to put part of my investment capital into nice safe interest bearing stocks and go risky with most of the rest. My rough math on the 13500 it was going to cost was about a 5% yearly return on that 13500. I did the math for that very bearishly, not factoring in any rising energy costs nor the 4000 tax credit and using conservative estimates on energy produced per day. So far, only 4 months in, even during winter with it's up and down energy production, it is looking like I've hit upon a very good investment.

  • Report this Comment On February 17, 2014, at 4:46 PM, loopy16 wrote:

    I installed a 6400 watt solar system on my AZ home two years ago. I paid the total 20 yr lease cost up front: $10,000 which included a 19% discount. I also signed all credits ($15360) over to the leasing company. Prior to solar, my annual total electric cost was $1800. The first year with solar installed, annual cost was $400. 2nd year cost was $300. This computes to @ a 14+% annual return on the $10K. Any time during the 20 years, should I sell the house, the remainder of the lease is assumable by the new owners. At the end of the 20 years, I have the option of purchasing the system or having it removed by the leasor at their cost. The system at 20 years will have no real value and I plan to offer $1 for it. Should they refuse the offer, I can exercise the removal option which likely will cost the leasor several thousand dollars to remove it and put the roof back to its original condition. As for maintenance and repair, they own it and are totally responsible for the system including golf balls that stray off the course I live on. What an investment!!!!!

  • Report this Comment On February 18, 2014, at 9:38 AM, ejclason2 wrote:

    ...Or is deep space, beyond the planets, more your thing. :-)

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Dan Caplinger

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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