RSS/ATOMUnderstanding the True Cost of Installing Solar Panels
By sblackb • Feb 2nd, 2008 • Category: Alternative Energy Sources, FeaturesAs you may know, we’ve embarked on a project to stop being energy mongers and put our lifestyles on a kilowatt diet. Not that we have a deep desire to live like cave dwellers, but our house does use about twice the energy that it should and we have goals of eventually moving to the countryside where we can live off renewable energy. My initial thought is that our source of energy would be solar panels tied to a rechargeable battery bank where power would then run through an inverter to power all the standard 120 appliances. Depending on where we live, possible wind or hydro electric could be used for backup. What I wouldn’t give for a 4 season creek running through our future property! I digress…
I’ve read many articles on solar installations, but while I think that the technology is there to live a comfortable life, I am still a bit leery about the prospects of unplugging from the grid. So why not do a dress rehearsal while we still have grid power and don’t need to depend on solar panels for 100 percent of our power? Let’s face it, if we went cold turkey and transitioned today, that first dark night after using too much battery would be quiet – very quiet. I’d rather learn my lessons while I can still fail over to the grid power.
Sizing up a home Solar Panel Power Plant
I’ll be the first to admit that I have little to no clue when it comes to solar. Don’t get me wrong, I have done a lot of research and am pretty good with wiring, but when it comes to installing grid-tied solar panels, well, that’s a different story. I decided to put some numbers to what it would take to run our house on solar panels given our current energy demand. Currently our house is consuming an alarming 18,160 kilowatt hours (kWH) of power each year. Yes, we need to cut this a bunch, but let’s look at what it would take to power this house if we didn’t make any changes.
According to the Arizona Solar Center, Arizona has on average 6 peak hours of sunshine per day. If you want to find the average peak sunshine in your area, check the Sun Isolation tables.
6 hours peak sunshine per day times 365 days per year nets out to around 2,190 hours of peak sunlight. Sure there will be additional power from the non peak light, but I tend to design conservatively, so let’s just stick to the peak hours for our calculations. If the world was a perfect place, we would be able to simply divide our kilowatt hours (18,160) by the number of peak hours of sunshine per year (2,190.) This would mean that to power my small house with its current power consumption, it would take roughly a 8.3 kilowatt system! To put this into perspective, the system required to power this load would cost around $45,000 and the solar panels would cover more than 570 square feet.
But, the world is not a perfect place and there are certain losses in efficiency between the solar panels and the power grid. Depending on your equipment, this can add up to 20%, but averages out to be more in the 15% range. So our wonderful 8.3 kilowatt system will actually only be sending 7.055 kilowatts to the grid. So to accommodate the current power demand of our house, we would need to supersize the solar array by 15% to a whopping 9.5 kilowatts. This boosts the price up to nearly $57,000 and 850 square feet of solar panels. Certainly a nice system if you have extra cash and the need, but our plan is to cut our power consumption as much as possible before tackling the solar panel installation. By putting our home on a diet first, we will save thousands when the time comes to install solar.
According to the Nexus Energy Survey, homes like ours typically consume about 9,000 kWH of power each year. This puts us at roughly double the average, so I know that we can make some significant progress. Let’s pretend for a minute and fast forward to the end of the year. The final bill comes and we determine that our total energy reduction from the prior year was 20%. This puts us at a more respectable 14,528 kWH which nets out to a 7.8 kilowatt solar array accounting for efficiency losses. This grid-tied solar system would cost roughly $43,000 which means the 20 percent reduction in power use would save about $14,000 in system costs or 25%.
Let’s sharpen our pencil a bit and assume we are going to cut power consumption by 30%. This should be attainable with new appliances and awareness to sources of wasted power. This would get our usage down to 12,712 kilowatt hours per year – 5,448 kWH less than where we started. This means that to power our full house, we would need to install enough solar panels to produce 6.7 kilowatts of power and would carry an initial expense of around $40,000 (assuming you did much of the installation yourself.)
