The sun has been shining brightly on New Jersey for the past decade or so. Well, at least on the New Jersey solar industry. Legislators have found ways to put their differences aside and pass great laws that will keep New Jerseyans putting solar on their roofs (and making money in the process).
There are two main reasons New Jersey homeowners can make money with solar: electricity is expensive, and utility companies will pay you extra for the credits you earn just by having panels on your house. Those credits are called Solar Renewable Energy Credits (SRECs), and we’ll explain them in more detail below. All you need to know right now is you can make about a thousand bucks a year, every year, selling them to the utility. That’s on top of the electricity you won’t be buying.
So now you know a little more about how solar can make you money, but the question is: how do you pay for it? Well, in New Jersey, there are a couple of ways to go solar with no money down, and a couple of ways to pay up front and make even more money in the long run. Knowing what’s right for you can be confusing, so we’ll break it down for you below in a handy guide. Let’s take a look the options and what they mean for you, financially speaking:
Lifetime Return For 3 Different Methods of Going Solar in Toms River, NJ
The chart above shows the 25-year returns for an investment in solar whether you choose to purchase a system with cash or pay over time for a lease. As you can see, the purchase option leads to far greater returns over time, but it also requires a big up-front investment.
But there’s another option there, and although it’s a little more complicated, it really takes the cake when it comes down to getting the most bang for your buck. It relies you being able to spend a few thousand up front, taking a home equity line of credit to fund the rest of the purchase, then paying it back over the next 15-years.
But we’ll get more into detail below. Here’s some more info about how each option could work for you:
Option 1: Solar Lease or Power-Purchase Agreement
Solar leases can be really great for people who don’t qualify for a tax break or who want to incur less risk (with less reward). Here are some of the advantages of a solar lease in New Jersey:
- No money down
- A monthly payment that rises by a smaller increment than electricity prices do
- The lease is transferable if you decide to sell your house.
- You just have to find an installer, sign on the dotted line, and then save money
- The installer takes care of everything, including maintenance and repair
With a lease, you sign an agreement to pay a low monthly price for 20 years. The panels go up on your roof and you get all the electricity they provide, which reduces your electric bill by just about the same as your lease payment. Over time, your payment rises by a small amount (usually 2.5%), while the cost of electricity goes up by about 3.5% per year. In the last year of the lease, you’ll be saving about $580 on electricity, just for having a roof!
A similar option is called a Power Purchase Agreement, or PPA. In this case, the installer owns and maintains the system on your property, and you sign an agreement to buy the power at a rate somewhere just a little below the utility company’s prices. You pay less now, and your rate rises at a set percentage per year, somewhere between 1% and 2.5%.
Here’s the other major benefit of leases and PPAs: the installation company actually owns the system, and they do all the maintenance and repairs as needed. That takes away a ton of responsibility for you, the homeowner. All you have to do is get quotes from installers in your area, sign up for a lease or PPA through them, and get solar for no money down! You can sign a 20-year agreement with a low monthly payment that will lock in your savings long into the future.
In our example, the lease runs for 20 years with a 2.5% annual increase in payments. You put no money down. And though the savings aren’t major in year 1, they add up over the term of the lease, meaning almost $10,000 stays in your pocket over 20 years. Talk about a sweet deal!
Option 2: Solar Purchase with SREC sales
Okay, so you’ve got some cash and you’re ready to buy. An outright purchase is a great idea in New Jersey, because the system will start saving you money right away, and you can sell those SRECs to the utility company for the first 15 years of the system’s life.
In our example, you’re paying the $20,000 cost of a system up front, but at the end of year 1, you’ll get the solar tax credit, energy savings, and SREC sales to reduce that cost. When all is said and done, this is one of the best investments you can make, with tens of thousands in possible returns. If you’re the kind of person who can afford an investment in solar, read on:
Here’s how the numbers work for a solar purchase in Toms River:
- Installing a typical 5-kW solar system should start at about $20,000. Don’t worry – that number is going to get way smaller in a hurry.
- At the end of the year, the federal government will give you a 30% tax credit based on the cost of your system. That’s $6,000. You can take the credit over two years if you don’t owe $6,000 in taxes this year.
