Investing in solar energy for your home is a significant financial commitment. It’s easy to become overwhelmed with the amount of information (and misinformation) available on the internet these days.
Homeowners often find themselves at a loss when it comes to conducting research because there are so many different contractors to choose from, brands and styles of system design to choose from, discrepancies in information about incentive programs, and conflicting opinions about whether they should lease, purchase, or finance a solar system. Going solar has many benefits, and this article will discuss them all. We will discuss Arizona state incentive programs, federal tax credits for solar energy, equipment options, leasing versus purchasing and/or financing, and our top picks for the best solar companies in Arizona.
Arizona Solar Incentives: Need To Know
Arizona is not only one of the sunniest states in the United States, but it is also a leader in the number of renewable energy incentives that are made available. As an additional benefit to the 26 percent federal tax credit, Arizona residents can claim a personal credit against their state tax liability for up to $1,000 in the amount of 25 percent of the system’s cost.
Calculating Your Federal Solar Tax Credit
Assuming that you are not a member of a religious organization and that you do, in fact, pay your taxes, these tax credits are extremely appealing.
The federal credit, also known as the ITC (Investment Tax Credit), is currently set at 26 percent of the total cost of installing a solar energy system in your home. It is possible that your system will cost $100,000 (don’t worry, it won’t). The average cost of a system in Phoenix, Arizona right now is around $15,000, which includes installation. Your federal tax credit would be $26,000 (I’m just using $100,000 for the sake of simplicity).
Suppose, for the sake of argument, that 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, the amount you owe would be deducted from your total debt. It is possible that you owe less than that, but you have already paid in at least $26,000 over the course of the year (either automatically out of your paychecks or quarterly), at which point the IRS will deduct what you owe them from the credit and issue you a check for the difference in the form of a refund on your income tax.
Here’s where things get a little tricky: Generally, if your total adjusted gross income tax liability (what you are liable to pay over the course of a year) is less than the amount of the credit, any difference is carried forward to the following year and can be carried forward for a total of three years. To return to our example, suppose you spend $100,000 on your solar installation and receive a $26,000 federal tax credit as a result of your purchase. Let us pretend you haven’t paid any federal income taxes this year for whatever reason, and that after taking into account all of your deductions, you are liable for $20,000 in back taxes. As a result, you would owe nothing this year, and the $6,000 difference would be carried forward to the following year. You must agree that it is quite lovely.
There is no claim made by the author of this article or its affiliates that they are qualified to provide high levels of tax advice, and we strongly advise you to consult 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
Additionally, residents of Arizona who make investments in renewable energy can claim a personal tax credit against their state income tax liability, in addition to the federal credit. The state credit is worth 25 percent of the system’s cost, but there is a $1,000 cap on how much can be claimed. A typical system costs approximately $15,000. As I briefly mentioned earlier, the average system cost is approximately $15,000. The amount equal to 25 percent of $15,000 is $3,750, which exceeds the limit. In order to install solar panels on their homes, the majority of Arizona residents should expect to pay more than $4,000, and they should plan on receiving a $1,000 Arizona state tax credit. In cases where the federal credit has a three-year carry-over feature, the state will allow you to carry this credit over for a total of up to five additional years.
Arizona is also unique in that it provides tax breaks for homeowners who install renewable energy systems in their homes. When you add solar panels or anything else to your home that increases the value of your property, some states can raise your property taxes. However, the Energy Equipment Property Tax Exemption, which was established in 2006, protects homeowners from property tax increases due to any clean energy addition to their home. In addition, solar equipment is tax-free in Arizona, which means you will not be required to pay sales tax on any of the equipment!
What You Need to Know About Solar in AZ
With the combination of tax breaks available to Arizona residents for renewable energy and the relatively low cost of installation, going solar can be one of the most beneficial investments you can make in your home or business. Prior to signing any paperwork or accepting a proposal from a solar company, there are some things you should be aware of.