Understanding Solar Rebates and Tax Credits
Let’s work on that $40,000 price tag for a minute. Currently there are some pretty enticing rebates and tax credits available for solar power. For example, in the state of Arizona, we have three different discounts that we can take advantage of:
- Utility Cash Rebate ($3 per DC Watt)
- State Tax Credit ($1,000)
- Federal Tax Credit ($2,000) (Note: in 2009, this $2000 credit was extended to 30% of the system cost with no limit for residential. So, the $43,000 system above would net a Federal credit of $12,900 before other credits are applied)
Take a closer look at these rebates and credits for residential solar installations. Using my example system above (6.7kW), this would equal 6,700 DC watts and would net out to a utility credit of $20,100. This means the $40,000 solar power plant will now cost only $19,900. Factor in the State and Federal credits, and it cuts the price to $16,900 (after you file your taxes and assuming you paid at least $3,000 in taxes.) What a bargain!
It’s Payback Time
So let’s say we head to our local solar retailer and plop down the $16,900 to install solar panels and go green. How long would it take to realize a return on this investment? There are a couple factors to look at when determining your ROI for installed renewable energy:
First, the cost of power should be scrutinized because like gasoline, it aint getting any cheaper. Most sources assume that energy will carry about a 5% annual inflation rate. Currently the cost of a kilowatt hour is hovering at just over $.105 (ten and a half cents). This means the 12,712 kWH of power that we estimate using this year would cost around $1355.00 total for the year. Factor in inflation and fast forward 15 years and the cost of this same power will nearly double to $2682! With that said, a benefit of solar is that your cost of power production stays a constant zero. Sure there is upkeep and the occasional repair, but for the most part you can plan on banking the money that you would have otherwise paid to your power company. In my example, this comes out to a whopping total of $90.024.40 over 30 years and the system pays for itself after the 9th year! Now I know it’s rare that anyone stays in one place for that length of time, so you really need factor this into your scenario before making up your mind. However, it also leads me to my second point; your home is worth more with solar panel.
Studies show that houses with renewable energy systems sell for a premium of approximately 20 times the yearly energy bill. So if you currently spend $1000 a year on power; the value of your house would be approximately $20,000 more than an identical house without renewable energy. Typically, the increased value to your home is nearly equal to the initial installation cost. Moreover, in Arizona you don’t pay property tax on the increase in value, but double check how this works in your state. In addition, there is no sales tax for Renewable Energy purchases in Arizona.
Also keep in mind that energy inflation rate. If we estimate that annual power will cost us $2682 in 15 years, this means the value of our home will have increased by $53,640. Certainly a nice bump!
Conclusion
As I look back across this article and reflect on what we’ve covered, I’m sure you are left with many of the same questions that are swirling around in my head today. This is an educational process for me and as I learn more about the benefits of “going green,” I will keep passing the interesting points on to you. Keep in mind that the numbers above are pure speculation based on an Excel spreadsheet and my crystal ball, so pencil out your own numbers before dropping the green to go green. Hopefully you can see enough potential to explore the financial possibilities of installing solar panels on your home. I’m sure it doesn’t make financial sense in all situations, so I would really like hearing some comments from people who have run their own numbers and drawn conclusions.
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sblackb is Scott and Liz share a passion for the outdoors and want to help protect the natural beauty of our planet. Scott feels like one of the best ways to accomplish this is to take on responsible power use, generation and learning new methods for better living with less resources.
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I'm a contractor in Marietta Ga, and have been considering looking into becoming an installer of these systems. We do all the related trades, including roofing, electrical and plumbing. Our homes typically only use 1/3 the normal energy, in fact we've been told that one of our homes is the biggest energy star compliant in Ga, at 12,000 finished square feet. I believe this forum has finalized my decision to look into it at full speed ahead and just say thanks for all the great dialogue going on here!
Hi Scott
Love the calculation process.
You could also think about solar hot water heating this saves 70 percent of your hot water costs.
I've also installed a system that blows the hot air from inside the roof cavity back down into the house. Today the air temperature was in the roof cavity 40 degrees. A 250mm fan connected to a 250mm silver foil tube then to a refuser like they use on air-condition systems. The heaters been put away. Enjoy the sun. Hamish
This is one of the best discussions on this subject I have seen-very thoughtful. There are a few considerations that do not seem to be covered, however.
1) what is the effective lifetime and failure rate of solar panels? Does the output diminish with time due to aging over to 20-year life? 2) Can you really recoup your investment if you sell the house? Many buyers may be turned off by the appearance of the panels or the "techiness" of the system. This may greatly diminish the size of the pool of potential buyers.
3) Is it really fair to count all the subsidies and credits? They don't make the system any more cost-effective; it's just that someone else is picking up part of the check. How can this be sustained?
