Investing in solar energy for your home is a big decision. With so much information (and misinformation) available online these days, it’s easy to get overwhelmed.
Many homeowners find themselves at a loss when it comes to doing research because there are so many different contractors to choose from, brands and styles of system design, discrepancies in information about incentive programs, and conflicting opinions about leasing, purchasing, or financing the system. This article will cover all of the aspects of going solar including Arizona state incentive programs, solar federal tax credits, equipment options, leasing vs purchase and/ or financing, and our top picks for the best solar companies in AZ
Arizona Solar Incentives: Need To Know
Arizona is not only one of the sunniest states in the U.S. but is also a leader in available renewable energy incentives. In addition to the 26% federal tax credit, Arizona residents can take a personal credit against their state tax liability for 25% of the system cost, up to $1,000.
Calculating Your Federal Solar Tax Credit
Assuming that you’re not a church, and do in fact pay your taxes, these credits are very enticing.
The federal credit, or ITC (Investment Tax Credit) is currently set at 26% of the total cost of installing your solar system. If your system cost $100,000 (don’t worry – it won’t. Average system cost in Phoenix, AZ right now hovers around $15,000, including installation. I’m just using $100,000 for easy math) your federal tax credit would be $26,000.
If, in this example, you owed exactly $26,000 in federal income taxes at the end of this year, you would now owe nothing. If you owe more than that, this would be deducted from what you owe. If you owe less than that, but have already paid in at least $26,000 throughout the course of the year (automatically out of your paychecks, or quarterly) the IRS will take what you owe them out of the credit and give you the difference in the form of an income tax refund.
Here’s where it gets tricky: If your total adjusted gross income tax liability (what you are liable to pay over the coarse of the year) is less than the amount of the credit, the difference rolls over to the following year, and can continue to do so for up to three years. Back to our example – you spend $100,000 on your solar installation, so you have a $26,000 federal tax credit. For whatever reason let’s pretend you haven’t paid any federal income taxes all year and, after all of your deductions you are liable for $20,000. You would now owe nothing this year, and the $6,000 difference would carry over to next year. Pretty nice, right?!
The author of this article and its affiliates make no claim to be qualified to give high levels of tax advice and emphatically recommend that you check with your own professional CPA or Tax Advisor regarding all credits, benefits, and deductions.
Now let’s look at the Arizona State Incentives for Solar
In addition to the federal credit, Arizona residents who invest in renewable energy can also take a personal tax credit against their state tax liability. The state credit is 25% of the system cost, but has a $1,000 cap. As I briefly mentioned before, the average system cost is about $15,000. 25% of $15,000 is $3,750, which exceeds the cap. Most Arizona residents should expect to pay more than $4,000 to install solar on their homes, so should anticipate a $1,000 Arizona state tax credit. Where the federal credit has a three-year carry-over feature, the state will let you carry this credit over for up to five years.
Arizona is also unique in its tax exemptions for renewable energy upgrades to your home. While some states can increase your property taxes if you add solar panels or anything else that increases the value of your home, the Energy Equipment Property Tax Exemption established in 2006 protects homeowners from property tax increases due to any clean energy addition to the home. Solar equipment is also tax-free in Arizona, which means you don’t have to pay sales tax on any of the equipment!
What You Need to Know About Solar in AZ
The combination of tax incentives offered to Arizona residents for renewable energy combined with a relatively low cost of install helps to make going solar one of the best investments you can make. There are, however, some things you should know before you sign any paperwork or accept a proposal from a solar company.
Net Energy Metering for Solar in AZ
Your photovoltaic (or PV) solar panels create a direct electrical current that is then sent to an inverter to change it from direct to alternating current (or D.C. to A.C) which is what we use in our house. From there, the system will first power your own home’s needs, and then send any excess in to the utility’s power system, or grid.
During the day, your system will produce more electricity than the house is using, so your electrical meter will actually spin backwards. (The older analog meters are more fun because they make a very satisfying hum when the system’s production is at it’s highest. The newer meters are digital, so no fun hum, but still satisfying to see the little digital arrows running backwards during the day.) At night when the sun has gone down, you’ll pull from the same grid system, so your meter will run forward again. This is called net energy metering (NEM).
The idea is to try to come as close to breaking even as you can on an annual basis. Some months you’ll use more than you generate, and some months you’ll generate more than you use. The difference will be tallied monthly, but you don’t settle up with your utility company until the end of the year. This annual settle up is commonly referred to as “Net Metering.”
The value of the energy that your system produces is determined by the value of the energy it’s replacing from your local utility company. Most states, including Arizona, offer some sort of “Net Metering” agreement with the local utilities, though the details of the agreement can and often do vary from one utility company to the next. All of this is regulated the Arizona public utility commission. One very important thing to know is that these rules are always subject to change. Luckily, Arizona offers a 20-year grandfather period that protects your billing structure for 20 years from the date you install your system. Be careful, though – there are always loopholes.
