Home going solar solar 101 Going solar: Economic considerations

Going solar: Economic considerations

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solar panels with dollar signs on them

A crucial factor to consider when weighing whether going solar is for you or not are the out-of-pocket costs you, as a consumer, will pay, and the return on investment you realize for a solar system. These vary widely according to a number of factors.

Among these are:

  • your geographic location;
  • the amount of sun you get; solar systems can be installed anywhere, however, all other factors equal, you’ll generate more electricity off your solar system in Phoenix than you will in Seattle, more energy off a south-facing roof than an east-facing one, etc;
  • whether utilities in your state are required to offer “net-metering”, meaning whether they allow you to send electricity you generate back into the electric grid; if you live in one of the five states (South Dakota, Kansas, Alabama, Mississippi, Tennessee) without net-metering, your road to going solar will be a hard and much more expensive one than if, for example, you live in states like California, Colorado, Massachusetts, which require that large utilities provide net-metering;
  • whether your state has passed legislation which requires that a certain amount of total energy be produced by renewable sources by a certain date; if you live in a state that’s mandated a certain percentage of renewable energy production within a proscribed time period, you’ll probably pay less for your solar system than if you live in a state that has no such requirement;
  • your utility and the type and level of rebate they offer – for example, currently (summer 2009), our utility, Excel is offering a rebate equivalent to about 60% of the total cost of a home system; this unusually high rebate, which is about to drop, is a direct result of the fact that Colorado voters approved a first-of-its-kind measure in 2004 which requires that 10% of the total electricity produced by the state’s biggest utilities come from renewable energy sources by 2010, a required percentage since boosted to 20% by 2020 by a state law signed by Gov. Bill Ritter in 2007 ;
  • the accessibility of utility rebates; for instance, some utilities limit the number of customers eligible for a solar-system rebate, while many offer no rebates whatsoever;
  • how many, or how few, solar installation companies operate in your area – this is linked to the above issues, net-metering and rebates; states with net-metering and with utilities with good consumer rebate programs have more solar companies than those that do not;
  • your roof size, pitch & any shading issues;
  • the age of your roof -- solar installers don’t recommend installing a system on a roof nearing the end of its life;
  • your roof material – for instance, REC Solar, the company scheduled to install our solar system in June 2010 – will not install a system on a wood-shake roof;
  • how much savings you have – the more money you have to borrow, the more the system will cost you;
  • the materials you select; there are wide variety of panel types, system inverter types, etc; some are more efficient, more durable, more aesthetically pleasing, etc. than others; some are also produced in more environmentally and worker friendly ways than others (yes, the production and disposal of solar panels does have an impact on the environment – something we’ll explore in detail in other articles on SolarChargedDriving.Com).
  • the solar installer – and how much competition the solar installer has, or does not have; the more competition you have in your area, the better; in fact, prices can vary considerably according to the installer, which is why it is always a good idea to get several quotes and, ideally, to play these quotes off against one another so that you get the best deal you possibly can;
  • how long you will live in the structure on which you’re installing a solar system;
A solar system isn’t unique. A home, a car, a state-of-the-art sit-down lawnmower, an in-ground swimming pool, a 58-inch LCD HDTV, all of these big purchases are associated with complex cost and maintenance variables.

Many additionally variables come into play in terms of the cost, and payback, of a solar system. For example, weather and natural disasters – hail, wind, branches, fire, or even lightning -- could damage or destroy your system.

In this sense, a solar system isn’t unique. A home, a car, a state-of-the-art sit-down lawnmower, an in-ground swimming pool, a 58-inch LCD HDTV, all of these big purchases are associated with complex cost and maintenance variables.

solar panels with money sign super-imposedHow much will going solar cost me?
So, how much will a solar system cost up front?

Let’s take a 5 kW system, which, if installed on a south-facing roof with no shade in sunny Colorado or sunny parts of California, will likely produce somewhere between 7,000 and 8,000 kilowatt hours (kWh) of electricity a year. If yours is a reasonably average but also energy conscious household, this is enough to cover somewhere between 75 and 100-percent of your annual electric use.

According to Real Goods Solar, one of the nation’s largest and oldest solar providers, as of August 2009, if you live in California you’ll pay about $20,000 for this 5 kW system, However, if you live in Colorado, you’ll pay $14,000 for the same system. (See the Real Goods “Solar Economics” page for more details).

Why such a big difference?

The current rebates (these shift frequently) offered by the utilities Real Goods Solar uses for this example, PG&E in California, and Xcel Energy in Colorado. At least at the time I am writing this (August 2009), Xcel is offering a bigger rebate than PG&E.

This example illustrates the complexity and variability of the cost of going solar.

Unfortunately, too many variables exist to be able to say definitively, ‘You will pay $10,000 out of pocket for a 4 kW system no matter where you live, who your utility is, or how much, or little, competition there is among solar companies where you live, etc.’.

Most likely at least $8,000 for 5 kW system
Ultimately, you’ll pay quite a lot for an installed solar system.

If you’re really unlucky and live in a solar unfriendly state like South Dakota, you may pay even more than twice the $8,000 out of pocket costs one might pay for the same system in a comparatively solar friendly location such as Denver, Colorado.

For example, for a 5 kW system, expect to pay at least $8,000 out of pocket – out of pocket costs takes into account utility rebates plus a 30% Federal Tax Credit, which, reduces your taxes, but which you cannot take home as a tax refund.

Depending on where you live, you may pay quite a bit more, up to twice as much as this ballpark minimum $8,000 out-of-pocket estimate for a 5 kW installed system.