True enough that subsidies might be needed to encourage R&D and growth of new technologies, but it is really artificial accounting.
Nils: You hit the nail on the head. The expense. So, what we need to do is focus on encouraging and fostering building a reliable, competitive market of US made and installed solar energy sources for the general public. . We could help solve so many problems, by getting people back to work , and solve environmental and energy problems as well. And, don't forget to include better windows, and skylights. They help a lot! Want to cut a KW, install some skylights.
I stumbled onto your blog and read a few post. I like your style of writing. Keep up the good work
Jim
Do you have any videos of the class you teach?
hey mike i am starting a solar panel sales and installation company in Utah. I like your number crunching, and have done some of my own but would like your input. Hit me back I would really appreciate. thanks
Interesting idea, but comes with a host of issues that might be problematic. At least for me, my dryer runs on natural gas, so I'm not sure I want to pump the exhaust into the house. The second issue is all the lint that is expelled via the dryer vent. What you would need is some sort of heat exchanger to transfer the heat from the dryer air to some other clean sources that can reintroduce the heat back into the home. For those of us living in warm climates, we are trying to get the heat out of the house, so there would need to be some sort of means for diverting based on season. Sounds like a big but interesting project.
Of course the purists will tell us to go get a clothes line and stop using the dryer all together
try looking at recylcing your air. A good example would be to run your dryer vent into your duct work this way you are not wasting all that hot air.
Danny,
I'm just writing to say that I will not be releasing your comment because I don't feel it provides any useful information to those trying to learn something about the topic. Furthermore, I have no first hand information as to Mike's mental state or political voting history and would be remiss in allowing unconfirmed content on the site. If you would like to rephrase in a manner that is appropriate for the site and contributes to the discussion instead of picking a fight, I would be happy to post. If you insist on a fight, please pick one with me.
What I can confirm is that I don't particularly believe in global warming either. Keep reading the site and I'm pretty open about that – it's junk science. How else do you explain the current cooling trend or ice ages? I guess it's hard for Al to give global warming speeches in snow storms, so the new marketing term is climate change. We go after CO2 emissions because evil businesses creates it, but not Al for flying a private jet all over the world to his conventions. Hell, even Obama (who is supposed to be green) sent two jumbo jets to Copenhagen to so Michelle could go a day early? Can any one tell me the pounds of CO2 that emitted? – Green is a political agenda and I must say I'm sick of it. Time to look at these people's actions and not just their words.
In fact, I think the whole climate change concept is largely unmotivating to most; it's just not tangible enough to get Joe six-pack behind. What motivates me is the brown air that lingers over our city, the polluted streams, dieing forests, the drastic reduction of sea life in certain regions, and the explosion of people with asthma. Try and explain that that's not pollution related. We have so much to fix that we can see, that I just don't see how the brilliant people behind the global warming/climate change industry missed there audience so badly. A shame really, because I for one would like to see less brown clouds; sort of like the skies after September 11th. Remember how clear everything got within a day or two. Wonder why cap in trade doesn't go after the airline industry – weird…
If you have swallowed the Global Warming Bait, good for you, but don't be a hater because not everyone has – the message sucks and those delivering it, zzzzzzzz. Our outcomes are similar, my version just doesn't have the destruction our remaining industry and the heavy taxation on consumers as part of the plan. I wonder if solar panel makers were exempted from the cap in trade bill… off to do some more research.
Scott
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[...] Energy One Panel at a Time The cost of installing solar panels is dropping, however for many homeowners the initial installation is just too expensive. Yes, the [...]
Everyone note that the $2,000 limit for the federal government incentive was lifted with the recovery bill in 2009. Now it’s the full 30% no limit. It is good for about 7 more years.
Jim Stack,
Mesa Community College? What state?
Jacob Leveque
First off, I do not believe in Global Warming but I do believe in saving money and natural resources.
I too did question the costs and figures with installing solar.
Here are my real world numbers that show I will make my money back in 3 years with my PV system.
I installed a $33,600 3.68kWh PV system.
