Sustainable investing
Greening your home: Where does your electricity come from?
Long-term trends point to an increase in global total energy demand, which will likely be accompanied by higher electricity prices and higher carbon emissions. These trends have implications for investors as well as homeowners.- Given higher and more variable energy bills, homeowners may want to consider adding renewable energy to the mix to help manage electricity costs over the long term as well as to help reduce their home’s carbon footprint.
- Installing rooftop solar panels or opting for renewable energy from the default utility provider are two of the key options, but they come with different cost considerations which vary across and within states.
As extreme weather conditions increasingly impact the United States, and as geopolitical dynamics create energy supply and demand imbalances, energy prices have fluctuated significantly.
This, coupled with technological improvements and a drive to reduce carbon emissions, has contributed to an expansion in renewable energy capacity. From an investment perspective, we see long-term opportunities for the “Clean air and carbon reduction” theme, with meaningful upside in investing in renewable energy technology.
But what does this mean from the individual household perspective? Homeowners looking to manage long-term electricity costs while reducing their home’s carbon footprint now have the option of adding clean electricity to their energy mix.
Clean electricity: Rooftop solar panels vs. utility provider
Switching to solar energy for residential real estate is increasingly becoming a viable option in the US as solar energy generation becomes cost-competitive with fossil fuels. There are two main ways through which homeowners can add renewables to their energy mix: opting for clean energy through their default utility provider or installing rooftop solar panels.
Both options are at the early stages of uptake, and availability and financial viability will likely vary both within and across states. According to the National Renewable Energy Laboratory, 7.5 million customers procured 192 million MWh of renewable energy through green power products from utilities in 2020. Currently, homeowners can expect to pay an average premium of around USD 0.02 per kWh.1
Installing solar panels to complement the energy received from a utility provider is also an option that may be cost-effective over time. Rooftop solar panels are starting to become popular; as of late 2020, 3.7% of US households had installed solar panels.2 A Pew Research Center survey in January 2022 found that a little under 40% of surveyed US homeowners expressed interest in installations, with a higher proportion on the West Coast (Fig. 1).3
The cost of installation can range between USD 15,000 and USD 25,000 on average before tax incentives, although federal- and state-level subsidies exist for homeowners. The Inflation Reduction Act of 2022 allows homeowners to claim a 30% tax credit on the cost of installation.4
Fig. 1: Percentage of surveyed homeowners who have installed or considered installing rooftop solar panels
As of January 2022
Installing rooftop solar panels does not imply going completely “off the grid.” In fact, grid-connected solar systems allow homeowners to take advantage of energy reliability by drawing from the grid when needed, and feeding back into the grid when more energy than needed is generated—a process called “net metering.” Some states even have incentives for homeowners to feed energy back into the grid. In addition to state-level net-metering incentives, homeowners should also consider their energy need as well as the need for renewable energy storage, which may change the cost considerations.
Financing and timing for your specific situation
The decision to add renewable energy to complement a home’s energy mix will vary depending on a family’s personal financial plan, its energy needs, and where in the country the home is.
There are multiple questions to consider, starting with whether the family lives in a house or in an apartment building, whether the home is new or old, and whether other energy-efficiency steps have been taken. It is also vital to consider state and federal incentives, especially as these policies are changing rapidly across the country.
For those contemplating rooftop solar panels, balancing short-term, upfront investment costs with long-term energy savings or cost variability management is also important. We recommend taking into account personal savings borrowing, and investment strategies based on each household’s liquidity and investment objectives.
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