Be Careful When Making Changes
Many consumers decide to add more panels to their system later. Either the family grows, the house gets remodeled, gas appliances get switched to electric, or a new electric vehicle increases the electric load and thus the need to increase your electric generation. This is pretty common, and typically pretty easy technologically to do. The potential catch is the billing structure and the details of your grandfather clause. If the billing structure changes and becomes less advantageous in a year or two or ten, you’ll want to be very careful that increasing your system size doesn’t change the way your utility company bills you.
Finding The Best Solar Company in AZ
Choosing the right solar company to work with is the very best way to ensure you get the best return on your investment.
A good solar representative will thoroughly understand the intricacies of the billing structure offered by the utility company in their area. A good solar company will have ample experience submitting the necessary paperwork and will always know their loopholes. Since each utility company is a little different, and since the rules and stipulations do change relatively frequently, you need to choose a company who knows how to navigate it.
Generally speaking, companies that work with just one utility tend to more familiar with that specific utility’s requirements and are therefore a better resource for understanding what to expect. That’s not to say that a larger company like SunRun or Tesla might have a really strong sales representative (also referred to as a “consultant” or “advisor”) in your area who really knows their stuff, but it’s certainly worth looking at a local company as well. I recommend exercising the three-bid rule. Talk to one of the big guys, talk to one of the little guys, and see if you can find one somewhere in the middle.
Here are a few things to make sure to check:
- How long has the company been in business? Solar is a long-term investment. Try to choose a company that has been around for a while.
- What sort of work are they licensed to perform? Electrical, roofing, or just solar? Many new solar companies are operating under a license that blankets a solar install, but is not licensed to perform any extra electrical or roof work. Roofing and electrical go hand-in-hand with solar installs. A company licensed to do all three is ideal. Hint: Ask your CPA or Tax Advisor if any of the roofing or electrical work that directly pertains to the solar install will qualify for the tax credits.
- Do they offer other services beside solar? If so, is the solar department subdivided, or is the whole company operating under the same license? Solar is a pretty volatile industry. It is so heavily dependent on things like government subsidies and utility commissions’ rulings that choosing a company with a wide array of available products or services means choosing a company less vulnerable to the ebbs and flows of the renewable energy market. Caution: Most CPAs and Tax Advisors will advise against claiming the tax credits on anything that does not directly pertain to the solar install. Be wary of companies that “throw in” other services for tax credit purposes.
- Do they use sub-contractors? Companies that do their own work are able to offer stronger warranties on the workmanship. Plus, if there is an issue later, such as a roof leak, having chosen a company that did the work themselves will eliminate any finger-pointing.
- Are they properly insured and in good standing with the state license board?
How To Verify Solar Contractors in AZ
All of these things can be verified by running each company’s Arizona State License number through the Arizona Registrar of Contractors. Before scheduling an in-home consultation, go to www.roc.az.gov and type in the company name or the six-digit license number to check the company’s credentials. At the bottom of this article is a list of our top picks to help get you started.
Questions To Ask a Solar Company
When you’ve narrowed down your list of solar providers and are ready to set up some appointments, make a check list of things to ask. The solar rep will also need to see your electric usage, so having access to your online account or printing out the last 12 months’ bills will help the meeting go more smoothly and save some time.
If you don’t have online access, you can call your local utility company and ask them to read you the last 12 months’ billing history in kilowatt-hours as well as the dollar amount you paid. The kilowatt-hours (or kWh) will help the solar advisor calculate how many panels you will need to offset your usage, and the dollar amount will help them more accurately calculate your return on the investment. It’s also a good idea to plan for future upgrades like air conditioning, hot-tubs, electric vehicles, or any other big increase to your current usage.
Make sure they answer all the important stuff, including:
- Company history and background. Again, this is a long-term investment and you need to know you are signing up with a company that will be there if you need them. Which contractor you choose is probably the most important part of this decision.
- Your utility company’s billing structure. There is almost always an interconnection or transmission fee of some sort. Be wary of any salesperson promising to “zero out” your electric bill (and don’t forget that the solar won’t help with the gas bill! If your utility company bills them together, base your financial projections on the electric portion only).
- What type of equipment they offer: some companies offer just one brand, others give you options. It may save you some time if you research which brands you like best before setting the appointment and make sure you set up meetings with companies that carry that brand or style.
- Does the company offer leasing options, purchase only, or both? If you are leaning towards a purchase, what type of financing is available?
Leasing vs Purchase of a Solar System in AZ
There are pros and cons to purchasing the system outright, leasing the system, or entering into a power purchase agreement (or PPA).
Purchasing the system outright will give you the strongest return on your investment, but is often cost prohibitive. Financing the system is usually the next best thing if you have enough tax liability to take full advantage of the tax credits.
If you can’t take advantage of the tax incentives, a lease or PPA might be the best option for you because the leasing company takes the credits instead. Your monthly lease payments would be based on the post-incentive net cost of the system and will most likely be lower than a monthly payment for a traditional green energy loan.