I received a $10,000 Federal Tax Credit (Courtesy of the 1st Bush Stimulus Package Oct 2008)
I received a $9,200 Maryland State Grant (Taxed by the Federal Government at 28% – $6,624)
I receive a $38.18 Maryland State Tax Credit (3 year total ~$114)
I save $655 in electricity per year (3 year total $1,965)
I earn $2,700 in SRECS (3 year total after tax)
Total return after three years – $21,403
In addition, there is a formula to compute the value added to your home. Obviously, a $33,000 system does not add 33K to the value of your home. Most home improvement projects like a remodeled kitchen or bathroom return 80% – 85%. As per a 1990′s survey of home prices with solar and without solar – they determined that for every one dollar saved in electricity it adds $20 to the value of your home. Therefore, saving $655 per year in electricity x $20 adds $13,100 to the value of your home.
Added value to my home – $13,100
Therefore, after three years – I will have saved $21,403 and gained $13,100 in home value = $34,503
If you do not calculate the increase in home value the breakeven point is about 13 years. Please keep in mind that Federal and States offers are constantly changing grants and tax breaks. (For example – Maryland halved their Grant in 2009.)
In my case getting solar was a no brainer. My ROI is easily 7-8% per year – better than Bank CD’s or the volatile stock market. I would suggest that each person research their state grants to see if solar is worth it. You may just be surprised.
I am a 19 year old college student in Kansas City, Mo and i have become increasingly interested in the field of solar energy. I expect to start my own business within the next five years when i graduate from Avila University. I was wondering if you think that a solar panel installation company would be plausible for Kansas City and if it would have a market? i need to learn as much as i can.
Thank you,
Aaron Sloan
I live in milwaukee wi, the peak sun hours here seem to be around 4.85. But with living in a colder climate area im looking at more of the solar heating. Our electric and gas bill averages around 325 dollars a month during the winter months, about 6 months out of the year. Any idea if a solar heating unit would be worth it at this point?
Installing a DIY solar water heating system has a good ROI and was very rewarding I must say. Of course everything depends on where you live. I live in sunny CO at 7300′ and my system was $5500 out the door (before rebates and credits) and will pay for itself in about eight years (not considering rebates and credits) and this is at the current price for propane. Last year it was 2x and I expect inflation to return with a vengeance when the jobless recovery begins.
I have a 30-tube SolarMaxx evacuated collector, an 80g Kenmore acting as a preheater, and Butler plumbing:
collector – $1.7K
water heater – $550
plumbing – $3K
incidentals – $250
siliconsolar.com
butlersunsolutions.com
Great thoughts A. Wagon, and it sounds like we share the same pragmatic approach to installing solar panels on our homes. To clarify, I didn’t say there was 20k in tax credits; at least here in Arizona, only $3000 would be in tax credits between State and Federal. The rest of the 20k credit is the utility company rebates that you can pretty much get back with the install. There are many installation companies that factor the rebates into the cost of the system and handle that for you.
When I wrote this, the end result was that we were better off investing the money than offsetting our power bills from a pure dollars and sense approach. Like with anything, installing solar panels will become more affordable and cost of energy will continue to rise pushing the project further into the makes sense column.
Of course the goal to “save the planet” or live in a eco-friendly manner is simply a lifestyle choice no different than where we buy a house, what we drive, and what we eat. I’m not a zealot preaching that you should plant grass on your roof, install solar panels and a wind turbine because it’s good for the planet. I’m not knocking anyone who does these things because they feel they are impacting the planet or climate, but just want make sure people understand that meters don’t always run backwards and the upfront expense is not trivial. My advice to anyone looking to explore alternative sources of energy would be to get clear on their goals, explore ways to accomplish them, and then take the time to do the math. Thanks for your comments.
In your payback calculation, you have a critical flaw: the time value of money. Consider that you still have to have the $20,000 up front (or actually $45000 since you’ll only get that tax credit after you spend the money).
If it’s a $20k tax credit, are you even paying $20k in taxes? Do you carry forward what you don’t use? etc.
Consider this: You front the $25000 net. At 8%/yr opportunity cost, you’re “losing” $2000/yr. Strictly as an economic evaluation, consider investing the $25000 over 10 years at 8%. Even at 18000kWh/yr, without reducing your consumption, and at $0.10/kWh, you’re spending $1800/yr in electricity. You’re actually coming out ahead. Then, consider that after your ecofriendly retrofit, you’re only using 12000kWh/yr. So you’re down to $1200/yr. Now you’re WAY ahead. If you compound your $800/yr savings, you’re $25000 “energy endowment” is actually growing.
Now, if you’re doing the change to “save the planet”, that’s a whole different story (almost equally as flawed).