Net Energy Metering for Solar in AZ
A direct electrical current is generated by your photovoltaic (or PV) solar panels, which is then sent to an inverter, which converts it from direct to alternating current (or D.C. to A.C.), which is what we use in our home. From there, the system will first power the needs of your own home, and then it will send any excess energy into the utility’s power system, also known as the grid.
During the day, your system will generate more electricity than the house can consume, causing your electrical meter to spin in the opposite direction of the clock. In addition, the older analog meters are more entertaining because they produce a very satisfying hum when the system’s production is at its peak. Modern meters are digital, so there is no enjoyable hum, but it is still satisfying to see the little digital arrows running backwards throughout the day.) At night, after the sun has set, you will continue to draw power from the same grid system, causing your meter to run forward once more. This is referred to as net energy metering (NEM).
The idea is to try to come as close to breaking even as possible on an annual basis, if possible. During some months, you will use more energy than you generate, and during other months, you will generate more energy than you consume. Even though the difference will be calculated monthly, you will not be required to pay your utility company until the end of the year. This annual settlement is referred to as “Net Metering” in the business world.
In order to determine the value of the energy that your system produces, you must first determine the value of the energy that your system is replacing from your local utility company. Although the vast majority of states, including Arizona, offer some form of “Net Metering” agreement with local utilities, the specifics of the agreement can and frequently do differ from one utility company to the next. The public utility commission of Arizona is in charge of overseeing all of this. Something that is extremely important to understand is that these rules are always subject to modification. Thanks to a 20-year grandfather period, your billing structure will be protected for a period of 20 years from the date of installation, which is a welcome relief. Be cautious, however, as there are always loopholes to exploit.
Be Careful When Making Changes
Lots of people end up expanding their solar-energy systems in the future. Growing families, home renovations, conversion of gas appliances to electric, and the introduction of new electric vehicles all increase the demand for electricity and the resulting need to increase your electric generation capacity. This is fairly common, and it is typically fairly simple to accomplish technologically. The billing structure, as well as the specifics of your grandfather clause, are two potential snags to watch for. Increasing the size of your system will not necessarily change the way your utility company bills you; however, if the billing structure changes and becomes less advantageous in a year, two years, or ten years, you will want to be extremely cautious about increasing your system size.
Finding The Best Solar Company in AZ
Choosing the best solar company to work with is the most important step you can take to ensure that you get the most out of your investment.
When it comes to billing structures, a good solar representative will be familiar with the intricacies of what each utility company offers in their area. A reputable solar company will have a great deal of experience in submitting the necessary paperwork and will always be aware of any loopholes that may exist. Because every utility company is a little different, and because the rules and stipulations change on a fairly regular basis, you need to choose a company that is familiar with the system and can navigate it.
Generally speaking, companies that work exclusively with a single utility tend to be more familiar with the requirements of that particular utility and, as a result, are a better resource for understanding what can be expected. However, while a larger company such as SunRun or Tesla may have a particularly strong sales representative (also known as a “consultant” or “advisor”) in your area who is extremely knowledgeable about their products, it is definitely worthwhile to look into a smaller, locally-owned business in your area. I recommend that you make use of the three-bid rule. Discuss the situation with one of the big players, then with one of the small players, and see if you can find a solution somewhere in the middle.
Here are a few things to make sure you double-check before you go:
- How long has the company been in business? Solar is a long-term investment that pays dividends over time. Make an effort to select a company that has been in operation for a significant amount of time.
- What sort of work are they licensed to perform? Is it electrical, roofing, or just solar that you need? Many new solar companies are operating under a license that covers the installation of solar panels but does not allow them to perform any additional electrical or roof work on the property. Solar installations are often accompanied by roofing and electrical work. It is preferable to work with a company that is licensed to do all three. Helpful hint: Consult with your CPA or Tax Advisor to determine whether any roofing or electrical work that is directly related to the solar installation will qualify for tax credits.
