Too many confusing solar terms? Here's a quick guide

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solar terminology

There's a lot of jargon when it comes to solar. But a solar panel system is a big investment, so it's important to understand the basics before you sign a contract. 

To make learning about solar easier, we identified some of the most critical (and most confusing) solar terms to know. Whether you're shopping for home solar panels, solar panels for your business, or a community solar project, knowing these terms will help you go solar with confidence.

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  • Gigawatt (GW): We measure the cumulative capacity of community solar nationwide in terms of GW. One GW = 1,000 megwatts.

  • Inverter: Component of a solar panel system that converts the electricity generated by solar panels into a format that can be used to power your home.

  • Kilowatt (kW): How we measure the size of a home solar panel system. A kilowatt is just 1,000 watts. 

  • Megawatt (MW): Some commercial solar projects are over one MW in capacity. One MW = 1,000 kilowatts. For reference, one MW of solar can power about 173 homes, according to the Solar Energy Industries Association (SEIA). 

  • Photovoltaics (PV): Devices that convert solar energy into electricity using semiconductors (this conversion is called the photovoltaic effect). Solar panels are photovoltaics and make up a PV system. 

  • Power output/rating: The number of watts a solar panel produces in ideal conditions. It's a good indicator of quality, but most solar panels don't experience ideal conditions for more than a few moments.

  • Production ratio: The amount of electricity produced by a solar system in one year (measured in kWh) divided by the size of the system (measured in W). This depends on factors such as the weather, climate, and condition of your solar panel system.

  • Semiconductor: A material that can conduct electricity more than an insulator (such as glass) but less than a conductor (such as copper). Semiconductors are used widely in electronics, including solar panels. 

  • Solar cells: Semiconductors typically made of silicon that generate electricity when exposed to photons (aka particles of light) via the photovoltaic effect. Solar panels for home systems typically contain 60 solar cells. 

  • Solar module: Another name for a solar panel (this is typically how the industry refers to them).

  • Solar panel efficiency: How well a solar panel converts sunlight into electricity. Most solar panels have 17-20% efficiency; high-efficiency panels exceed 22%.

  • Temperature coefficient: How well a solar panel can perform in high-heat conditions. As with all electronics, high heat can negatively affect solar panel performance.

  • Watt (W): How we measure the output of a solar panel. Put simply, this is the rate of electricity production.

Learn more about how solar energy works
  • Azimuth: The direction that your roof faces (in the context of solar). Measured in degrees, azimuth represents the angle between your roof and true north. For ideal production, solar panels should face south.

  • Building-integrated photovoltaic (BIPV): Solar panels that can be integrated with a building's roof tiles rather than mounted on top of the roof. Also known as a solar shingle.

  • Ground-mounted solar: Solar panel systems mounted in a foundation on a large plot of open land. 

  • Off-grid: Completely disconnected from the electricity grid, with no access to utility-generated electricity. Homes that go off-grid need to generate all of their electricity onsite.

  • Solar carport canopy: These are elevated structures over parking lots that host solar panels and provide shade for cars. 

  • Solar-plus-storage: A solar energy system that also includes a battery to store excess energy and provide backup power to your home.

  • Grid parity: The point at which power generated by solar panels costs the same or less than power from conventional resources like natural gas.

  • Levelized cost of energy (LCOE): The per-unit cost of energy from a solar energy system. You can calculate LCOE by dividing the out-of-pocket cost for the system by the estimated total amount of energy the system will produce over its lifetime.

  • Price per watt ($/W): The cost of a solar panel system based on its size, measured in W.

  • Property-Assessed Clean Energy (PACE): A type of loan that you repay through an annual assessment of your property tax bill. You can use PACE financing to install a solar panel system or make other clean energy improvements.

  • Payback period: How long it takes to "break-even" on a solar energy investment. The average payback period for solar homeowners in the U.S. is around eight years.

  • Power purchase agreement (PPA): Contract with a solar company to install a solar energy system on your roof. With a solar PPA, the company retains ownership of the system. You agree to pay them a per kilowatt-hour rate for the electricity the solar panels produce.

  • Solar lease: Contract with a solar company to install a solar energy system on your roof. With a solar lease, the company retains ownership of the system. You agree to pay them a fixed monthly fee to "rent" the system in exchange for the electricity the system provides.

  • Solar lease escalator: A clause of most leases and PPAs that increases payment rates by a fixed amount per year. 

