Why solar is a smart investment during a recession
Right now, the solar industry is trying to stay afloat during the coronavirus outbreak. And while project delays and work stoppages could have big impacts on solar installers in the short and medium term, there is one long-term effect of COVID-19 could actually help boost residential solar sales - an economic recession.
Solar is a reliable investment and provides substantial electric bill savings, making it one of the best financial decisions a homeowner can make during an economic downturn.
The economy comes down with coronavirus
Aside from the public health crisis that coronavirus is causing, it also is leading the US into an economic recession. Before we get into why it’s a good idea to invest in solar during a recession, let’s look at how exactly a recession works.
There’s two main things that can cause a recession:
- A supply shock, when something interrupts the ability to produce goods
- A demand shock, when the demand for goods decreases
The fear of coronavirus, combined with a drop in oil prices caused by the pandemic, sunk the stock market. Image source: Politico
Coronavirus caused a supply shock by shutting down manufacturing plants and other businesses. Without goods being manufactured, they cannot be sold, therefore less people can spend money and stimulate the economy. As businesses and manufacturers closed, some people were not getting paid, while others lost their jobs entirely. This led to less people having the money to spend to stimulate the economy, causing a demand shock.
We can see the same thing starting here in the US. In early March, the Dow Jones plummeted, due to fears of coronavirus. Now, as the US sees more businesses and industries closing, we can expect to see the same supply and demand shocks.
Some projections show that job losses for the month of April in the US could range from anywhere from 500,000 to 5 million. The threat of a recession has prompted the government to start putting together a $2 trillion economic stimulus plan.
3 reasons why you should invest in solar during a recession
During a recession, one of the most important things to homeowners is saving money. Many homeowners need to cut back on expenses as they face reduced income from their employment and investments. Whether it be by cutting back on ordering take-out or using coupons at the grocery store, finding savings anywhere you can is of the utmost importance.
One of the best ways to save money though, is by installing solar panels. In some cases, solar panels can cut out your electric bill entirely. Either way, they will provide large electric bill savings which can make all the difference during a recession.
1. Electric bill savings
The biggest reason to invest in solar during an economic recession is due to the undeniable electric bill savings. Solar panels produce electricity that is used to power your home. When your home uses electricity produced by your solar panels, you don’t have to purchase electricity from your utility. This means your electric bill will be lower, sometimes it’ll even be $0!
Most areas in the United States have net metering policies in place. A net metering policy requires your utility to purchase any excess electricity your solar panels produce. So, if your solar panels make more electricity than your home uses, your utility will pay you for it.
This means that, not only can solar panels cut down your electric bill, they also have the potential to make you some extra money!
For example, let’s say your home consumed an average of 800 kWh of electricity per month, and your utility charged you $0.12 per kWh. That would bring your monthly electric bill to $96. If you install a solar panel system on your roof that produces 750 kWh of electricity per month, it would cut your monthly electric bill to just $6 per month.
Plus, electric rates continue to rise throughout the United States, meaning that your electric bill will continue to increase. With solar panels, when your utility’s electric rate increases, your savings increase.
When you put less money towards your electric bill, you have more money to put towards everything else. This means extra money for groceries or even just to put into savings, which is valuable during a recession.
In a survey completed by Washington D.C’s Solar For All program participants, low-income homeowners revealed that the number one thing savings from solar helped them with was having more money for basic necessities. Image source: Solar United Neighbors
2. Solar is a reliable investment
As we saw with the Coronavirus market crash of February and March 2020, investing in the stock market can be extremely risky. Although these losses are likely for the short term, for some of us, losing the money we invest even for a short while is simply too risky.
Solar is the place to put your money when you want a reliable return on your investment. In some states, like Massachusetts and New Jersey, your payback period would be less than 5 years. After that, you’ll have saved as much as you spent on your system, giving you 20 or more years of free electricity!
The payback period of a system varies from state to state, and depends on the cost of electricity in your area and the incentives you have available.
Solar panels are a reliable investment that will make your pockets (and the planet) happy. Image source: NetSuite
No matter the state of the economy, your solar panels will continue to produce energy for you to use. Even if the stocks crash, the sun will still rise and your panels will still make electricity. Thanks to your solar panels, you will continue to see savings and have extra money in your pocket.
The upfront cost of installing a solar panel system can seem high, which is what makes installing solar an investment. However, there are incentives and financing options that allow you to take advantage of all of the benefits of solar without breaking the bank.
3. Low solar loan interest rates makes financing easy
Solar loans are a great way to finance a solar system if you don’t have cash for the upfront costs.
In times of economic recessions, central banks lower interest rates on loans. Banks do this in hopes that it will encourage people to take out more loans and make new investments. This means the already-low interest rates in the US will continue to get lower. In fact, the Federal Reserve has already dropped borrowing rates below 1%.
Low interest rates on solar loans have already made solar homeowners’ monthly loan payments less than what their electric bill used to be each month. So, by taking out a loan to install solar, you would be swapping out your electric bill payment for a lower loan payment.
Plus, with lower interest rates, you’ll save even more. Then, once the loan is paid off, you’ll be getting free power!
This example shows the estimated 25-year savings for a 6 kW system installed in Sacramento, California. The example assumes a monthly loan payment of $73, with a 4.999% interest rate.
Beware ‘free solar panels’
Keep in mind - not all financing options are created equal. A recession could increase the number of people who consider power purchase agreements (PPAs) as a way to finance their solar systems. With a PPA, you don’t have to pay any upfront costs for the system. A third party has ownership of the system and they determine what price you pay for electricity.
While the electric rates for PPAs are lower than typical utility electric rates, you simply won’t see the same level of long-term savings as you do when you purchase a system (whether through cash or a loan).
So keep an eye out for installers advertising “Free Solar Panels” and do your research before entering a contract with them.
This article about the pros and cons of PPAs will give you a more in-depth look at how PPAs work and if they’re worth it in the long run.
The sun will come up even if the stocks are down
Overall, solar is one of the safest investments you can make, especially in a time of recession. The stock market is volatile and presents risks that some people might not be willing to take. With solar, you are guaranteed savings regardless of the status of the stock market.
Even though it does require some large upfront costs, solar can save you substantial amounts of money, especially as electric rates continue to rise. Luckily, solar loans are available to make financing a solar system easy.
With a looming recession, interest rates for these loans are falling even lower than they already were, making now one of the best times to consider going solar.
Investing in solar panels is the most reliable way to see return on your investment, and seeing direct savings in the time where it matters the most.
Author: Catherine Lane | SolarReviews Blog Author
Catherine is a researcher and content specialist at SolarReviews. She has strong interests in issues related to climate and sustainability which led her to pursue a degree in environmental science at Ramapo College of New Jersey.