Cash is KING but when does it make sense to buy solar with your hard-earned money? Read below to learn more:
You versus PG&E: cost of doing nothing
Imagine solar is already on your home and you own it free-and-clear. A PG&E rep stops by to sell you on the "benefits" of switching to just using PG&E electricity? What do you do? They say "we'll remove your solar at no cost to you" and that you'll enjoy the following benefits:
a monthly bill for the energy you use
your cost of energy will go up 11.3% this year (CPUC source)
you may have outages that last hours to days during summer
Kind of silly to think about, right? No one in their right mind would agree to that if they already had solar. But if you think about it, each month that you pay PG&E for power because you don't have solar it means that you've agreed to those terms. And it's not like you have a choice of providers. You're stuck with PG&E for life. So, you're smart to be looking at ways to get solar and really the decision you have is not "if you go solar" but more like "how should I get solar?". Waiting to get solar is really costly. Here's why: Let's say your average bill with PG&E is $250, a pretty cheap bill by PG&E standards, and let's be really conservative and say that PG&E only increases their rates by 5% each year (they went up 11.3% in Q1 of 2022 already). By the time you get to your 10th year in the home, what would your average monthly payment be? 10 years from now, assuming you use the same amount of electricity, your monthly bill will be $388 and you'll have paid $34,734 to PG&E for that electricity. You're already committed to PG&E for life and it's far more costly than solar. If the "cost of doing nothing" is $34,734 over the next 10 years, any idea how much you'll pay PG&E over 25 years, the typical lifespan of solar panels? $196,317 25 years is a long time but you get the point. It is insane to stick with PG&E the longer you plan to stay in the home when a solar system is a fraction of that cost. With that in mind, let's look at when it makes sense to plunk your cash down for solar.
When to pay cash for solar?
Our Ultimate Guide to the Best Solar Loans for PG&E Homeowners makes a strong case of using financing instead of your cash to buy solar. Check it out if you haven't already. However, there are times when using your cash makes a lot of sense instead of financing the solar and it's when you can say yes to these:
Is this your forever home?
Do you have money in savings that you don't plan to invest and don't need in case of an emergency?
Do you pay the IRS income tax of approximately $2500+ per year?
You want to avoid interest and finance charges?
If you can answer yes to all four of those questions, you're likely a good fit for buying your solar system outright. After you collect your IRS credit for buying the system, you'll enjoy 25 years of power production at a fraction of the cost of PG&E. The cost of energy is truly a "fraction" of the cost...
$.59 cents/kwh is how much PG&E is projected to charge customers for power in 25 years. VERSUS $.10 cents/kwh which is the typical lifetime cost of solar energy (net system cost divided by the total 25 year production estimate).
Expert tips when paying cash for solar
MILESTONE PAYMENTS
When you use your own money to pay for a construction project, you expose yourself to some risk of being taken advantage of by a contractor. To help protect homeowners seeking solar, CA law limits the amount a contractor can require upfront as a deposit to start work
The contractor can only require the smaller of $1000 or 10% of the project at signing of the contract. The deposit is refundable as long as the project hasn't started but be aware that solar permits often cost $500 to $750 so it may be difficult to get that money back once the contractor has an approved permit in hand.
The next major milestone, depending on how the contract is worded, will be either when the equipment is ordered after permit approval or at the physical start of the project at your home. At this point, the contractor has spent significant money on your site survey, CAD plans, permit and equipment** and will require 50-80% payment.
**Contractors carry minimal inventory because it's cost prohibitive. When you sign a contract, the inventory sitting in their warehouse is earmarked for customers who signed months before you. Global supply chain issues after the 2020 pandemic have delayed solar projects and it's important to manage your expectations.
Once the crew is done with the install, the installer will invite the building inspector to the project at a specific date/time to get final approval. Once final approval is granted, you will be required to pay any remaining balance. Keep in mind that the contractor has a built in protection here from customers who decide to not pay up. The contractor will not take your final approved permit to PG&E until they're paid in full. That means PG&E will not grant "Permission To Operate" on your system and you therefore won't be able to power up the system or receive net metering credits.
This is normal and shouldn't be a red flag for you in the contract because if the project passes final inspection, it was done to code. If there are reasonable "punch list" items that need to be resolved before you pay, the contractor will typically be happy to address them to collect final payment and submit your project to PTO.
QUALITY EQUIPMENT
When you buy a solar system with your own cash, you won't have the luxury of a bumper-to-bumper warranty like you would with a Power Purchase Agreement or some solar lenders who offer an umbrella warranty over the contractor's warranty.
Construction warranties are "limited warranties" meaning they cover install errors for a limited period of time, typically 10 years but in some cases longer.
For example, with a Power Purchase Agreement where the solar installer owns and maintains the system, it really doesn't matter the equipment you get. As long as it's producing, that's all you care about and if it isn't, the installer has to come fix or replace components if they expect you to keep paying for the energy it produces for the 20 to 25 year agreement you signed.
But with a purchase, we advise our clients to purchase premium grade equipment because it comes is much better manufacturer warranties which are more important than the contractor workmanship. Premium equipment like SunPower, REC etc., include 25 year product, production and workmanship guarantees where as budget grade equipment will often carry a 10-15 year warranty on the product and no workmanship coverage.
If the contractor goes out of business, which is common, you want to ensure that you can call the manufacturer to resolve issues without part or labor costs to you.
Speaking of contractors going out of business, that brings us to a critical item... insurance.
SOLAR INSURANCE (TWO TYPES)
When we take in a new client, they often know of solar warranties but haven't heard or nor considered the two types of solar insurance we're about to cover.
First, we have Solar Insure, which is a 3rd-party solar warranty protection plan that covers workmanship, parts and labor for 30 years. If you're using your own money to buy solar, it's imperative that you protect yourself because...
According to the US Bureau of Labor, 90% of contractors go out of business by their 10th year. Construction is wraught with costs, liabilities and intense competition so it's just not worth relying on the contractors warranty. If they're around, great, give them a call first. But in the highly likely event that their phone is disconnected, you need a back up plan and Solar Insure** is just that.
** You cannot buy a Solar Insure policy as an individual home owner. It is only included by Solar Insure certified contractors. We only partner with these certified installers, so you can trust that your system will include it, should you want it.
Secondly, you'll want to be smart about including your new solar system as a line item on your home insurance policy. Damage is not a viable warranty claim with the installer or manufacturer so the small increase to your premium is worth the peace of mind knowing that the entire cost of your system will be considered if your system is damaged or destroyed. If you don't have a trusted insurance resource, we're happy to refer you to one of our local partners to provide a quote.
PEARL CERTIFICATION BOOSTS HOME VALUE
Similar to what we just mentioned about working with a contractor who is certified to include Solar Insurance, it's worth considering one who is also Pearl Certified. What is Pearl?
Pearl is a nationwide third-party certifier of energy-efficient home improvement service providers. What this means for you is an opportunity to get official certification documents for your home solar system.
What’s included:
An official Pearl Home Solar Certification packet showcasing information about your home’s high-performing solar features
Appraiser & Realtor documents approved by the Appraisal Institute and the National Association of Realtors
Access to Green Door, Pearl’s homeowner dashboard for all energy-efficient home upgrades
Lawrence-Berkeley Labs studied the impact of solar on home sales and found that homes with solar sell for an average of $20 more per $1 saved on electricity costs compared to non-solar homes. Pearl helps you document this when the time comes to sell or refinance your home so you make the most of the money you've spent on your system.