San Diego Finance

Aug 31 2018

Solar Power: How to Compare Costs and Benefits

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Can You Afford Solar Power?

With residential solar installations increasing 51% between 2013 and 2014, according to the Solar Energy Industries Association. there’s no question that American homeowners are welcoming the sunshine. It’s partly mindset: At every level — individual, state, federal — renewable energy sources are seen as an attractive solution to environmental and economic challenges. Many states have mandates set by their legislatures with a target amount of energy that must come from renewable sources every year, but the local utility may not have the capital to create large solar-harvesting photovoltaic (PV) arrays to generate the power — so houses have become the tiny power stations that can help the state achieve its renewable energy goals. That’s good news for homeowners. Even more importantly, the price of a completed residential PV system has dropped 45% since 2010, largely because of new, widely available financing and leasing options.

To decide the true cost of solar power, you’ll need to understand the basics of solar power and the amount of solar energy in your area, plus the types of incentives, financing options and production capabilities of your roof will help determine if solar power is advantageous to you.

Watch: Sunshine On a Cloudy Day

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Photovoltaic Basics

The technology, price and aesthetics of photovoltaic systems have improved to the point that PV arrays are now the most popular choice for homeowners, versus years ago when thermal solar products for heating water were often the first consideration. PV cells convert sunlight directly into electricity, and the cells are typically contained in panels that are installed on a home’s roof; a group of solar cells is called a module or panel, and a group of panels is called an array. A typical PV installation for a 2,000-2,500-square-foot house in New England that uses air conditioning would include an array of 20-40 PV panels each with micro-inverters (or DC optimizers with a central inverter) to convert the solar-harnessed electricity to AC electricity that can be used in the house or sold back to the power company.

However, a solar array on a rooftop in New England will generate a different amount of electricity than an identical one in Florida or California because of a factor known as the solar resource, or how much sun is available every day to a PV panel oriented due south. To find the solar resource in your area, check the solar maps produced by the National Renewable Energy Lab. Knowing the solar resource in your area and the amount of power you want to generate, you’ll be able to get a sense of what size system you need.

For example, the average annual electricity consumption of a U.S. residential customer was 10,908 kilowatthours (kWh) in 2013, according to the U.S. Energy Information Administration. To generate that 10.9 kWh of electricity, a house in southern New England would need a system roughly 7 kW to 10.5 kW at a cost of approximately $26,000 to $39,000 (or $0, see below). Many solar cost estimators, such as Solar-Estimate are available online to help you get a sense of what your particular solar costs might be; an estimate by a reputable solar installation company is an even better way to find out your costs and electricity production capability.

Money Talks

New financing and leasing options have made it possible to go solar with literally $0 down. For example, the southern New England home in the example above would be eligible for financial incentives that would reduce a $33,000 system’s upfront cost down to approximately $12,000-$16,000 — or $0.

“Most customers come to us because they want to reduce their electricity bill,” says Eric Martin, sales manager of Newport Solar, in North Kingstown, R.I. “How much a solar installation can reduce a power bill has a lot to do with state policy.” In Rhode Island, the $33,000 system can be reduced by a combination of a statewide solar grant, a statewide renewable energy program that pays the homeowner for generating electricity, a statewide renewable energy tax credit, and the federal tax credit, which is 30% of the net cost at installation, to bring the upfront cost to $12,000-$16,000 and the utility bill savings to nearly $70,000 over the 25-year lifespan of the system. Leasing and financing options could further bring the upfront cost down to $0, and the savings on the power bill each month would more than cover the financing, so the homeowner comes out ahead.

To check the incentives available in your area, a good place to start is the Database of State Incentives for Renewables Efficiency .

In many states, there are two different incentive paths — net metering or feed-in tariff — that a homeowner today can take, and each way yields a different return on investment. With net metering, the solar panels are offsetting the kilowatt use of the home on which they are installed and the state will pay full retail value per watt to the homeowner; the system works using one meter that can count up and down as electricity is produced or consumed. With a feed-in tariff program (instead of net metering), the homeowner has a second meter on the house that measures the outflow of electricity from a home independently of how much the home is using; this allows the electricity consumption and electricity generation to be priced separately — a portion of the production value is used to pay the homeowner’s own power bill and the excess value is distributed to the homeowner by check.

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“We have found that net metering can be good for the person purchasing a PV system with their own money and that the tariff programs are particularly good for a person who is financing because they are using the money they are generating to service the loan,” says Martin. “Either way, financing options allow solar to appeal to a broader audience.”

Better Aesthetics, Too

On top of the actual cash-flow benefit that can be derived from converting a home to solar power, there is also a real estate benefit. The new, sleek PV arrays are attractive enough and the environmental and financial considerations are appealing enough that a PV array on a house is actually increasing the house’s value, according to a recent study in California by the Lawrence Berkeley National Laboratory. The study found that each 1-kilowatt (kW) increase in rooftop solar system size adds $5,911 to a home’s resale value.

With reduced environmental impact and increased cash in the pocket, it’s not so much a matter of ‘can you afford solar power’ as ‘can you afford NOT to have solar power?’ Let the sun shine.

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