Here’s something else to consider: When do you commit? Meaning, in 10 years there will be a MUCH more efficient solar solution I’d guess. Material science is a rapidly growing field. Plus what about alternatives? Where will residential fuel cells be in 5 years? Will we go nuclear soon and bring the $/kwh down? Should I wait to go solar until my car also is electric (but still good)?
And now the good news. The price of electricity has climbed MUCH faster than you predicted. This allows for a much quick payback period. I’m sure they’ll continue to develop more efficient, smaller, lighter solar panels. There might be a way to integrate them into building materials so it doesn’t look like solar panels.
I don’t care so much about “saving the planet”, but I’m all for cheap, free, renewable energy. It just makes economic and scientific sense. Why punch holes in the ground to guess if you’ll get some fluid that has to be shipped and refined and shipped again and pumped and burned. Huh? Then I put on my sunglasses and hat or turn on my a/c because all this free energy is “annoying me”. I just like the idea of simple and free energy. It makes sense.
Hello-
I live in Northern NJ and would like to make my house more energy efficient. I feel it is our duty and obligation to not be wasteful or pollute the environment. Where can I find tips on how to increase energy efficiency in my home. Specifically, a solar hot water heater? We have an oil burner to give us heat and hot water and I would love to rid myself of this system as oil is expensive and dirty, not to mention unsafe. On a side note, if anyone reading this knows of any jobs or careers in the “green” industry (helping achieve green engergy, ie solar panel instalations) I would love to change careers and do something meaningful for our country. Please email me at RobMrozinski@gmail.com with any suggestions or recommendations.
Thanks!
Scott – I love this very clear approach you’ve taken to discussing solar electricity for your house. It still seems a bit too expensive for the general public, though. What price point do you think solar PV needs to reach to have a tipping point? I think a payback period of three-to-four years will be the magic number, rather than the current 6-9 (depending on your location).
Based on cowcharge’s more optimistic report, maybe that’s not too far off.
Nils
Cowcharge,
I ‘m glad to hear that. I have found little information on off-peak solar production, so I have virtually factored it out of my calcs just to be safe. Can you tell me how many kWh per year the boss uses at his solar house/business? Running short is my biggest fear.
As one who works installing solar water, pv and air systems in Maine, I must say that I believe you are underestimating off-peak-hour energy production. As one example, my company determined that a house set 40 degrees off due South would still receive 94% of the sunlight it would have if oriented facing squarely South. Most likely your system size could be considerably smaller than you estimate, especially in a place like Arizona. At my boss’ home, with an 18 panel, 3kw PV system and a three-panel solar domestic water heater, the electric bill has been reduced to the $7 minimum charge from CMP. Roughly $30,000′s worth if installed for you by a pro. This home is also the company’s dual-business home, so this system is powering every kind of light industrial tool you can think of (table and chop saws, lathes, drills, lots of battery chargers for all the cordless tools, compressors and fueling pumps, multiple computers). It’s all encouraging. Especially to see a $7 electric bill, wash your clothes in hot hot water, take long, long showers…
Manny, That’s a good question and will vary by state, county and even country. I can tell you that here in Arizona, the increased value of the property is not taxable for property tax. Jim Stack who commented above would be a great person to ask this question of. You may even want to take his class if you are local – very informative.
Regards,
Scott
Can the county increase my property tax, if I install a solar system at my home
[...] plain expensive. Even with the current tax incentives and credits from the utility companies, I ran the numbers and a system will still set us back about $20,000 by the time it’s all said and done. With [...]
We signed up for your class Jim and will see you this Wednesday. Looking forward to it.
The best payback is simple PASSIVE SOLAR. It costs so little and you save a lot. Things like solar screens that block the heat on the outside, seal air leaks, better insulation etc. If you energetic like me add a radiant barrier to your attic. I did mine and it’s a foil type roll that gets stapled to your upper rafters in the attic area. Thta blocks the heat from making the attic hot. My air ducts are all cooler now.
Next would be some active systems like solar hot water. I also installed a system on my home and it has a fast payback.
The top things would be a grid tied solar system. No batteries or capacity to worry about. You save as much as you make.
I teach a Solar Energy Class at Chandler-Gilbert and Mesa Community Colleges. I don’t charge a penny but the college does have a 10-20 fee they charge for using their building. Sign up and learn all the incentives, learn where you power comes from now !!! see how much watter power utilites use here in the desert.
Jim Stack