- The electricity you’ll save in the first year of operation would have cost $842. That’s enough to pay for a nice dinner out once a month.
- Don’t forget your SRECs! The market price for them has been hovering around $185 for a couple years, but this is a conservative estimate, so we’ll assume a price of $150. That’s about $880 per year, every year.
- All those savings and incentives mean the first-year cost of your 5-kW system is just $12,281.
- With a conservative estimate of 3.5% per year for the future rise of electricity prices, and SREC sales continuing every year for 15 years, your investment will be fully paid off after 8 years, and you’ll be making a profit until 2039 or later.
- Your total profit in 25 years will be an astonishing $31,194! The rate of return on your investment will be 14.6%, which is almost twice as good as an investment in an S&P 500 index fund.
- And don’t forget… your home’s value just increased by close to $17,000, too (your expected annual electricity savings over 20 years), and thanks to New Jersey’s property tax exemption for solar, you won’t pay taxes on any of it!
Remember: these figures are estimates. Your home is unique, and how much money solar will save you depends on that uniqueness. Thankfully, we know some experts in New Jersey. Just sign up for personalized savings estimates and one of them will be more than happy to go over all those details and help you craft a plan to get the maximum savings from a solar power system in your home. Your quote is 100% free, so go ahead and shop around… grab two or three, or five, and compare all your possible options.
Option 3: Solar Purchase with HELOC
This is without a doubt the best option when it comes to percentage return on investment. That’s because it relies on using someone else’s money for the biggest part of the purchase price, and paying it off over time while your system is earning you SRECs. This assumes a few things about you and your current situation:
- You can afford to spend $6,000 up front on a solar installation (don’t worry you’ll get it back within a year)
- You can get a home-equity line of credit (HELOC) for $14,000, with a fixed rate of 6.5%, and a 15-year repayment period.
- You love making money without much risk
The reason this works so well is that your small initial investment ($6,000) will be paid back by April 15th next year through the federal government’s Solar Investment Tax Credit (ITC). Also, your energy savings and SREC sales will add up to about $143/month, while your loan payments will only be about $122/month, so you’ll actually be saving $21/month right away, with essentially no money down. The loan term of 15 years coincides with the SREC sales period, so you’ll pay your loan with the savings, and start making really huge money for ten years after.
The rest of the numbers work just like the purchase example above. Monthly savings just get bigger as the cost of electricity from JCP&L goes up over the next 25+ years; your home value goes up, and you get the satisfaction of solar ownership and yearly profits without having to put $20,000 of your own money on the line.
Additional Information about Solar in New Jersey
New Jersey Solar Power Rebates
New Jersey doesn’t offer any rebates for solar like other states do. Instead they rely on a market-based mechanism. That would be the SREC we’ve been talking about. See below to find out more about how SRECs work!
New Jersey Tax Exemptions for Solar
New Jersey does recognize the value of solar with some really sweet tax exemptions. That means all sales tax is waived on a solar purchase, saving you over a thousand dollars at the time of sale. It also means that the value added to your home by the solar panels on your roof will not raise the assessment of your home’s value. That’s great, considering the research from around the country that shows buyers are willing to pay more for a house with solar. 20 times the annual utility savings, in fact.
New Jersey’s SREC Market
NJ does home solar a little different than other states; instead of offering tax credits and rebates to homeowners, they have a payment system called Solar Renewable Energy Credits (SRECs). An SREC is created when a solar panel system generates a megawatt-hour (MWh) of electricity, which for a typical 5-kilowatt (kW) home solar installation happens almost 6 times per year.
So an SREC is basically just proof of clean energy generation, and utility companies buy them from generators (aka homeowners with solar) because they need to show the state that a certain percentage of their energy supply comes from renewable sources. The price for SRECs fluctuates, like any publicly-traded asset, but for the past couple years, it’s averaged around $200.
SRECs are sometimes bundled and sold through brokers and sometimes signed over to the utility as payments for a solar loan (see above). It’s best to work with a local installer to set up the sale of your SRECs.