If you’re really unlucky and live in a solar unfriendly state like South Dakota, you may pay even more than twice the $8,000 out of pocket costs one might pay for the same system in a comparatively solar friendly location such as Denver, Colorado.

In sum, if you buy a medium-to-large solar system outright – solar leasing is a completely different story -- you will have to hand over what, for the vast majority of us, stands as a hefty chunk of money in order to get that system installed on your roof.

Of course, solar costs have dropped significantly in the past few years, and they could drop further as advances are made in solar technology and the cost of raw materials such as silicon go down.

Still, the final answer to the question of how much will it cost me to go solar is:
Initially, quite a lot – though, again, in the long run you almost certainly will save money, potentially a lot of money.

Weighing the different considerations
In terms of making your own personal decision about whether to go solar, you will need to assess as many variables as you can and make a decision about whether going solar is “worth it” to you.

Certainly, it will be worth it environmentally speaking. That is, if you are as charged up about firing the “green economy” as I am, going solar will definitely be worth it in terms of the concrete impact this has in terms of growing an economy based on as environmentally friendly a mode of production, distribution and consumption as possible.

I will concede that money, meaning the big upfront cost was – and continues to be – for me, and especially for my wife, a big consideration. We’re still trying to figure out how we can pay as much as possible of the approximately $8,300 out-of-pocket cost for our 5.5 kW REC Solar system with cash rather than borrowed money.

(One thing we’ve done is we’ve decided to have it installed in June 2010. This is still within the allowed Excel Energy one-year, contract-signed-to-installation window for us to receive the current very high Xcel rebates, but it gives us about 10 months to scrape together more cash.)

greened sky with clouds and sunA lifelong “green” streak
A lifelong, and extremely deep, green-streak, the fact that the real-estate crash has locked us into our house for another five to seven years, and the very real sense that going solar – and founding SolarChargeDriving.Com – are the most effective measures I can take to help America finally go to renewable energy finally got me over the solar hump.

Still, the economic considerations of going solar continue to hover over us.

My wife knows that solar saves in the long term, and that every year we fork over $800 to Excel Energy we will never see again. However, depending on rate hikes, it would take us seven to 10 years of paying Excel before we would have paid to Excel the $8,300 a solar system will cost us.

Basically, it’s difficult to prevent people – including my wife, who is also a “greenie” -- from getting hung-up on short-term costs so that they can actually see the long-term cost and savings picture. This is a basic fact, one I’m certain many a solar consultant can tell you a lot about.

That’s why the movement toward solar leasing – a mechanism for going solar that’s been available to large, commercial customers for awhile now – is so intriguing.

Solar leasing: An overview
If you’ve got the cash, it probably makes most sense to buy a solar system outright. That way, you capitalize 100-percent on the electricity rate savings the system yields as electricity rates go up, and up and up.

However, many of us are not able to save the thousands, even tens of thousands of dollars you need to purchase a solar system.

We can go out and borrow money. But interest significantly cuts into the long-term savings of a solar system.

By far, the biggest attraction of a residential solar lease is, at least in some models – for instance, those currently being offered by Solar City and Sun Run – the fact that there are no big upfront costs to you.

So, for the rest of us, or, really, the rest of us fortunate enough to live in those few states which have active residential home solar lease programs -- right now (August 2009), Arizona, California, Connecticut, Hawaii, Oregon, Massachusetts -- there’s solar leasing.

By far, the biggest attraction of a residential solar lease is, at least in some models – for instance, those currently being offered by Solar City and Sun Run – the fact that there are no big upfront costs to you.

Additionally, your electricity rate is the same, or even less, than what you currently pay.

Solar leasing: Too good to be true?
To those in Arizona, California, Connecticut, Hawaii, Oregon and Massachusetts (and, hopefully, additional states soon!), or really, those in the specific locations in those states with the “right” utility and a solar company that’s offering leasing as an option:

Why would you not go solar with this kind of possibility available?

Actually, there are a few reasons you might hesitate on a solar lease option:

  • you plan on moving relatively soon (although you can pass the lease on to the new homeowner);
  • you actually have the cash on hand for a solar system;
  • you have rooftop, shade, or other issues that might turn a solar company off from putting panels on your roof;

Generally, the solar lease – at the corporate level it’s called a Solar Power Purchase Agreement (SPPA) – is an affordable and safe way to go solar.

If you need evidence of the stability of the solar leasing model, look no further than the rooftops of big companies such as HP, Wal-Mart and large universities such as University of California, San Diego, all of whom have used SPPAs to help:

  • reduce energy costs;
  • go solar;
  • green their actions and image;

Under a solar lease, essentially you are renting rooftop space on your home, or business.

If your home electric needs – and EV/PHEV charging needs – are 100-percent covered by the solar system, you never pay your utility for electricity again!

The solar installer puts the panels on your home, and you “lease” them. In other words, you pay the solar installer for the electricity you draw off the system – plus, you pay your utility for the “extra” electricity you draw from it.

If your home electric needs – and EV/PHEV charging needs – are 100-percent covered by the solar system, you never pay your utility for electricity again! (You might, however, have to pay the general utility taxes/fees everyone else has to pay)

No money down, your electric rate stays the same as it was before you had the panels and it’s locked in for a decade or more, the solar installer maintains and monitors your system…

How exactly does a solar company and third-party financer such as Sun Run make money off a solar lease?

First, they pocket any and all rebates and tax credits. Second, they sell the power produced by your panels back to you, third, they’re able to write off the depreciation of the solar system and thereby create what is apparently a fairly lucrative and dependable tax shelter.

Going solar series-->

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