Michigan is home to over 280 solar companies as of 2022, with over 4,100 installations completed around the state totaling over 60 megawatts of capacity. As the solar industry in the Great Lakes State continues its rapid growth spurred on by increasing eco-conscious consumers, falling equipment prices, and favorable economics, many homeowners are left wondering – can I save money going solar in Michigan?
While Michigan has failed to institute many statewide solar incentives, high utility rates coupled with the federal tax credit, net metering payments, and property tax exemptions can still add up to substantial savings for residential solar customers in the state. Let‘s break down all the details on the actual costs, available incentives, and estimated payback periods when deciding whether solar panels make financial sense for your home in Michigan.
Solar Panel Cost and Savings Overview in Michigan
With the average Michigan home using 677 kWh of electricity monthly, a properly-sized solar array can offset a majority of your home‘s energy consumption to slash utility bills. While solar panel system costs vary based on your specific home‘s size, roof space, and electricity usage, the table below breaks down estimated sizes and costs for typical homes:
| System Size | Average Cost |
|---|---|
| 5 kW | $13,000 |
| 7 kW | $18,000 |
| 10 kW | $26,000 |
Accounting for incentives and annual utility bill savings, most home solar systems in Michigan will pay for themselves within 10-12 years and provide "free" electricity for 10+ years after that.
Using the numbers above, a medium-sized 7 kW system could save you over $150 monthly and ~$1,900 yearly on electric bills in Michigan, adding up to $38,000+ in cumulative utility savings over 25 years along with increasing your home value. Not bad!
Now let‘s do a deep dive on all the incentives and policies impacting Michigan solar economics:
Michigan Solar Incentive #1: Federal Solar Tax Credit
Far and away the most valuable incentive for going solar across the U.S. is the federal solar tax credit, officially known as the Investment Tax Credit (ITC). The ITC allows homeowners to deduct 26% of their solar installation costs – materials, labor, permits, etc – directly from their federal taxes owed.
For a $15,000 solar panel system, this would equate to a $3,900 tax credit. Even better, there is no limit to the credit amount, though it cannot exceed your tax liability.
The ITC will step down incrementally over the next few years:
- 2023 – 26%
- 2024 – 22%
- 2025 onward – 0% for residential, 10% commercial
So acting sooner than later maximizes the federal credit savings! To claim the credit, you must file IRS form 5695 alongside your personal taxes. As long as you own the system (no leasing), live in the home, and purchase new equipment meeting requirements, you will qualify.
Michigan State and Local Solar Incentives
Unlike many environmentally-focused states, Michigan unfortunately offers no personal state tax credits or rebates for installing solar panels as of 2023.
However, on the local level, the city of Lansing stands out for providing homeowners a generous $500 per kW rebate up to $2,000 off for systems under 4 kW…
Changes to Michigan‘s Net Metering Policy
One of the best ways solar customers offset rising utility costs is through net metering. This policy requires your electricity provider to give you a 1:1 bill credit for any excess power your panels feed back to the grid.
Previously Michigan had full retail rate net metering, compensating homeowners at the same rates they pay for grid electricity – typically around 15 cents per kWh for households. But in 2019, the state‘s Public Service Commission regrettably amended rules to allow utilities to subtract out transmission charges, cutting the net metering rate nearly in half in many areas.
How impactful was this change? Here is a comparison of potential monthly net metering earnings before and after the change:
| System Size | Full Retail Credit | Current Credit | Difference |
|---|---|---|---|
| 5 kW | $63 | $32 | -$31 |
| 7 kW | $88 | $45 | -$43 |
While saving $30-$45 monthly is certainly helpful, the full retail rate credits prior to 2019 would have been twice as valuable.
Compared to neighboring states like Illinois and Minnesota with full retail net metering still in place, Michigan is at a disadvantage when it comes to maximizing bill savings from home solar panels.
Michigan‘s Renewable Portfolio Standards
In addition to statewide solar incentives or mandates like net metering, Renewable Portfolio Standards that set targets for the percentage of energy generation from renewable sources can also encourage solar growth.
Michigan previously had an RPS targeting 15% renewables by 2021, but this goal was met and the legislature has failed to update standards since. Without new targets codified into law, the likelihood of Michigan expanding solar incentives drops.
However, at the city level ambitious sustainability plans abound, with communities like Grand Rapids (100% renewable by 2025), Ann Arbor (100% by 2035), and Traverse City (100% carbon neutral by 2040) leading the way. Expect solar energy to feature heavily in achieving their aims.
Homeowners in these cities stand to benefit as new solar incentives are rolled out to entice residential and business owners to install panels.
Buying vs. Leasing Solar Panels in Michigan
When evaluating home solar options, Michigan residents will come across two major choices – buying a solar system outright to own themselves or leasing a system from a solar provider.
What are the key differences and factors to consider between the two paths? Here‘s an overview:
| Buying | Leasing | |
|---|---|---|
| Incentives | Eligible for federal tax credit & local incentives | Typically not eligible |
| Upfront Cost | Must pay full system cost upfront, but tax credit helps offset this | Little to no upfront cost beyond first month |
| Electricity | Keep all electricity produced to offset your utility bills | Only offset a portion, rest goes to solar company |
| Warranty | Typically 10-25 years depending on equipment | Stopped if lease ends |
| Ownership | You own panels after paying off, adding value to home | Solar company owns panels |
In most cases, buying solar panels in Michigan is preferable if you can manage the larger up front price tag. This path unlocks the most savings through incentives and control over the system‘s full production.
Leasing certainly has fewer headaches and risks, but proves far less valuable over the long run. An exception may be renters or those uncertain about long term plans better served with flexible leased panels.
Conclusion: Does Solar Make Financial Sense in Michigan?
While not at the front of the pack for statewide solar incentives, Michigan residents can still benefit financially from installing solar panels on their home through:
- Federal Solar Tax Credit (26% through 2023)
- Favorable net metering rates (half of retail)
- Individual city/utility incentives
- Property tax exemptions
- High utility bill savings
Factoring in these incentives and bill reductions with rising conventional electricity costs, a typical 7 kW solar system provides over $38,000 in total lifetime savings in Michigan and pays for itself in under 12 years for most homeowners.
Connect with a top-rated local solar installer to get a free assessment of your home‘s savings potential in Michigan today. Every situation is unique, but for many, going solar delivers outstanding long term returns on investment while also securing reliable clean energy.
Frequently Asked Questions
How much can I save yearly by going solar in Michigan?
- With typical household electricity rates around 15 cents per kWh in Michigan, a 5 kW solar system could save about $1,200 yearly on electric bills. This adds up to over $30,000 in cumulative utility savings across a 25 year lifespan.
What is the breakeven point to recoup Michigan solar panel costs?
- Factoring in the 26% federal tax credit and other incentives, most solar systems achieve payback in 11-12 years in Michigan. After hitting this breakeven point, your panels will provide free renewable electricity for another 10-15+ years.
What incentives make solar affordable in Michigan?
- The main incentives bringing down costs of home solar panels in Michigan are the 26% federal Investment Tax Credit until 2024 and net metering bill credits from utilities. Additionally, individual cities like Lansing offer generous solar rebates, with more municipalities expected to follow.
