Price cuts by manufacturers, tax credits, California incentives and innovative financing ease the cost of going solar.
If you’re searching for a bright spot in a dismal economic climate, look no farther than your roof. The downturn is helping to make solar panels more affordable.
Manufacturers are cutting prices to move inventory. Uncle Sam is helping too. As part of the economic stimulus package, the federal government this year boosted tax credits to homeowners who switch to solar power. Together with state incentives, those subsidies could slash the cost of some systems in California by 50% or more. Some homeowners are banding together into buying groups for even bigger savings.
If you don’t have a lot of extra cash lying around, innovative financing can help you spread your payments out as long as 20 years. Or you can take advantage of leasing deals to get panels on your home for little or no money down.
June was a record month for state rebate applications by California homeowners. Some of them are opting for the steady returns that come from lowering their energy bills rather than betting on volatile stocks or real estate.
So shake off the recession gloom and let the sun shine in. Here’s how to go solar without going broke.
A well-designed solar-power system can reduce your annual electricity expense to zero over the 25- to 30-year life of the panels. Spending $20,000 or more on a system today amounts to pre-paying your power bill for the next three decades.
Is that a smart decision?
If your aim is to help the planet, the answer is a resounding yes.
If you’re looking to save money, it depends.
Not all homes are good candidates. Generally, the higher your current electric bill and the sunnier your roof, the more solar makes sense. Still, payback can easily take a decade or more. You’ll need to crunch some numbers.
Reputable solar installers will be glad to help you figure the payback period, lifetime savings and rate of return, free of charge. If you want a ballpark estimate without the sales pressure, check out the calculators section on the state’s Go Solar California website. A particularly good one is the state’s own Clean Power Estimator.
Once you’ve made the decision to go solar, your final cost will depend on four main factors.
* System size — Solar modules typically are priced by the DC or direct current watt. A typical-size system in Southern California ranges between 4 kilowatts (4,000 watts) and 5 kilowatts (5,000 watts).
* Panel prices — They’re falling. That’s a good thing.
* California rebate — The state subsidy is declining. That’s not such a good thing.
* Federal Investment Tax Credit — A once-modest incentive just turned into a really big deal this year.
Let’s take a closer look at those last three.
A buyer’s market
Demand for solar-power systems in much of the world has slowed along with the global economy. Meanwhile, solar-cell factories planned when the market was booming are coming on line. The result: too many panels and too few buyers. To move them, companies are cutting module prices.
In the U.S., wholesale prices for top-quality modules made of crystalline silicon have fallen by 50% over the last year to around $2.40 a watt, according to Nathaniel Bullard, solar analyst with New Energy Finance in Alexandria, Va.
“It’s really a precipitous drop,” Bullard said. “The mood in the industry is grim.”
Panels typically account for less than half of the final “retail” price most consumers pay for solar. Unless you’re a do-it-yourselfer, you’ll need to hire a professional installer whose add-ons will include labor, permits, taxes and an inverter to convert the direct current electricity generated by the solar array into alternating current suitable for appliances.
Retail prices haven’t fallen in lock step with panels, but there’s no question that they’re coming down fast. Some residential systems that were retailing for $9 a watt to $10 a watt installed before the recession can now be had for about $7.50 a watt. Homeowners who join together to buy in volume are snagging complete systems for a little more than $6 a watt. Big commercial buyers are paying even less.
And that’s before factoring in government subsidies.
“Jobs are very competitive, and that’s translating into lower prices,” said Ron Kenedi, vice president of Sharp Solar Energy Solutions Group, the U.S. solar arm of Sharp Corp. “This is the perfect time to buy solar.”
If that sounds like sales hype, here’s something to consider: Analysts are predicting further declines in panel prices, so waiting could save you some money.
Or it could end up costing you a bundle.
That’s because another major incentive — the California subsidy — becomes less valuable the longer you wait.
Great state rebate
The California Solar Initiative provides rebates to owners who install solar panels on existing homes. The 10-year, $3-billion program, which launched in 2007, is funded by the state’s utility ratepayers.
These rebates are based on a system’s size, performance — and timing. Californians who purchase sooner, rather than later, are eligible for the biggest subsidies. That’s because the rebates are programmed to drop every time the state reaches a certain target of megawatts installed.
For customers of the state’s three large investor-owned utilities, the rebates started at $2.50 a watt and will shrink to 20 cents a watt by the time the program expires at the end of 2016. That’s a difference of $11,500 on a 5-kilowatt system over the life of the offer.
At present, rebates for customers living in those service territories are as follows: Pacific Gas and Electric — $1.55 a watt; Southern California Edison — $1.90 a watt; and San Diego Gas and Electric — $1.55. To keep tabs on how close all those rebates are to dropping to the next level, check out the Statewide Trigger Point Tracker at www.csi-trigger.com.
Your final rebate will be less than those benchmark figures because the state will apply a discount to account for your roof’s shading, the efficiency of your panels, the conversion from DC to AC and some other factors. So figure on getting about 86% of the benchmark.
California’s municipal utilities have their own solar rebate programs. The Los Angeles Department of Water and Power, for example, calculates how much power your system would produce over 20 years, then pays an upfront subsidy — currently 13 cents per kilowatt-hour — based on those estimates. The DWP website has a calculator known as PVWatts to help you estimate your rebate. (Warning: It’s not very user-friendly.)
Check out your utility’s website for more information.
