South Valley gets over 250 sunny days per year. That's a lot of free electricity sitting on your roof. But solar in 2026 is a different calculation than it was three years ago, and the companies knocking on your door aren't always giving you the full picture.
Here's what Morgan Hill and Gilroy homeowners need to know.
The NEM 3.0 Reality
If you installed solar before April 2023, you got NEM 2.0: the utility paid you retail rate for every kilowatt-hour you sent back to the grid. That was a great deal.
NEM 3.0 changed the math. The export rate (what PG&E pays you for excess solar) dropped by 75% or more. That means a solar-only system without battery storage pays for itself much more slowly than it used to.
The result: in 2026, most solar installations in this area include battery storage (like Tesla Powerwall or Enphase IQ) to store daytime solar for evening use, rather than exporting cheap power to the grid.
This is not a reason to skip solar. It's a reason to size the system correctly and include storage.
What Solar Costs in the South Valley
Average system size for a Morgan Hill/Gilroy home: 7 to 10 kW (based on typical 1,800 to 2,500 sq ft homes)
Cost before tax credit: $21,000 to $35,000 for solar panels + installation
Federal tax credit (30%): Reduces the out-of-pocket cost by $6,300 to $10,500
Battery storage (one unit): $8,000 to $15,000 installed
Total system with battery, after tax credit: $22,000 to $38,000
Monthly loan payment (if financed): $150 to $300/month over 20 to 25 years
Payback period: 8 to 12 years with battery, depending on your electricity usage
Those numbers are real. Any installer quoting you a 4 to 5 year payback under NEM 3.0 is using creative math. Ask them to show you the assumptions.
What to Look For in an Installer
License and insurance: California requires a C-46 (Solar Contractor) or C-10 (Electrical Contractor) license for solar installation. Verify the license number on the CSLB website before signing anything.
Local presence: Companies with a local office or warehouse in the South Bay are easier to reach for warranty service and maintenance. A company based in Texas that subcontracts the installation to a local crew is not the same as a company that's been installing panels in Morgan Hill for years.
Warranty terms: Panels typically carry a 25-year manufacturer warranty. Inverters: 12 to 25 years. The installer's workmanship warranty (covering the installation itself) varies from 5 to 25 years. Get the workmanship warranty in writing. If the installer goes out of business, the workmanship warranty goes with them.
Financing transparency: Some installers use dealer fees (hidden costs built into the loan) that inflate the system price by 20 to 30%. Ask: "What would I pay if I wrote a check today vs. financing?" The difference is the dealer fee. It's legal, but you should know about it.
Lease vs. Buy vs. Loan
Cash purchase: Cheapest total cost. Fastest payback. You own the system and get the tax credit directly.
Solar loan: You own the system and get the tax credit. Monthly payments replace (or reduce) your electric bill. Watch for dealer fees hidden in the loan.
Lease / PPA (Power Purchase Agreement): A company owns the panels on your roof and sells you the electricity at a set rate. No upfront cost, but you don't get the tax credit, your savings are smaller, and the lease complicates selling your home.
Our take: If you can afford to buy or finance, owning is almost always better than leasing. If buying isn't possible, a lease still saves you money compared to no solar, but understand that the leasing company is capturing most of the financial benefit.
Selling a Home With Solar
If you own your panels outright, solar adds value to your home. Studies show solar adds roughly $15,000 to $20,000 to a home's resale value in California.
If you have a solar lease, things get complicated. The buyer has to qualify to assume the lease or you have to buy it out before closing. This has killed deals in Morgan Hill and Gilroy. If you're considering solar and might sell in the next 5 to 7 years, buy or finance. Don't lease.
The Permit Process
Solar installations in Morgan Hill and Gilroy require a building permit and electrical permit from the city. Your installer should handle the entire permitting process. If an installer asks you to pull your own permits, that's a red flag.
After installation, a city inspector verifies the work, and PG&E gives permission to operate (PTO). The PTO process can take 2 to 6 weeks after the city inspection passes. You cannot turn on your system until PG&E gives PTO.
Had a good (or bad) experience with a solar installer in the South Valley? Email [email protected].
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