Since the leasing company owns the system, they are responsible for it, which is one big advantage. However, since there aren’t any moving parts, there really isn’t much to service or maintain. All that needs to be done is make sure the panels are in the sun. This often requires cleaning them off or trimming surrounding trees that may cast a shadow on the panels and lower their performance. A lease generally does not cover cleaning or tree-trimming, but may guarantee the system’s kWh production given that the system’s shade factors remain predictable and kept to a minimum.
A PPA is an ongoing agreement with a solar company to purchase the energy your system produces from them instead of from your local utility. Like a lease, the solar company owns the equipment and gets to keep all of the credits. If you do decide to lease your system or enter into an ongoing purchase agreement, read all of the fine print very carefully!
Make sure you know what the process would be to transfer the lease or PPA if you sell the house, what the monthly cost is compared to what portion of your electric bill it will offset, and whether that monthly cost is fixed for the full term of the contract. It’s also important to know what happens when the contract is up. Many lease or PPA contracts include an option to either give the system back, or buy it out at the end of the term. Avoid contracts that use vague language like “fair market value” when it comes to what you’ll owe them when the contract expires.
Panel Brands, Inverters, and Equipment Options
Most leasing companies don’t offer a wide selection of equipment options. Most companies offering purchase options do. One exception would be companies that have entered into exclusivity agreements with certain manufacturers; the most common being a manufacturer called SunPower.
SunPower is amongst the highest ranked solar panel brands available in the United States. They are durable, efficient, degrade slowly over time, and offer a robust warranty. The downfall is the equipment is tricky to couple with other brands; a SunPower panel usually is coupled with a SunPower inverter and proprietary racking systems. As I mentioned before, a company that does just solar is more susceptible to the dips in the market.
Choosing a company that is least likely to go out of business is just as important as the quality of the product – warranties are only ever as strong as the company backing them. That said, you might consider looking at a Panasonic or LG panel as well.
There are literally thousands of brands to choose from. LG and Panasonic are high quality panels and are pretty safe bets in terms of longevity. Solaria, Silfab, and Q-Cell panels are all good brands, too, and are a little less expensive than SunPower, Panasonic, or LG. In all honesty, the solar panel itself is the least likely component to give you an issue. The most common issues result from poor workmanship by the installer.
If you are trying to fit this into a tight budget and have to choose between a less expensive solar panel or a less expensive contactor, by all means, choose the less expensive panel installed by a more qualified contractor.
Aside from workmanship, the most common issue with PV solar systems is a misbehaving inverter. The inverter’s job is to convert the current coming off the solar panels from DC to AC. There are a few different styles to choose from. The older more traditional style is called a string inverter. These act like a string of old Christmas bulbs – the kind where when one bulb goes out, they all go out. Fortunately, solar panels don’t go out like Christmas bulbs, but if one panel is in the shade, nothing tied to that string can work better than its weakest producing solar panel.
To address the Christmas bulb effect, a company called Enphase came out with micro-inverters that go up on the roof underneath each individual panel. Micro-inverters work better, last longer, and look nicer because they’re up on the roof instead of down on the side of the house or in the garage. Unless you’re incorporating batteries for blackout protection, micro-inverters are the way to go.
If batteries are exciting to you (and why wouldn’t they be?!) you might consider a hybrid inverter that consists of one single inverter and power optimizers installed underneath each panel. One common misconception is that with solar you’ll still have energy in the event of a blackout. That’s only true with systems that include battery storage. Batteries are a fun, new, and very exciting emerging market, and a fantastic topic for another article.
Best Solar Companies in AZ – Our Top Picks
- Phoenix, AZ
- ROC License Number 070948 – Established in 1987
- Family Owned and Operated since 1955
Prometheus Renewables Inc.
- Flagstaff, AZ
- ROC License Number 258908 – Established 2009
- Owned and Operated by MIT Engineers. Offering Residential, Commercial, and Off-Grid Solutions.
Sun Valley Solar Solutions
- Chandler, AZ
- ROC License Number 223865 – Established 2006
- Multiple Licenses Held
- Tucson, AZ
- ROC License Number 275941 – Established 2011
- Great Customer Reviews
- Flagstaff, AZ
- ROC License Number 283630 – Established in 2013
- Local, offering a wide range of panel brands, leasing and purchase options.
Harmon Solar won our top pick as the best solar company in AZ because they have been in business for so long and have operated under the same license for the last 33 years. Their website is comprehensive and easy to navigate, their ROC credentials were easy to verify, they carry more than one license and aren’t 100% reliant on just the solar industry, and they are backed by plenty of insurance. The verdict is out! Harmon Solar is the kind of company you can trust.
Now is great time to go solar! The incentives available along with plenty of qualified contractors to choose from in the sunny state of Arizona have made going solar as easy and affordable as ever.