  • Solar loan: A loan provided by a bank, credit union, or specialty provider to finance the cost of buying a solar PV system.

  • Third-party owner (TPO): The owner of the solar energy system (typically a solar corporation) in a lease or PPA. When you enter a solar lease or PPA, you sign an agreement with the third-party owner.

Check out our full solar financing glossary for more terms
  • Kilowatt-hour (kWh): How your electricity usage is measured on your utility bills. This is electricity consumption over time. In 2022, the average U.S. home used 889 kWh per month

  • Time-of-use (TOU) rates: If you or your company is on a TOU rate plan, the amount you pay for electricity will vary based on the time of year, day of the week, and time of day. 

  • Tiered rates: Typically used for businesses, in a tiered rate electricity plan, your utility company creates pricing tiers based on consumption. The more electricity you consume, the higher your rate. 

  • Demand charges: Utilities with demand charges shift the cost of your or your business’s electric bill from being based on how much electricity you consume over an entire month to the maximum electricity you need at a single point during that month.

See a full breakdown of how to read your electric bill
  • Federal investment tax credit (ITC): Commonly referred to as the solar tax credit, the ITC reduces the total cost of your solar energy system by 30% with a credit to your federal tax bill. It's the most significant financial incentive for solar in the U.S.

  • ​​Depreciation-based incentives: Typically used for commercial solar panel systems, depreciation incentives, like bonus depreciation and MACRs, lower your taxable income by the cost (or a percentage of the cost) of your depreciable assets.

  • Net metering: A policy that enables you to "store" excess electricity that your panels produce in the electric grid for later use. With net metering, you earn credits for electricity you send to the grid. When you need to draw electricity from the grid, it counts against the credits you've built up through net metering. Your utility will only bill you for your "net" usage.

  • Performance-based incentive (PBI): Financial incentive for solar that will pay you based on your system's energy production. PBIs are typically paid per kilowatt-hour of electricity generated. Feed-in tariffs are a type of PBI.

  • Solar renewable energy credit (SREC): For every unit of electricity that a solar panel system generates, an associated SREC is also created. In some states, you can sell your SRECs for additional revenue.

  • Tax credit: A tax credit, like the ITC, is an incentive that allows you to subtract a specified amount from your tax bill.

Read about the best solar incentives
  • Bill credit: When you subscribe to a community solar farm, you receive energy credits on your electric bills based on the amount of electricity your share of the farm generates. The amount of your bill credits varies each month depending on the amount of solar energy your share of the farm generates. 

  • Community solar: Also referred to as solar farms, shared solar, solar gardens, or roofless solar, a community solar project is a large, central power plant, that generates electricity for the grid. 

  • Developer: Generally, developers scope the community solar project, oversee its construction, and interconnect it to the grid. They may own or lease the land on which the project is developed and may own the project itself or develop it for a third-party owner. Some developer companies may also perform the project’s operations and maintenance (O&M), manage subscriptions, and eventually decommission the project.

  • Investor: Often the developer or project owner needs a third-party investor to help fund the project. The investor may require the provider to acquire a certain number of subscribers before development can begin. 

  • Low-and-moderate income (LMI) communities: In LMI communities, a higher proportion of individuals’ incomes tends to go towards their electric bills. To lessen this impact, the federal government has created incentives for community solar projects designed to specifically support LMI communities. Some projects are only open to LMI individuals. 

  • Provider: Also referred to as the subscriber organization, the provider is responsible for encouraging people to sign up for the project, helping with the signup process, and managing all of the subscriptions and billing. Your project provider may also be its developer. 

  • Renewable energy certificate (REC): A REC is a commodity that markets and governments use to track and transfer the “green” aspect of renewable energy. Even if you don’t use clean energy directly, if you buy a REC, you purchase the right to claim that environmental benefit as your own. With community solar, the project owner typically retains the right to keep or sell RECs, meaning you technically can’t claim to run your house on clean energy with a subscription. One REC = one megawatt of renewable energy generated.

  • Subscriber: If you sign up for a community solar project and start receiving bills from your provider, you’re a subscriber. Many projects can’t be developed until they reach a certain number of subscribers.

  • Virtual net metering (VNM): Under virtual net metering, you can earn credits by purchasing or subscribing to a solar panel system that isn’t located at your house (hence, virtual). It’s what allows you to earn bill credits when you subscribe to a community solar farm.

Learn more about community solar
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