The climate has never been better for solar energy. According to a 2015 poll sponsored by SolarCity/CleanEdge, solar power was picked by half of all homeowners as the most important energy source for America’s future.
As of the end mid 2015, there were almost 784,000 homes and businesses in the United States that have gone solar, according to the Solar Energy Industries Association.
The news is especially good for homeowners, many of whom still view solar as beyond their financial reach or as a resource still unproven. Costs for home solar systems continue to plummet. Since the solar and wind Investment Tax Credit (ITC) was implemented in 2006, the cost of installing solar has dropped by more than 73 percent, according to the Solar Energy Industries Association. And the 30 percent tax credit for solar under the ITC, set to expire at the end of 2015, has been extended by Congress for an additional three years, followed by a two-year ramp-down period.
Still not convinced? Want to know more about how to save big money with home solar power? Read on.
1. Net Metering: Sell Your Power Back to the Grid
The Sun generates light rays that travel to Earth.
Those light rays come in contact with the panels of the solar system (like the ones on a homeowner’s roof) where they are turned into electricity.
That electricity is then used to power the system owner’s home (or business).
Any excess electricity generated by the homeowner’s solar system flows out of the home, through the utility’s meter (causing the meter to run backward) and into the grid, where it is used by the utility’s other customers.
The result is a credit on the solar system owner’s electric bill that is used to offset any costs incurred by the system owner for use of electricity provided by the utility.
One of the most talked about elements of home solar power is “net metering.” Net metering is a billing setup that allows solar energy system owners to feed excess electricity generated by their systems onto their current utility’s grid and get credited or paid for doing it. In other words, a solar system owner can actually earn money for the excess electricity his or her system produces. In most cases, homeowners “sell” their system’s electricity to the utility during peak usage hours and “buy” utility-provided electricity during off-peak hours, often leading to a net monetary gain for the homeowner.
The whole process is monitored through the utility’s home meter that will actually run backward whenever the solar system is inputting electricity into the grid. Hence the term “net metering.” The net metering concept is not new and, in fact, dates back to the earliest days of private solar energy systems when it was implemented to encourage solar energy growth.
Different States, Different Rules
Just how much money can a homeowner make? That depends on a number of factors including one’s geographic location, local regulations and power company policies. Here are a few examples from the U.S. Department of Energy:
The utility customer is credited for the net excess generated (NEG) electricity on his or her next bill at the current retail rate. There is a 1MW system capacity limit and 5 percent aggregate capacity limit. The customer owns the Renewable Energy Certificates (RECs), but if the customer receives NEG payment at end of year, then the utility owns the RECs associated with the NEG.
NEG credited to customer’s next bill at retail rate for electricity. At the end of the year, customers can roll over accumulated credit (IOUs) indefinitely and receive payment at hourly incremental cost. There is no specified aggregate capacity limit. However, the system capacity limit for IOU customers is 120 percent of customer’s average annual consumption.
NEG credited to customer’s next bill or reconciled monthly at avoided-cost rate. There is no aggregate capacity limit, but system capacity is limited to maximum of 80 MW (maximum applies to certain utility types only, such as investor-owned utilities.) RECs are owned by the utility.
In 46 of America’s 50 largest cities, a fully financed, typically sized solar PV system is a better investment than the stock market.
– NC Clean Energy Technology Center report
As of January 2016, there are 41 states, Washington, D.C., and three U.S. territories with state developed mandatory net metering rules in place, according to the U.S. Department of Energy. Additionally, although their states have no uniform or mandatory rules, some utilities in Idaho and Texas allow net metering. Net metering rules vary, sometimes significantly, from state to state in regard to factors such as terminology, capacity limits, eligible technology, net metering credit retention and renewable energy credit (REC) ownership, so homeowners are wise to consult their state’s rules carefully.
Does Your State Have Net Metering?
Source: DSIRE, January 2016
What does the future hold for net metering?
Solid predictions are hard to make when it comes to any rapidly evolving technology. As more and more communities, businesses and individuals incorporate solar energy into their lives, and the inevitable transition from a centralized power source to a highly distributed system of sources gathers steam, there are bound to be myriad new problems and issues that will require a rethinking of governmental regulation and public policy of solar power.
One key issue concerns fair compensation. Utilities argue that the current scheme of compensating homeowners and others for their excess energy contributions to the grid is outdated. They say that as more consumers opt for solar power systems, more stress is put on an aging grid that is not structurally set up to handle the transition. The result, according to the utilities, is to place an unfair burden on non-solar customers to pick up the bill for current and future grid structural improvements. The response of the solar industry is that the claims of the utilities are overstated and that the benefits of net metering continue to substantially outweigh the additional costs.
For a lot of my clients it’s really important to live sustainably. They are eager to incorporate anything that will make a positive difference in their home – that’s more eco-friendly. That’s a big motivator for them.