- Do they offer other services beside solar? Does the solar department operate under a separate license, or does the entire company operate under a single permit and license? Solar power is a highly volatile industry, to say the least. Due to the fact that it is so heavily reliant on factors such as government subsidies and utility commission rulings, choosing a company with a diverse range of products or services means choosing a company that is less vulnerable to the ebbs and flows of the renewable energy market. A word of caution: Most Certified Public Accountants and Tax Advisors will advise against claiming tax credits on anything that does not directly relate to the solar install. Be wary of companies that “throw in” additional services in order to qualify for tax credits.
- Do they use sub-contractors? Companies that perform their own work are able to provide more comprehensive warranties on their products. Aside from that, if there is a problem later on, such as a roof leak, having chosen a company that did the work themselves will prevent any finger-pointing from occurring.
- Are they properly insured and in good standing with the state license board?
How To Verify Solar Contractors in AZ
This can be verified by running the Arizona State License number of each company through the Arizona Registrar of Contractors. In order to verify the company’s credentials before scheduling an in-home consultation, go to www.roc.az.gov and type in the company name or the six-digit license number in the search box. At the end of this article, you will find a list of our top recommendations to get you started.
Questions To Ask a Solar Company
After narrowing down your list of solar providers and preparing to schedule some appointments, make a checklist of the questions you want to ask each of them. It will also be necessary for the solar representative to see your electric usage, so having access to your online account or printing out your last 12 months’ bills will make the meeting run more smoothly and save you time.
If you don’t have access to the internet, you can call your local utility company and ask them to read you your billing history for the previous 12 months in kilowatt-hours as well as the dollar amount you spent on electricity. The kilowatt-hours (or kWh) will assist the solar advisor in determining how many solar panels you will require to offset your energy consumption, and the dollar amount will assist them in more accurately calculating your return on investment. Planning for future upgrades such as air conditioning, hot tubs, electric vehicles, or any other significant increase in your current usage is also a good idea.
Make certain that they respond to all of the important questions, such as:
- Company history and background. Because this is a long-term investment, you must be confident that you are working with a company that will be there for you whenever you require it. The selection of a contractor is, without a doubt, the most important aspect of this decision.
- Your utility company’s billing structure. There is almost always some sort of interconnection or transmission fee associated with the service. Take caution when dealing with a salesperson who promises to “zero out” your electric bill (and don’t forget that solar won’t help you with your gas bill either!). If your utility company bills them both together, make your financial projections based solely on the electric portion of the bill).
- What type of equipment they offer: Some companies only offer a single brand, while others provide a variety of options. Researching which brands you prefer before scheduling an appointment and ensuring that you schedule meetings with companies that carry that particular brand or style may save you time.
- Does the company offer leasing options, purchase only, or both? If you’re thinking about making a purchase, what types of financing are available to you?
Leasing vs Purchase of a Solar System in AZ
In terms of buying the system outright, leasing it, or committing to a power purchase agreement, there are advantages and disadvantages to each (or PPA).
However, purchasing the system outright will provide you with the greatest return on your investment, but it is often prohibitively expensive. If you don’t have enough tax liability to take full advantage of the tax credits, financing the system is usually the next best thing to doing nothing.
If you are unable to take advantage of the tax breaks, a lease or PPA may be the best option for you because the leasing company will take the tax credits on your behalf rather than you. Depending on the system’s net cost after tax credits, your monthly lease payments will be lower than the monthly payment on a traditional green energy loan, which is a good thing.
Because the leasing company owns the system, they are also responsible for it, which is a significant advantage in this situation. However, because there are no moving parts, there isn’t much that needs to be serviced or maintained. All that needs to be done is to position the panels so that they are exposed to sunlight. This frequently necessitates cleaning them or trimming nearby trees that may cast a shadow on the panels and reduce their efficiency, among other things. In most cases, a lease does not cover cleaning or tree trimming, but it may guarantee that the system will produce enough electricity to meet demand if the system’s shade factors are predictable and kept to a minimum.
A power purchase agreement (PPA) is an ongoing agreement between a solar company and you that allows you to purchase the energy your system produces from them rather than from your local utility. In a similar way to a lease, the solar company owns the equipment and retains ownership of all credits. In the event that you decide to lease your system or enter into an ongoing purchase agreement, make sure to carefully review all of the fine print.
