Save Money, Go Solar

As the technology is getting better and cheaper, I believe it makes sense to seriously consider solar. Here are five reasons why I think now's the time:

1. Increased electricity cost. My own electric bills went up about $500 last year. I bet yours went up, too. In fact, industry professionals project rates to rise between 3% and 7% per year. Worse, more utilities are implementing tiered and peak-load pricing, in which rates can jump to as much as four times base rates beyond certain usage levels.
2. Reduced installation costs. At the same time, technology and manufacturing efficiencies have driven solar panel costs to an eighth of what they were 10 years ago. Power inverters (to convert DC to AC) have dropped by two-thirds and installation is simpler and cheaper, too.

   You'll want to budget around $6,000 (post-rebates) per installed kW (kilowatt) of capacity. A 3kW system will provide close to the optimum 75% of peak needs of a typical 2,000-square-foot home. The payback period for the initial investment, which used to be close to never, is now just five to seven years. After that, you are in the black for the next 20 to 25 years of the system's useful life.

3. Federal tax credits. The federal government offers a $2,000 tax credit for installation of a solar system. This credit can be carried forward for up to five years.
4. State, local and utility-district credits. Your installation may qualify for a combination of rebates, credits, tax exemptions and low-interest loan programs that significantly reduce initial cost. In California, for example, a typical 3kW system would qualify for a $7,500 rebate from the state and likely additional incentives from your utility district.
5. "Buy low, sell high." Many utilities offer time-of-use service, where power supplied at peak times, usually weekdays, is more expensive. As an example, California's Pacific Gas & Electric (PCG Quote) offers TOU service where peak rates rise to 32.5 cents per kWh (kilowatt hour) from an off-peak base of 8.5 cents per kWh.

   So -- guess what -- you can go into the power business yourself. How? By adding a battery storage system to the standard solar setup. The batteries allow you to disconnect from the grid when it makes sense, which might be during peak pricing times during the day.

   Any electricity your system generates in excess of current needs is put back into the utility's power grid. Your meter runs backward, and the utility pays you for this power. Here's the trick -- buy energy at off-peak rates to store and use during peak hours. Then, generate excess with your solar system during those hours and sell it back to the utility at peak rates.

Like that last idea? Thought you might. But solar energy is still pretty new and complicated. Fair warning: It's going to take some time to figure out and price all the alternatives.

Sizing an appropriate system will depend on your family's usage pattern, the area of your home, its latitude, elevation and orientation to the sun, and a few other factors. This is a fairly technical exercise best left to an installation professional. And if you're thinking about doing it this year, now's the time, before this year's utility rebate funds are exhausted.

I found a great resource to research commercial and residential incentive programs. It's called the Database of State Incentives for Renewables and Energy, or DSIRE for short. The site summarizes incentives and programs for every state and is well worth a look.

Finally, if you're not ready to invest in solar power for your home, it may be time to keep a watchful eye on solar power investments. Industry leaders like First Solar (FSLR Quote), Energy Conversion Devices (ENER Quote), SunPower (SPWR Quote) and the China-based Suntech Power Holdings (STP Quote) are leading the way in developing solar technology.

Following these stalwarts is a good way to keep up with industry trends that might ultimately define your own installation. If nothing else, they may add some power to your investment portfolio, too.