Making Cents of Solar Photovoltaic Systems

Q: I have heard that the price for solar panels is dropping and incentives are available this year. What should I consider before taking the plunge? Would it be a good investment?

A: Now is a terrific time to consider solar technology for your home! The residential solar industry is growing fast as financing options become available, system costs decline, and technology improves. Last month we reviewed the most popular residential solar technology, solar water heating systems. The second most common solar technology found on North Carolina homes are grid connected solar photovoltaic (PV) systems.

Residential PV systems range in size from 1 to 20 kilowatts (kW). A 4 kW system, as shown in the photograph above, is often a roof mounted “array” or grouping of 16 to 20 PV modules. Costs vary across North Carolina. An average cost for a residential PV installation is $5.40 per watt so a 4 kW installation may cost about $21,600.

Federal and state tax credits make PV systems a blue light special if the PV system and homeowner qualify. When tax credit requirements are met before December 13, 2015, the net installation cost of a 4 kW $21,600 system could drastically drop to $7,560!

The next goal is getting the PV system to pay for itself. To do this, the PV system must be grid connected which means that any extra electricity generated is delivered to the utility and credited to the home’s electric account. This credit will be used when you purchase electricity from the electric company at night or on cloudy days.

Here’s where it gets hairy. Electric utilities are required to purchase excess output from your grid connected PV system but they don’t have to pay the retail rate which is the same rate you pay the electric company – $0.10 per kWh is an average North Carolina retail rate. When the retail rate is paid to the homeowner, it is called net metering. State law requires investor-owned utilities, such as Duke Energy Progress, to offer net metering to homeowners. Electric membership cooperatives, however, vary whether they offer net metering. Keep in mind that laws can change. An alternative to net metering is a non-retail rate from the utility company plus Renewable Energy Credits (RECs) sold by the homeowner to a utility or non-profit such as NC GreenPower.

An ideal solar installer will guide you through these options and help with the required paperwork to maximize the PV system’s size and payback period. Be sure to inquire about deadlines for utilizing tax credits and the contract length for RECs. Incentive details can be found at www.dsireusa.org.

Let’s explore a quick example of net metering to illustrate payback period. A 4 kW PV system in North Carolina will likely generate 5,809 kWh per year (visit https://pvwatts.nrel.gov). The average annual household electricity use in North Carolina is 13,800 kWh.

In a net metering scenario with a retail rate of $0.10 per kWh and $16 per month metering fee, the first year electricity cost savings for a 4 kW system is around $389 (5,809 kWh X $0.10 – $16 X 12 months). $7,560 divided by $389 reveals a payback period of 19 years. Not too shabby! After the payback period has elapsed, the PV system provides essentially free energy for the remaining life of the system other than the routine maintenance costs.

PV modules have 25-year warranties and other major components, such as inverters, have standard 10-year warranties and optional extended warranties up to 20 years. With proper maintenance a PV system is expected to live long past the payback period.

Tax credits can make PV systems a fabulous deal but the PV system needs to pay for itself to be a sensible investment.