Value of Solar Tariff
Similar to net metering, Value of Solar Tariff (VOST) is an alternate way of measuring and valuing power generated from solar systems, such as those on private homes. With the VOST, customers continue to purchase all of their energy at the utility’s retail rate, but are then compensated for the solar energy their private systems generate and place into the grid. VOST is currently in use in two markets: Minnesota and Austin, Texas.
2. Tax Incentives and Rebates
One big reason to consider a home solar system is that it normally comes with a package of federal and state tax incentives, credits and/or rebates designed to encourage solar energy usage. These incentives and rebates offer a substantial cost benefit to homeowners suffering from sticker shock at the upfront purchase price of a home system.
Federally sponsored incentives come in the form of the Investment Tax Credit (ITC). The ITC is a 30 percent federal tax credit for solar systems installed on qualifying residential and commercial properties. The ITC was originally put into place in 2006 with an effective end date of Dec. 31, 2007. It has been extended three times since it was first enacted, the last extension (five years) coming in December 2015. Homeowners use the credit when they purchase solar systems and have them installed on their homes. The credit is applied to the homeowner’s federal income taxes for a dollar-for-dollar tax reduction. The dollar amount of the credit is based on the amount of investment by the homeowner in eligible solar property.Learn more about the ITC STATE
Currently, only a small number of states offer their own incentives and/or rebates for home solar systems, and those programs that are available vary substantially from state to state. Most state-based incentives are sponsored directly by utility companies, but indirectly mandated through state government renewable energy standards placed on the public utilities.Learn more about rebates at your state’s page
Solar is no longer an option only for the wealthy, but an opportunity for anyone looking to gain control over monthly utility bills, and make a long term, low risk-investment.
– U.S. Department of Energy
3. Protection Against Rising Utility Rates
There’s a battle of sorts going on between the old utility guard, with their dependence on fossil fuels, and the new, sustainable energy upstarts. In this scheme, the established utilities can be characterized as Goliath to renewable energy’s David. And let’s not forget how that story turned out. The reality is that consumers in many states have suffered double-digit increases to their electricity bills over the last decade or so due to a variety of reasons including new federal regulations on emissions, rules on greenhouse gasses, renewable energy state mandates and fluctuating oil, coal and natural gas prices.
The combination of past increases in electricity costs and uncertainty of where those costs are headed has convinced many homeowners to take another look at investing in a home solar system. Here’s what they’re finding:
As mentioned, electricity prices have risen substantially over the last decade for those getting their power from a public utility. Not so, however, for consumers with solar systems on their homes. The main reason? Fixed costs.
The nature of solar technology is that it requires a substantial upfront investment (purchase and installation of the system). After these initial costs, however, and notwithstanding some inevitable maintenance costs, the system produces electricity cost-free. In other words, solar system homeowners are not subject to the fluctuating costs of fossil fuels. Their fuel is the sun, whose energy is provided free-of-charge. The typical home solar system today has a 25 to 30 year lifespan, which means the cost of electricity over that period is highly stable and predictable, a huge plus when planning one’s financial future.There’s money to be saved.
Just how much depends on location and regulations. Surprisingly, living in the Sunbelt doesn’t necessarily equate to the biggest savings. For example, a recent North Carolina State University study ranked New York City and Boston as first and second among the 50 largest U.S. cities for potential savings to residents installing solar power. Other cities in the top 20 include Washington D.C., San Francisco and Philadelphia.
How much can a homeowner save with solar? First, consider the system cost. A 5 kilowatt system can run between $18,000 and $25,000 to purchase and install before incentives. However, rebates and tax credits bring the out-of-pocket cost to an average of just $14,000. Now, consider the savings illustrated in this example: Assuming a 5 percent annual increase in electricity prices from a utility company and a $1,200 current annual bill for electricity, a homeowner with a solar power system who draws 100 percent of his or her electricity from that system could enjoy utility bill savings of about $30,000 over the lifespan of the system’s solar panels. Applying simple math to these examples, then, indicates a result in a potential savings of as much as $16,000 over the system’s lifespan.
We see a lot of companies now leasing solar systems. I see that as a real positive because it provides another option for people who don’t have the cash up front. So if you’re green minded, you can get a solar system for your house with no money down, which is tremendous.
How much have electricity costs increased where you live? Go to your state’s individual page to find out.
U.S. Residential Electric Price
Source: Short-Term Energy Outlook, February 2016
4. Increased Home Value
I think that having solar panels does add value [to existing homes]. Part of the challenge is that local appraisers haven’t really gotten used to being able to assign a value to certain [green] features, including solar systems. And so I’m interested to see at what point appraisers start giving a higher value to a home with a solar system in place. I think we will catch up – we’re just not there yet.
