If you are a business owner, you are probably asking yourself “Since the price of solar is constantly coming down, is it better to wait to buy solar? The price of a new solar system is going down with every passing year. In California, we sold a lot of solar at $9.00 per Watt and now it hovers around $2.00 per Watt. However, there used to be a 50% rebate up to $4.50 per Watt and a California Tax Credit to go along with the 30% existing Federal Tax Credit. So as the price is coming down, the incentives are going away and they will continue to go away until they are completely gone.
Right now in California, there are still some utility districts that have rebate money left on their solar program. These are community districts that have very low rates. The rebates have limitations, but they still improve the payback rates of a new solar system. Other than that, in California, putting a solar system on your property does not increase the property assessed value and therefore does not increase your property taxes.
At the Federal level, the 30% Investment Tax Credit (ITC) is still in place. For projects that begin after the end of 2019 it will be reduced to 26% and for projects that begin after 2020 it will be reduced further to 22%. If a project begins after 2021 the ITC will be 10% and will remain so until the laws are changed. At this point the residential ITC will be zero.
The new tariffs that are being placed on imported solar panels are putting upward pressure on solar panel pricing, at least temporarily. The US market is not the largest solar market in the world, and does not greatly affect the global solar market. The fact that China is dropping some of their solar subsidies is causing the price to fall for all the solar modules manufactured around the world. Price is still king for the solar market, and manufacturers, although trying to differentiate themselves, are largely operating in a commodities market.
If you were only looking at cost of the installation, then waiting would be fine. Just be sure the drop in price is larger than the amount you are losing on the ITC and place your order when you see fit. However, there is one very large consideration you must take into account. If you don’t have a solar system on your property, you cannot benefit from solar. So until you install solar, you do not enjoy the savings and this is called opportunity cost.
A solar system on commercial property in PG&E territory provides an ROI over 40%, with a payback of 2.5 years or less. This means that after taking the tax incentives into account, the amount you save in electricity costs by generating your own electricity will pay you back for your investment in 2.5 years or less. Therefore the price would have to go down more than 40% for you to be better off waiting a year before investing in a solar system.
We have seen pricing for installations drop as much as 10% in one year. It took 17 years to drop from $9.00 per Watt to $2.00 per Watt. This is about 9% per year. Of course this has not been a linear reduction, some years having greater reduction and some years less. When you see the ITC being reduced by 4% per year for two years, then 12% before leveling off, this certainly should affect your decision.
Since 2001, we have never seen a case where it would have been better to wait to purchase a solar system. At no time has the payback been reduced by more than a year over the course of a year. If you take into account the value of the electricity generated, it has always been better to get the savings started.
The solar modules have increased in efficiency over the last 20 years also, but the length of the warranties has not changed substantially. This will let you fit more generation on the roof, and certainly we like to design with this higher efficiency, but this efficiency has changed only about 4% over the last 20 years so is not a large part of this discussion.
One thing we should take into account is the rising interest rate environment we are entering. A slight increase in the interest rates can have a large impact on the overall savings because the savings is decreased if more of the income generated is spent on interest.
When you take all of these factors into account, the best time to invest in an solar system is right now. Every day you wait you are missing out on a 40% return on your investment. Since the investment is paid off with the energy savings, and the most popular type of financing is an off-balance sheet 6 year tax lease, which gives you savings from the first month your system is reducing your power bill, there really is no reason to wait.
If you look at a solar system as an income producing asset, subsidized with tax incentives, requires a large investment but pays it off rather quickly, it is not better to wait to buy solar. From the technology side, there are no big breakthroughs on the horizon. Incentives are going away, while interest rates are rising. The great financing picture shown below will not have first year savings in the future if the ITC is at 10%.