Solar Finally Pays Off
It's cheaper to install a system -- and you can even sell back to the grid.
By Bob Frick, Senior Editor
From Kiplinger's Personal Finance magazine, October 2007
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Dan Mullin's electric meter is turning backward, and it gives him immense satisfaction. On a sunny day in his Washington, D.C., neighborhood, the solar panels perched on his roof catch enough rays to power his home and sell electricity back to the utility. A solar-powered fountain burbles in his garden, near the tubes for his solar-powered hot-water heater. "There is no easier way to make money than to sit out here and enjoy the sunshine," he says.
Promoting a cleaner environment and knowing that the power he generates travels back through the electric grid to his neighbors adds to Mullin's satisfaction. You might expect such altruism from someone who works for the Boy Scouts of America -- he's an executive in the Learning for Life division -- but the bottom line is, solar energy saves him money. Mullin has cut his electricity bill by two-thirds, and when those savings cover the $10,000 up-front cost for his system in ten or 12 years, his solar electricity will be free.
Depending on where you live, solar-power systems (also called photovoltaic, or PV, systems) could pay off for you, too. Says Noah Kaye, of the Solar Energy Industries Association: "Surveys show that most Americans would be very interested in having a solar system, but most don't realize solar can power a house economically."
Another thing most people don't realize is that the economics of solar do not depend solely on how many hours the sun shines where you live. The real key to making a PV system pay off is whether your state offers a hefty financial incentive (more than half the U.S. population is covered by such subsidies). Fat subsidies are why New Jersey -- not a Sunbelt state -- has the second-largest number of home PV systems in the U.S., after California. At the moment, 17 states offer rebates, according to the North Carolina Solar Center (you can check the Solar Center's database at www.dsireusa.org to see what incentives are available in your state).
Sunshine economics
A few big variables dictate whether a home PV system makes economic sense. But in rough terms, here's how the numbers break down in states with the best incentives: The average solar-power system is 4 kilowatts. (Think of kilowatts as the size of the system. The power it generates depends on size, efficiency and sunlight.) Figure the price, including installation, is $10,000 per kilowatt, so the total comes to $40,000. Through various rebates, credits and tax breaks, some states pay half that cost. The federal government will also chip in 30% of the cost, up to $2,000. Taken together, those subsidies drop the total to $18,000. Manufacturers say that solar panels will last 25 to 30 years, and they guarantee them for 20 years. Assuming a 20-year life span, that averages out to a cost of $75 per month.
Assuming those generous state subsidies, you'll get your initial investment back in ten to 15 years, including financing costs. The environmental benefit: 3 fewer tons of carbon dioxide generated every year.
Second to state subsidies in computing home solar economics are utility rates, followed by the hours of daily sunshine. How much do rates trump sunshine? Consider that a Boston PV system saves about the same amount as one in Albuquerque, even though New Mexico's sunny skies generate 25% more power, says Kaye.
Selling power back to a utility cuts costs as well. Forty-two states and the District of Columbia have laws that require utilities to buy power from individuals. With such so-called net-metering arrangements, a utility must credit you at the retail rate -- the rate you pay for power -- when you send electricity to the grid. In effect, net metering makes utilities into power banks. If you feed more power in than you take out in a given month, you store up credits for future use.
You can even get cash from the utility. Some states require utilities to pay once a year for any excess power your system generates, although at the wholesale rate. So, for example, you may buy power at 9 cents per kilowatt-hour but sell it for only 2 cents per kilowatt-hour.
Other states let you become your own power broker in addition to net metering. In New Jersey, for example, utilities must invest in solar power, and the state has created a market for privately generated solar electricity. A certificate is issued for every 1,000 kilowatt-hours generated, and utilities buy them for between $150 and $265 each.
Of course, solar-power systems vary somewhat in quality and cost, and the panels vary dramatically in appearance. Fat solar panels with visible rows of circles are still an option. Svelte, monolithic panels in blue or black are on the market, although you'll pay a slight premium (up to 10%) for them. For each kilowatt of power you want to generate, figure you'll need 80 square feet of panel. "Thin film" panels, which are barely thicker than the shingles they cover, are unobtrusive, but you'll need twice the square footage to generate the same amount of energy as traditional solar cells.