Solar cells offer the attractive prospect of generating one’s own energy in a safe and clean manner. Further, many of us like the concept of selling excess energy back to the grid. However, the panels, inverters, and controls required for such a system represent significant investment by the homeowner. Towards vetting any outlay or finance exposure, we should verify our likelihood to achieve the desired benefits. Therefore, prior to committing to tens of thousands of dollars, why not first ensure solar makes sense with an inexpensive home energy monitor?
Solar Energy Expense
Although the cost for photovoltaic (PV) panels has dropped significantly over the past few decades, solar installations are by no means cheap. With an average panel size of about 300 watts, the raw cost for power falls in the neighborhood of $0.30 per watt. However, on top of that, panels must be installed and connected to the appropriate structural and electrical support equipment per local codes. All in, the full cost for solar installation lands at about $2.50 per watt or $2,500 per kW. Therefore, total project costs range between about $12,500 and $25,000 for 5-kW and 10-kW systems respectively. Not an endeavor to be taken lightly. And buyer beware: unscrupulous sellers may charge as much as $5.00 or even $6.00 per watt!
How Much Can Be Saved
Of course, we anticipate that the capital cost for installation will be defrayed over time. As a result, homeowners who seek to ensure solar energy makes sense must look to pay back their investment or financing at some point in the future. This payback arises mainly from the avoided expense of purchasing power from the local utility.
An Example Calculation
Let’s assume that a given household located in Colorado consumes 10,000 kWh of electricity per year. If we wish to offset 70% the home’s full electricity consumption with solar, we must divide 7,000 kWh/yr by 1,900 kWh/kW-yr per the zone chart on page 9 of this guidance document from the National Renewable Energy Laboratory (NREL). (Please be aware that the PV costs in this NREL publication from 2003 no longer apply.)
Then, we must divide the resulting value of 3.7 kW by a factor of safety of 0.75 to account for various inefficiencies. The resulting 4.9 kW is then rounded up to suggest installing a 5-kW solar array. We now multiply 5 kW by $2,500 to arrive at an estimate of $12,500 for the complete system. Next, we must consider the avoided cost for the displaced 7,000 kWh/yr of electricity. When we multiply this number by the average $0.13/kWh charge imposed by utilities, we arrive at $910/yr in savings.
A Note on Financing
Because of the dollars involved, many homeowners choose to avoid outright purchase of solar energy systems. But make no mistake. Any finance package includes the hard costs of the project as well as interest. The mechanics are identical to purchasing a home by way of a mortgage. And in fact, illustrating this point further, projects are commonly financed using a home equity lines of credit. Regardless, the same principals apply; purchase and installation costs underlie every solar project.
Other Sources of Savings
In certain locales, homeowners expect to sell excess power BACK to the utility through a program called “net metering.” However, in practice it rarely pencils out to add extra capacity to one’s home expecting to make money selling to the utility. These economics result because utilities generally force fees upon homeowners for remaining connected to the grid. This connection is necessary to account for electricity needed when the sun doesn’t shine – for example at night! As a further blow, utilities typically discount the rate for purchasing power back from the homeowner to well below what they charge. By way of example, average costs for electricity approach $0.13 per kWh; however, many utilities purchase power back from customers at a mere $0.01 to $0.03 per kWh.
In another twist, tax credits and other incentives can also help ensure that solar makes sense to homeowners. Currently, tax credits can prove significant using federal US tax incentives. As of 2019, the federal solar tax credit, also known as the investment tax credit (ITC), remains at 30% of the cost of installation. However, this level of tax credit is set to sunset to 0% for residential consumers by 2022. Therefore, the credit percentage will fall to 26% in 2020 and 22% in 2021 (though commercial installations will qualify to deduct 10%). Additionally, states may offer further tax credits and utilities may even credit customers on the order of $0.02 per watt.
Our Example Calculation – Continued
Based simply upon our original capital outlay of $12,500 and expected annual savings of $910/yr, we note a projected payback of 13.7 years. We get some relief by subtracting $3,750 from our project cost thanks to the 2019 ITC, but our payback still looks something like 9.6 years (i.e., $8,750 divided by $910/yr). Though that may sound like a long time, many of us remain in homes at least that long. Provided our payback period falls below our anticipated time in a home, we can ensure that solar installation makes sense for us.
Determining the Appropriate Amount of Solar Capacity for Installation
At this point, some readers may question why we arbitrarily chose 70% rather than say 100% of our annual electricity demand for sizing the solar array. Although doing so would not change the payback period for the project, logically we would then at least gain independence from the utility company. Unfortunately, without the further addition of battery storage to the project, this logic fails to account for two other factors that determine the appropriate amount of PV to install.
First, physical constraints limit the amount of space available to PV panels. For example, most homes rely upon rooftop real estate for solar installations. However, not every square foot of roof is suitable for solar panels. For example, some roof surfaces have a poor angle with respect to capturing the sun’s rays. Or they may be obscured by trees, which themselves provide significant energy benefit with respect to cooling. As a result, some surfaces will NEVER achieve payback on a PV investment. Therefore, you will lose capacity.
Second, homeowners looking to ensure that a solar installation makes sense for them should consider the actual amount of power demanded in the home. And it is particularly important to know when this demand occurs. For example, in the limiting case where a homeowner uses ALL electricity after dark, ZERO savings would result from installing a solar array. Batteries could store that energy for nighttime consumption, but their addition would push payback out even further!
The Right First Step for Consumers
Clearly, homeowners should keep their eyes wide open while they ensure solar makes sense for their long-term investment. Even though the costs for PV panels and batteries continue to drop, installation remains pricey overall. And project payback likely extends well into the future – even if we account for intangibles such as the security and satisfaction for generating our own clean energy.
Data from Your Utility Is Insufficient
We have already noted that the scale and timing for actual electricity usage plays a large part both in sizing for and savings from a solar array. However, ironically, few embarking on a solar project have good access to meaningful data. With effectively only 12 data points per year, sizing a system around last year’s electricity bills hardly seems appropriate. This disconnect only becomes more apparent when we consider that we have no view into how we use energy during periods of peak solar generation. In other words, the information from our utility company provides no insight for demand timing – or for how we might be able to shift our use.
You Need Your Own Data
With obvious impacts on sizing, savings, capital outlay, and payback, the response appears obvious. Simply put, homeowners need a method for measuring demand in real time. However, beyond mere measurement, we also should determine where we might shave or shift demand so as better to right-size our solar project. In other words, we need a detailed view into our energy use.
Consequently, a homeowner should perform good diligence prior to agreeing to undergo a solar project. And the biggest part of that diligence should involve installing a monitoring system on the electrical panels of our homes. With equipment prices for monitors ranging from about $135 to $300, a minor investment helps ensure solar makes sense for our home. For your convenience, we at Emporia Energy have prepared a comparison post and table, which includes our own Vue platform. And you are assured of gaining other benefits – such as cost-savings, energy efficiency, and understanding for impact – regardless of your determination about solar!
We hope you found this article beneficial in your bid to ensure solar makes sense for your home. We further hope to partner with you as you gain insight into energy use by purchasing a Vue. The benefits of this insight are not limited to solar. Rather, they extend to other decisions around energy assets, including batteries, HVAC, and appliances. We encourage you to learn more about us at EmporiaEnergy.com.