Solar Power

Recently, some clients have asked us about the financial benefit of installing solar energy equipment for their residences. In most cases, we find that the economics alone do not justify installation of solar power. Instead, strong environmental considerations are usually the prime motivation to go solar. Fortunately, government incentives and increasing availability of solar providers is making that decision less costly than in the past.

Here, we take a brief look at the options available, how to start evaluating the right system for you, and the financial cost (benefit) of those options.

The most common types of solar power that you can utilize in your home are solar electric or photovoltaics (electricity) and solar thermal (water heating).

Solar Electric

A solar electric or photovoltaic (PV) system generates energy by collecting it through PV modules (solar panels). Electricity, in the form of direct current (DC) is produced when the solar energy excites the electrons in the solar cell. Since this form of power is not useable for most domestic purposes, an inverter transforms the DC power into alternating current (AC) power.  When excess electricity is produced and not used by the home owner, it is sent back to the electricity grid through the electric meter, spinning it backwards during periods of high production and low consumption.

Solar Thermal

Solar thermal systems reduce the amount of other energy required to heat water by increasing the temperature of the water before it enters the conventional storage tank and heating system. A passive system collects the water in solar collectors and circulates without the aid of pumps or controls. These systems are used in regions that don’t freeze. An active system uses pumps to circulate the water or an antifreeze solution through solar thermal collectors that absorb heat. In a direct system the water used by the homeowner is the same pumped through the solar collector. In an indirect system, an antifreeze solution is pumped through the solar heat collector to heat the water used by the homeowners.

Where Would I start?

Solar Electric
1. Location: A contractor will assess your rooftop or other property location for an area that receives direct sunlight for a minimum of 6 hours daily. A typical system requires an area of about 8 by 25 feet. Ideally, the area should face due south, but can vary by about 15 degrees.

2. Determine your energy use: Use the online calculator on the Energy Star website to ascertain your usage. You will need to enter some basic information about your home (such as zip code, age, square footage, number of occupants and energy bill totals for a consecutive 12-month period).

Solar Thermal
1. Size: According to Southface, a 501(c)(3) nonprofit corporation with a longstanding reputation for providing sound environmental education and outreach programs, a family of four uses about 80 gallons of hot water daily. One gallon of hot water requires one square foot of collector area. This family would likely require two 4-foot by 10-foot solar collectors and a tank with 70- to 140- gallon capacity.

2. Climate: Residents in many areas may require an indirect freeze protection or a drainback system to protect plumbing which will increase the cost of the system.

Cost

The cost of conventional residential energy shows no signs of decreasing. The San Francisco Chronicle reported an 11.1% increase in 2006 California energy rates. On average, energy rates have gone up 6.7% annually for the 30 years prior to 2001.

Source: CPUC “Electric Rate Compendium” Nov. 2001.

So, adding a relatively fixed-cost solar system acts as a hedge against future energy cost increases. Further, some commentators opine* that the value of a home increases by about $20 for every $1 decrease in annual fuel bills, arguing that the reduction in utility bills frees capital to spend on a larger mortgage.

Solar Electric
A typical residential system may start at $30,000-$35,000, but depends on many variables. The pay-back time is anywhere from 9-13 years, before incentives (see below).

Solar Thermal
A typical residential fully installed system may start at $2,000 to $3,500. Freeze-safe systems cost about $1,000 more. These systems can provide as much as 70-80% of a home’s hot water needs so the payback is between 7-10 years, before incentives. The pay-back time will be faster if you shower and wash dishes and clothes in the afternoon when the conventional heater is hardly needed. A solar thermal system can cut a home’s greenhouse gas emissions by one to two tons per year.

Incentives

The Energy Policy Act of 2005 (EPACT) provides a tax credit equal to 30% of qualifying expenditures for purchase for qualified photovoltaic property and for solar water heating property used exclusively for purposes other than heating swimming pools and hot tubs.   The maximum credit is $2,000. Unfortunately, the tax credit is not currently available for taxpayers subject to the Alternative Minimum Tax (AMT).

Improvements must be installed in or on the taxpayer’s principal residence in the United States.  Home improvement tax credits apply for improvements made between January 1, 2006 and December 31, 2007, so there is very little time left to qualify.

In California, the California Solar Initiative offers cash incentives on solar systems - currently, $2.50 a watt for existing homes. California Solar Initiative incentives, combined with federal tax incentives, can cover up to 30 percent of the total cost of a solar system.

Net metering (Solar Electric only)

Net metering refers to state laws that require utility companies to purchase electricity generated from your solar power system at the same rate that they would normally charge you. Systems that are tied to the local utility grid add power to the grid during the day to offset power use at night. During the daylight hours, the owners’ electrical meter runs backwards as their solar panels produce more energy than they need. At night, the meter runs forward as the owners use more electricity than they can generate.

The utility charges only for the net difference of power consumed and power produced. And since the power savings occur at the highest marginal usage charges, the first units saved are the most valuable. If the owners produce more energy than they consume, the utility bill could be nearly zero (there would always be at least a modest administrative charge). The law does not require the utility to actually pay you for an excess in your favor so it is important to have the system designed so that the owners are not producing “too much” energy, at wasted cost. Looking at prior energy bills is an important variable used to determine the design of the system (more or fewer panels).

How long will my system last?

Solar Electric
Most experts agree that a good solar electric system should last 40 to 50 years at least. The underlying roof is likely to need repair or replacement sooner, so a dismantling and reinstallation of still operating panels may be necessary. Most solar modules carry a 25 year manufacturer’s warranty. However, the first panels made in the 1950’s are still working.

Solar Thermal
With periodic maintenance (for example, changing the heat-transfer fluid every 5 years in the indirect freeze protection systems), a solar thermal system can be expected to last about 20 years.

Conclusion

Benefits of installing a solar systems are two-fold: financial and an aid to cutting down your personal environmental burden (“carbon footprint”). According to a recent article in the Economist, America’s south-western deserts are an abundant source of collectible sunshine that could meet the country’s power needs several times over without releasing a molecule of carbon dioxide. Alas, the deserts are not where the greatest energy usage needs reside and an enormous infrastructure for non-solar energy already exists. Still, awareness of the benefits of reducing environmental burdens continues to grow and installing solar facilities will appeal to many who can afford the expense. For some, taking tax incentives, home appreciation as a result of the solar system installation, and the hedge against future energy costs into consideration, installing a solar system could make financial sense as well.

Sonja Breeding and Jane Zaloudek

*Appraisal Journal (Nevin, Rick & Watson, Gregory, “Evidence of Rational Market Valuations for Home Energy Efficiency,” Oct 1998)