NEW YORK (MainStreet — My sister in Corona, Calif. is being dogged by solar salesmen these days. They all want her to put solar panels on her roof and pocket "thousands of dollars" in savings.
Are the savings real? In California they usually are.
According to the Institute for Local Self Reliance , most of the country has now reached "grid parity" for solar, when a 30% federal tax credit, which lasts through 2016, is factored in. That's not the same thing as "real parity," unsubsidized parity with grid power, which has been achieved in only 9 states so far, ILSR says. The group estimates the cost of solar will continue to drop about 7% per year for the indefinite future, while grid energy prices rose 4.75% over the last year.
Panel costs fell sharply in 2012, but panels represent just 20% of the cost in a residential solar installation – there's also the installation, permits, financing, and ancillary equipment to consider. Dropping installation costs can be as powerful a driver of falling costs as falling panel prices. You also need to consider how much your local power company will pay for excess power, and whether the company will take that power at all under a "net metering" scheme. These "soft costs" are why it can cost twice as much to install residential solar in the U.S. as in Germany.
Thus, your options differ from place to place. SolarReviews counts 48 installers working in my sister's home county of Riverside, California. In Atlanta, where I live, there are only five. FindSolar, an industry web site, has a clickable map of solar installers around the country.
Before you sign on any dotted line, however, make sure you consider these questions:
Own or Rent
If you buy solar panels you get all the tax benefits, and the solar renewable energy credits (SRECs) that represent your excess power. You can add the value of the installation when you sell. If you work from home, you can get corporate tax benefits from the depreciable asset. You can negotiate directly with installers for the best deal.
But you also get a lot of uncertainty, which is why most of the biggest players in residential solar are solar lease companies, like SolarCity and Sungevity . None of these companies operate everywhere – industry leader B>SolarCity (SCTY) has nearly 20% of the market and is in just 14 states, according to GreenTechMedia .
Most leases are based on a Power Purchase Agreement (PPA, with the leasing company charging you for power at a specific rate, then using that money to pay back the cost of the installation, along with ongoing costs like monitoring, insurance and maintenance. A PPA will charge you by the kilowatt-hour (KwH), a lease will give you a fixed price per-month. The promise is that this will be less than your current power bill over time. The leasing company takes care of installation, maintenance, and the agreement with your local utility to take any excess power.
But in this case the leasing company gets all the tax advantages, all the SRECs, and you've just bought a liability, not an asset. Solarhome, which sells and finances solar systems, has a web site focused on leasing's disadvantages.
A 2012 federal lawsuit charged that solar leasing companies, including SolarCity, were estimating electricity costs of over $10/watt on leased installations in order to maximize the value of federal tax credits. The Solar Energy Industries Association estimates the second quarter 2013 cost of residential solar installations at under $5/watt.
Trinity Solar, which is based in New Jersey, estimates the cost of the average residential solar installation at $24,000, $16,800 when the 30% tax credit is applied. In that state, it estimates you'll save about $100/month, based on the 18 cents/KwH charged for grid electricity by local utilities.
Most of today's leading solar installers specialize in solar, and most of the largest come to the business from the lease side. But that is starting to change. Rooftop Diagnostics of New Jersey started as a roofing contractor. Vivint Solar, based in Provo, Utah, began as a home security and home automation company.
Generally the more mature a market, the more competition within the market, and the more utilities charge for grid power, the better deal buying becomes. It takes some shopping, there are lots of details involved, but it's in dealing with those details that the leasing companies make their money.
Get the Full Costs
Lots of installers offer online toolsto help you estimate the cost and benefits of a solar installation. So do utilities that are encouraging customers to buy solar panels.
Since panels represent just 20% of the cost of your installation you want the most efficient panels you can buy. Savings from buying cheap panels are not material if $4 in every $5 you spend is going to other things.
Some of those things include inverters to convert the panel's DC power to the AC your home uses, meters to measure your input, fuses, brackets, and government permits – don't forget your local government also gets into this act. To do a full roof you'll need a good estimate of how much power you can generate off how much roof real estate.
