Electric Rates Too High? Can a Home Solar Power System Help?

What is a home solar power system and how does it work?

The sun shines down on us providing free energy for the taking. Changing this radiant power to usable electric power is what a solar power system does. The system is built around photo-voltaic (PV) arrays. The PV array, as hinted by its name, changes photons (or light) into volts (or electricity).

Another crucial piece of equipment is the inverter. This changes the direct current (DC) voltage such as what batteries supply, into the alternating current (AC) used by home appliances. In a grid-connected PV system, the current produced from sunlight is used by the home, and excess power flows back into the grid.

In some states, the electric companies give credits for each kWh the system pumps into the grid (lower than what they charge you for a similar amount of power). Other states require the utilities to use a two-way meter, which credits you at the same rate as they charge you.

How to size a home solar system

There are many factors that go into this calculation. First, how much electricity do you buy from the electric company in an average month? Next, how much of that do you wish to replace with solar power?

The third consideration is - how big a roof do you have, what is its orientation (south is best) and what is its angle? Fourth, how many hours of sun does your roof see based on where you live and how shaded is it? Finally, and most important, what is your budget?

An online calculator can help you estimate how much electricity you will generate based on where you live using some assumption. For example, in the Baltimore area, a 4000 watt system on a roof pointing south with a 39.2 degree slope, will produce an average of 4911 kWh in a year. At an average rate of $0.1086/kWh this system would save you about $533/year.

To see how big a system would be needed to produce enough electricity to avoid needing to buy any, total the number of kWh from your last 12 monthly bills. Let's assume that total was 9,800 kWh. With the above Baltimore example, divide the 9,800 kWh annual usage by the 4911 kWh/year, for a result of about 2.

Now multiply the 4000 W of the example system by this factor of 2 and you see that you will need an 8000 W system. A smaller system would simply allow you to reduce your electric bills, but not eliminate them.

A professionally installed system (excluding new meters and any inspections) can cost about $7.50/W. An 8000 W system would thus cost a prohibitive $60,000.

How long to recoup the cost with government incentives?

In the Baltimore example, a 2000 W system would save you about $267/year. With no incentives that would require over 56 years to recoup even without considering the cost of financing. With the 20 - 30 year lifetime of these systems this is not worthwhile financially.

The government is willing to help you. A little. Until the end of 2008 you can get a federal tax credit of 30% of the system cost up to a maximum credit of $2000. The State of Maryland offers 20% of the system cost up to a maximum credit of $3000. Other states also offer incentives.

Some counties also offer tax incentives. Howard County near Baltimore, for example, offers 50% of the cost of a PV heating system as credit against your property tax up to $5000. If your property tax is lower, you can roll the excess over into the following year to get the full benefit. This assumes you have, or install, electric heating.

To figure out the best financial deal, calculate the lowest cost at which you will get the full percentage of all incentives. In an example of a home in Howard County, MD, the incentives max out at $15,000 for the state ($3000/20%), $10,000 for the county ($5000/50%), and $6667 for the federal incentive ($2000/30%).

In this locale, the incentives at $6667 would total 100% (50% + 30% + 20%) and the system would effectively be free. The system would be able to generate about 890 W for an annual savings of $119. This small amount may not be worth the hassle involved.

A 2000 W system in Howard County, at $15,000, gets you the highest incentive total - $10,000, reducing your out of pocket expense to $5,000. The recoup period drops as a result to about 19 years before financing costs. If you finance the system over a 30 year lifetime at 6% APR you will recoup only 73% of the cost.

The 8000 W system needed to completely replace your usage from the grid (assuming a 9800 kWh annual usage level) would cost $50,000 in Howard County after maximum use of incentives. Assuming you finance it for 30 years at a 6% APR, by the end of the system's life you will have recouped about 30% of its cost.

The bottom line

At current price levels of solar power systems and of electricity it is not financially sensible to install a system large enough to eliminate your need to draw power from the grid.

The incentives offered by the government make it feasible to install a system that gets the highest fraction of it cost back through incentives. This system however is so small that it is not likely to make a significant impact on your budget.

If you live in the desert where there is much more sunlight throughout the year, the exact numbers will change somewhat. As electric rates go up and solar system costs go down the answer may change too. For now, however, installing a large home solar power system is more a matter of being environmentally green than saving greenbacks.