The news is in from a number of sources: Solar panels increase the value of a home. A report from the National Bureau of Economic Research, sampling homes in the San Diego and Sacramento, California areas, noted that solar panels added 3.6 percent to the sales price of a home. A more recent study conducted by the Lawrence Berkeley National Laboratory found the following:
Home buyers consistently have been willing to pay more for a property with PV across a variety of states, housing and PV markets, and home types. Average market premiums across the full sample of homes analyzed here are about $4/W or $15,000 for an average-sized 3.6-kW PV system.
The study also found this to be true for both newly constructed homes and existing homes.
There is a catch, however. The Berkeley study’s numbers cited apply to homes with homeowner owned solar energy systems, as opposed to those systems that are leased. In fact, there are indications that leased solar systems on a home may, in some cases, actually scare off potential buyers not interested in taking on a seller’s lease commitment, resulting in a sales deterrent. This problem may lessen as solar leases become more common and buyers become more informed about solar lease benefits.
“There are all types of green homes and there are all types of green buyers,” says Ecobroker Robert Israel. “Everybody has his priorities. The big ones are usually energy efficiency and helping the environment.”
See the Solar Savings: Reading Your Utility Bill
A run-of-the-mill monthly energy bill can be confusing enough. Add net metering to it and things can get complicated very quickly. It’s important, however, for solar system homeowners to understand just exactly how their energy costs are calculated and what they are saving. While billing formats vary from utility to utility, there are number of basic components all electricity bills should have in common:
This is where you will find the account number, account holder’s name, address and other personal information.
Most bills will provide a quick account summary at or near the top. Typical information here includes the previous month’s balance and payment, and the current month’s unpaid balance (i.e., the amount owed on this bill) and its due date, as well as the meter reading date.
This is the section that breaks down the total amount of electricity used by the account holder for the current month. This is normally shown in kilowatt hours (kWh) and includes the following:
a. (KWHD) Kilowatt hours used by the account holder taken from the utility;
b. (KWHR) Kilowatt hours produced by the consumer and added to the utility’s grid;
Here is the calculation of how much the account holder owes for electricity taken from the grid and how much is credited for electricity put back on the grid.
This section provides a detailed summary of charges not directly related to the amount of energy used/produced during the billing period. The types of charges in this section will vary by utility and jurisdiction, but often include taxes, fees related to delivery and grid maintenance, as well as additional minimum service and other miscellaneous charges.
Many utilities provide this section to show the consumer his or her electricity use for the year-to-date.
Expert Spotlight: Tom Kimbis
We are seeing massive drops in the costs of solar energy and that is reflected back to the prices consumers pay for solar. Fifteen years ago we were talking about solar as either for the person who was really into technology, or an aerospace company or government entity that wanted it for the Mars Rover, something like that. Today, we are looking at close to a million systems installed in the United States. So we are growing at a tremendous rate with the costs falling, resulting in the residential, commercial and utility-scale markets – the three main markets in the United States – doing well.
The residential side has been the fastest growing market of late and that’s due to a couple of innovations – not just in the technology which has brought down the cost, or the scaling of the technology – but also innovations in financing and ownership which have knocked out some of the biggest barriers to going solar.
The leasing model, for instance, is one that is dominant in certain states. A solar company will lease you a system for a certain monthly cost, and then the electricity it produces will offset whatever you would normally have been paying on your electricity bill. So the consumer doesn’t have that large upfront cost that was a barrier for so many.
There are pros and cons to all of the financing methods and we don’t endorse any particular ownership or finance model. There are some people who think that, “interest rates are really low and I’d rather get a 2 ½ percent fee lock on my house and pay the $20,000 or whatever it might be for the system. Then I own the system forever and don’t have to make any payments.” It all depends on one’s own individual financial situation. And it’s very important for consumers to really think through that the way they would in making any other significant investment.
The answer to that is absolutely yes and there are two different components to it. You have a higher confidence in the technology itself and it is increasing rapidly. Some of that has to do with what we call a “neighborhood effect.” What we’ve seen, and studies have shown, is that having a neighbor go solar increases the likelihood of other neighbors going solar. It shows them that solar power works in their state and in their neighborhood, with their particular utility and climate, and so on. And that is great to see because solar is a very simple mechanism, has no moving parts, doesn’t make any noise. It works. It’s taken a long time for people to understand that this is a pretty reliable product, and consumers are getting warrantees now in the neighborhood of 20 to 25 years.
The second point is, “who is going to stand behind those warrantees?” That’s where we are seeing more evolution. Now that you’ve got more publically traded companies, like Google, involved with solar. You’ve got companies like Berkshire-Hathaway and banks like Morgan Stanley, J.P. Morgan and Bank of America heavily involved in solar projects. And there are well-known big companies now using solar for their facilities. The companies at the top of that list include Walmart, Target, Staples, Ikea, Costco. These are not companies that make rash decisions in the boardroom. They’re doing this because the technologies make sense.