If you're feeling handy you can buy a small kit directly from Lowe's or Home Depotfor under $2,000 and install a small solar system yourself. Again, don't forget to check in with your local government. Some Home Depot locations also have invited system sellers like SolarCity and RoofDiagnostics into their stores.
While a solar panel can last for 20-30 years, there's always the risk of breakage or damage. Your current insurance policy may not cover this, but Traveler's has been offering SolarPak insurance since 2010. Ask if your installer includes coverage in their deal.
Another risk is that you're stuck with an "orphan" panel from a company that has gone out of business. The industry downplays these risks.
To learn more about costs, visit SoRoeCo, which offers charts that let you compare the value of panels from different makers, and estimate the costs of your own solar installation.
Utility Markets Vary
Wherever you are, there's one power company. Its willingness to buy residential solar power at a fair price matters a lot. Some utilities are encouraging their customers to buy solar, while others are putting roadblocks in the way.
A Solar Roadmap maintained, in part, through the Department of Energy's SunShot initiative, shows active local programs encouraging solar in 18 states plus Puerto Rico. The only active programs in the Southeast, according to the group, are at the University of Tennessee at Knoxville and in Broward County, Florida. The west, which has abundant sunshine, and the northeast, which has high-priced grid electricity, are the most active solar markets.
Net metering determines the terms. Generally, power companies buy your solar power at their base price and sell it at a peak load price. That's a good deal for the power companies, but your installation doesn't add to their asset base, and the returns on capital they can get from other customers.
Thus, some power companies - like CPS Energy in San Antonio - want to change the rules. Its SunCredit proposal would replace net metering with a "credit" and keep charging solar panel owners for the wires and substations connecting them to the grid.
Changing the rules of the game in the face of increased solar supply is a risk whether you're buying or leasing. Solar's share of the utility energy mix remains small. As it increases expect these conflicts to escalate.
The Value of SRECs
One of the more controversial aspects of owning or leasing solar panels is the value of Solar Renewable Energy Credits (SRECs). A REC represents a commitment to buy solar power at the utility's posted rate, essentially to pay more for power than they need to in order to support solar power installations.
Utilities like Mid-American Energy, a unit of Berkshire Hathaway (BRK.A), have found profit in RECs, selling them to big retail firms like Kohl's and Starbuck's which can brag about their lack of carbon footprint. SRECTrade of San Francisco conducts auctions of SRECs in eight states. and links to data for the rest, including those states which, like Georgia, presently have no SREC auction process.
In other words, RECs are mainly a promotional tool, a way to feel good about yourself. No one has created a small business or residential market for RECs, so in many places they're basically worthless. Don't base your calculations about solar on RECs.
Solar systems deliver maximum power on sunny afternoons. While this represents the time of peak demand, people use power all day and night.
So grid storage has become an issue. The Federal Energy Regulatory Commission (FERC) has created tariffs that guarantee big storage solutions a market, since storage also helps maintain the quality of power by adjusting voltages on-the-fly, but batteries remain expensive, and even rechargeable batteries degrade with repeated use.
SolarCity will be the first to seize this opportunity in the residential market, teaming with Tesla Motors in 2015 to offer b8-kilowatt battery packsthat can keep a home going in case of a blackout. If you have 5 kilowatts of power on your roof, expect to pay $40,000 for the battery system.
It comes out to the equivalent of buying a hard-wired generator, according to GreentechMedia. But if SolarCity can sell enough storage systems, it makes that company a player in the new market for grid storage, which can even out power delivery for everyone.
The Bottom Line
Solar panels are a better deal every year. If you can afford your power bill you can wait until they become cheaper than the power company's power. That is happening. When they do get that cheap, the market will let you know. Just as my sister is finding out now.
At the time of publication, the author owned no solar panels. He had trees instead.
--Written by Dana Blankenhorn for MainStreet