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3 Questions to Answer for Solar Energy Use

Judy McNary

CFP®, MBA, MSFP, Director of Corporate Responsibility


As one of the first Registered Investment Advisers to sign the UN-backed “Principles for Responsible Investing,” a pledge whereby firms commit themselves to incorporating sustainability issues into their investment processes, Mercer Advisors is committed to doing our part to help solve our planet’s most tenacious challenges. We have helped our clients think through sustainability beyond portfolio investments, such as financial planning for solar panels, electric cars, and building green homes. In this article, we share some of our learnings and three questions to help determine if you should switch to solar energy.

Questions about solar energy

Harnessing the power of the sun

Do you have solar panels on your house? If so, congratulations! If you don’t, installing a solar system can generate huge tax savings, decrease your monthly energy bills, and reduce your household’s reliance on fossil fuels, the primary contributor to global warming.

Solar energy for residential use has been available since the late 1970s but did not become popular until the 1990s when costs started to come down and federal tax incentives were introduced. Today, the average cost of installing a system is much less than it was in 2004 and generous tax incentives make it even more affordable. Your answers to three questions can help determine whether installing a solar system on your home is right for you.


1) How long do you plan to live in your current home?

If you plan to move in less than four years, you may not fully recover the cost of installing the system. However, if you plan to be in your home four years or more, an installed system that you own benefits you in two ways. The first is obvious: The dramatic reduction in energy bills. The second is the increase in your property value. According to a study done by the Department of Energy, home buyers across the United States paid an average premium of $15,000 more for a home with solar than one without.1


2) What kind of roof do you have?

Look at the roof on your home. Certain types of roofing material, such as Spanish tile or cedar shake, don’t work well for solar installation. Best are composite shingle or metal roofs. Assess the condition of your roof as well. If your roof is nearing the end of its life, you may want to replace it before installing solar panels. Also take a look at the orientation and pitch of your roof. Ideal roofs for solar panels are unobstructed, south-facing, and angled between 30 and 45 degrees. Solar panels mounted on these types of roofs will be most energy efficient but if you have good, unobstructed east and west roofs these can be effective as well. Most homes have solar panels spread across multiple roofs in order to generate the desired amount of energy. As long as there are no trees, buildings, or other obstructions, any combination of south with east and west should serve you well (in the Northern Hemisphere!).


3) Lastly, can you afford to install a system?

The good news here is that yes, you probably can! The typical cost for a residential solar system today is between $15,000 – $30,000, but federal tax credits and local energy provider incentives greatly reduce this out-of-pocket price tag. Find out what rebates and incentives are available from your state and your local electric utility. The Database of State Incentives for Renewables and Efficiency website ( has the most up-to-date information.

While state and local savings are nice, the greatest cost savings will come from the federal solar tax credit, also known as the investment tax credit (ITC). For 2020, the ITC for an installed solar system is 26% of the cost of the system; so, a system that costs $30,000, after state and local rebates, qualifies for a $7,800 federal solar tax credit. For 2021, the tax credit is slightly reduced to 22%. Note that you must own the system (leased systems don’t count) and the solar panels must be installed by year-end.

One last, but important, point on the federal ITC is that it is not a refundable credit. In other words, if you apply the credit and end up having overpaid on your taxes for the year, the credit is lost; there’s no refund given for this credit. This creates tremendous tax planning opportunities for you so discuss with your financial advisor your solar plans. It may be the perfect time to consider partial Roth conversionsrealization of capital gains, or tax-saving moves that ensure you maximize this unique situation.


Financing your solar system

As solar system installations and use have gone mainstream, financing them has become easier and more affordable as well. The easiest is to pay cash for the system when it is installed but if you want to conserve cash, you can use a Home Equity Line of Credit (HELOC) or a solar loan to finance. For the interest on a loan to be tax deductible, the loan has to be secured by your home so the HELOC might be the wiser choice if it is available to you.

Another option is to install your solar system a few panels at a time. When installed all at once, the solar systems often use a design with a central inverter, which means all the solar panels feed the energy into a central inverter to convert the energy. To save money, consider selecting panels that each have their own micro-inverters. If you can afford only a few panels to get started, install these and you’ll be offsetting your energy bills right away. You can easily add more panels to this system over time as your budget allows. You’ll still benefit from the appropriate tax credits and rebates as you add to your system.

A wonderful resource for learning about solar is This website explains how solar panels work, how to estimate the size and cost of system needed, how to determine the best way to finance a system, and how to make use of local rebates and incentives, as well as federal tax incentives.

Once you’ve got solar installed on your roof, smile and watch your meter going backwards as the sun shines; and then your next step could be an electric vehicle. There are rich federal and state tax incentives that make these surprisingly affordable to purchase as well. You’ll be using the sun to energize your home and your car!

1Solar homes sell for a premium, Office of Energy Efficiency and Renewable Energy 

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