Consider how the lease or PPA will be transferred if you decide to sell your home, how much the monthly cost will be in relation to the portion of your electric bill that it will offset, and whether the monthly cost will be fixed for the duration of the contract. In addition, it is critical to understand what will happen when the contract expires. Almost all lease or PPA contracts include an option to either return the system or purchase it at the end of the contract’s term. When it comes to determining how much you’ll owe them when the contract expires, stay away from contracts that use ambiguous language such as “fair market value.”
Panel Brands, Inverters, and Equipment Options
The majority of leasing companies do not provide a large variety of equipment options. The majority of businesses that provide purchase options do so. Only companies that have entered into exclusivity agreements with specific manufacturers, the most common of which is a company called SunPower, would be an exception to this statement.
SunPower is one of the most highly regarded solar panel brands available in the United States, according to Consumer Reports. They are long-lasting and energy-efficient, degrade slowly over time, and come with a comprehensive warranty. The disadvantage is that the equipment is difficult to integrate with other brands; for example, a SunPower panel is typically used in conjunction with a SunPower inverter and proprietary racking systems. As previously stated, a company that specializes solely in solar is more vulnerable to fluctuations in the marketplace.
In addition to product quality, selecting a company that is less likely to go out of business is critical because warranties are only as good as the company that provides the backing. However, you might want to consider a Panasonic or LG panel as an alternative option.
There are literally thousands of different brands to select from. The panels from LG and Panasonic are of high quality and are fairly reliable in terms of long-term performance. Also worth mentioning are Solaria, Silfab, and Q-Cell panels, which are all good brands that are a little less expensive than SunPower, Panasonic, and LG panels. If we are being completely honest, the solar panel itself will be the least likely component to cause you problems. The majority of issues arise as a result of shoddy installation work on the part of the installer.
For those on a tight budget who must choose between a less expensive solar panel and a less expensive contractor, the less expensive solar panel installed by a more qualified contractor should be the first option they look at.
A misbehaving inverter is the most common problem encountered with PV solar systems, aside from poor workmanship. The inverter’s job is to convert the direct current (DC) generated by solar panels to alternating current (AC). To make your selection, there are several different styles to choose from. A string inverter is the name given to the older, more traditional style of inverter. These behave in the same way as an old string of Christmas bulbs – the kind where if one bulb burns out, they all burn out. Fortunately, solar panels do not burn out like Christmas lights, but if one panel is in the shade, nothing else attached to that string will perform better than the solar panel that is producing the least amount of energy.
In order to combat the Christmas bulb effect, a company called Enphase developed micro-inverters, which are installed on the roof beneath each individual solar panel. Because they are located on the roof, rather than on the side of the house or in the garage, micro-inverters perform better, last longer, and appear more attractive overall. In most cases, micro-inverters are the best option unless you’re planning to incorporate batteries for blackout protection.
You might be interested in batteries if they excite you (and why wouldn’t they? You might want to consider a hybrid inverter, which consists of a single inverter and power optimizers that are installed beneath each solar panel panel. There is a common misconception that if you have solar energy, you will still have energy even if there is a blackout. That is only true in the case of systems that include a battery storage component. Batteries are a fascinating, new, and extremely exciting emerging market that would make an excellent 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 company that provides a diverse selection of panel brands, as well as leasing and purchase options.
Our top pick for the best solar company in Arizona, Harmon Solar, was chosen because it has been in business for so long and has operated under the same license for the past 33 years. Our research revealed that their website is comprehensive and easy to navigate, that their ROC credentials were easy to verify, that they hold more than one license and are not solely reliant on the solar industry, and that they are backed by a substantial amount of insurance. The final decision has been reached! Harmon Solar is the type of company that you can put your faith in.
Now is an excellent time to invest in solar energy! In the sunny state of Arizona, the incentives available, combined with a large number of qualified contractors to choose from, have made going solar as simple and affordable as it has ever been.