Reputable solar firms will handle all the paperwork and give you the California rebate immediately, saving you the wait and hassle. Make certain the firm you choose is registered with the state by checking the California Energy Commission database.
Tap your uncle
The second big solar incentive comes from Uncle Sam in the form of an investment tax credit.
Starting this year, homeowners who purchase solar panels can qualify for a federal tax credit equal to 30% of the cost of their systems after the state rebate has been deducted. The credit is a dollar-for-dollar reduction in the amount of federal income taxes owed.
Here’s how the math would work for a resident living in Southern California Edison territory who bought a 5-kilowatt system retailing for $7.50 a watt with an 86% conversion rate for the state rebate.
Material below will be in a chart inserted at this point
($7.50 x 5,000 watts)
($1.90 x .86 x 5,000)
($37,500 – $8,170)
($29,330 x 30%)
Net system price
($29,330 – $8,799)
Although government subsidies can reduce the cost of solar substantially — by nearly half in the case above — most homeowners don’t have a bundle of cash to invest in panels. And falling home values have made it tougher to get a home equity line of credit.
That’s why some solar firms have begun offering residential leases and so-called power purchase agreements, or PPAs. These arrangements are already popular with big commercial power users, including Wal-Mart Stores Inc., that want to go green without tying up a lot of their own capital.
Instead of purchasing their own solar equipment, consumers let a solar-power provider install its panels on top of their homes. Homeowners buy the clean energy generated from these arrays, paying a monthly fee to the solar firm much in the way they currently buy power from their utilities.
Upfront costs to the homeowner are minimal, from zero to a few thousand dollars. There’s no maintenance either; that’s the solar company’s responsibility. Contracts are lengthy, typically 15 to 20 years. But they can be transferred to a new owner if the home is sold.
Many customers cut their monthly power bills immediately by at least 10% to 15%. But the biggest savings come in the later years. That’s because, depending on the deal you cut, you can lock in a fixed rate or get a contract with a predictable escalator that’s well below electricity rate hikes being projected for conventional utilities.
Ned Araujo of Upland turned to SunRun, a San Francisco company that offers residential power purchase agreements. The environmental engineer paid $8,000 upfront to lock in a rate of 13 cents a kilowatt-hour. That’s slightly above the cheapest rate available currently from Southern California Edison. But it’s less than half the utility’s priciest peak rates, and it’s guaranteed not to budge for 18 years.
Araujo said he didn’t want the headache of maintaining solar panels — especially in a seismic area.
“Anything that happens, it’s their responsibility,” he said of SunRun.
Similar arrangements are available from SolarCity, a company based in Foster City, Calif., whose popular leasing program has turned it into the state’s leading installer.
The company is making a big push in Los Angeles, where it recently reached an agreement with the city that allows LADWP customers to participate in such lease arrangements. Homeowners with an electric bill as low as $100 or even less can still save money by going solar, said SolarCity spokesman Jonathan Bass.
The company has a nifty calculator on its website where you can plug in the numbers.
Power to the people
In the last few years, companies, including SolarCity, have courted business by offering volume discounts to groups of homeowners who agree to adopt the technology at the same time.
The so-called community solar movement is gaining traction nationwide, thanks in part to a Bay Area company called One Block Off the Grid, or 1BOG for short. Its business is organizing homeowners into groups of 100 or more and using that bargaining clout to get the best deals from solar installers.
Here’s how it works: If you’re interested in solar, just go to the website and sign up. 1BOG is running campaigns in metropolitan Los Angeles (including Orange County and parts of the Inland Empire), the Bay Area, San Diego, Sacramento and Sonoma County.
There’s no cost or obligation. But the more homeowners 1BOG can get to take the plunge, the more leverage they have with installers, who compete to win the contract. 1BOG makes its money by charging the winning bidder a fee.
1BOG offers educational seminars, provides a leasing option and does all the negotiating with solar companies, saving homeowners a lot of hassle.
Retirees Dorothy and Walter Harris of Ladera Heights were interested in purchasing panels but were dismayed by the steep learning curve. After tuning in to a 1BOG Web seminar, the couple knew they had found their company.
“They presented things clearly . . . and made the whole process easy,” Dorothy Harris said.
The savings can be enormous. Los Angeles 1BOG members can now get solar for $6.05 a watt installed. That would reduce the net cost of that 5-kilowatt system in Southern California Edison territory mentioned above by an additional $5,075.
The drawback is that you don’t get to pick what brand of panel goes on your roof or the company that does the installing. You also might have to wait several months to get your system, depending on how many people are ahead of you in line.
Put it on my tax bill
State legislation known as AB 811 approved last year grants most California cities and counties the ability to offer low-interest solar loans to residents, who then repay those loans through assessments that appear on their property tax bills.
The idea is to make solar more affordable by allowing California residents to spread their payments over 20 years. If the house is sold, the annual assessments become the responsibility of the new owner. That’s appealing to homeowners who aren’t sure how long they’ll stay put.
So far, Berkeley, Palm Desert and Sonoma County have set up programs. San Diego is planning to launch one this fall. A number of cities are in the exploratory phase.
The cost to homeowners and businesses depends on the interest rate provided by the municipality. Palm Desert, for example, offers a 7% fixed rate. So financing a $30,000 system over 20 years would raise a homeowner’s property tax bill by a little more than $3,000 a year.
Want your city to participate? Tell your mayor or council representative you want an AB 811 program in your town.
DMSOLAR is able to offer wholesale price to end users.