The Solar Project – This Might Actually Be Possible (Federal & Macroeconomic)

[This post is part of a series about our net-zero residential solar project – see a list of links to the full series here, a list of frequently asked questions here or click here to bring up all Green-related postsNext Post in Series / Previous Post in Series.]

After reviewing the regulatory situation for solar power in Massachusetts, I looked at the federal side.  On the national front, I learned that, on top of the Massachusetts State incentives, there is also a very decently-sized federal tax incentive, which can offset as much as a third of the system cost in the form of tax credits over a five year period.

While this is attractive to many home-owners, this credit (and the depreciation of newly-installed systems) are even more attractive to the manufacturers of solar panels, since the manufacturers have a greater variety of ways to use the tax credits and depreciation than a simple home-owning taxpayer.

The net result of this Federal tax credit is that the manufacturers are now offering a variety of lease terms for home-owners including no-money-down options for home-owners who want systems and do not want to invest in the system up front. While this variety is good because it allows more people to access renewable energy technology, in point of fact, these no-money-down lease terms are not all that great a deal for the home-owner.  The interest expense tends to take a big bite out of the savings and SREC income of the system, and the equipment needs to be removed at the end of the 20 year lease term.  That latter point is especially egregious since these solar panels have a much greater useful life than 20 years. For example, the brand I have chosen is guaranteed to be producing at least 85% of its original power at year 25, and that is a very beatable number – this manufacturer has systems which were installed 36 years ago which are still putting out 80% of their rated power – that is off of 1970s technology! Pulling a perfectly good system off a roof at that point is nuts, and a terrible waste. Ironically, the manufacturer doesn’t want to roll a truck to go do it any more than the home owner does, so what will end up happening is they will haggle over the buy-out price or lease continuation price to leave them on.  I have a hunch that the results of those negotiations might skew more favorably toward the manufacturer than the home-owner.

A far more attractive option for those with the capital or access to their own affordable credit is to take the lease but prepay it up front, with a small buyout at around year 7.  This allows the home-owner to avoid all the interest expense of borrowing the cost of the system through the manufacturer, but also allows the manufacturer to take the tax credits and depreciation as the owner of record during the period of steep initial depreciation of the system. Once they have utilized the deprecation and tax credits, the system can be bought out for a very low residual and go on to produce SREC income for at least the balance of ten years (if not longer) and free power for the balance of its useful life of about 35 years.

One final economic puzzle piece: on top of the incentives, you have the rapid pace of technology development and the fast-changing macro economic situation. A detailed discussion of solar technology and global macro-economics is beyond the scope of this post, but it can be summarized pretty succinctly. The amount of power these panels produce has gone way up – the best commercial ones on the market are now almost 20% efficient, which is about three times as efficient as they were in the 1970s and 1980s.  That power per panel number is what makes this whole thing work. Given that the energy produced by a panel is the engine which pays for the cost of getting a single panel manufactured and installed, more juice from each panel means better economics. So the efficiency gains have been a boon,  But at the same time, the cost of producing them has gone way down. This price drop has been particularly pronounced lately. The combination of massive amounts of new global manufacturing capacity and a global recession has meant that huge amounts of supply have hit the market exactly as demand has slackened in may markets hit hard by recession. Tremendous price competition has taken hold and prices have plummeted. For example, the panels I have selected are about $1 per watt less expensive than they were a year ago.  Considering that each panel produces 240 watts, that is a pretty huge price drop.

The net effect of all these state and federal incentives plus the macro economic changes amount to powerful systems which can easily be designed to generate a more than enough electricity for an average home at price points which are approachable for many customers.  Plus, once the initial capital cost is recovered through savings and SREC income, these systems go on to generate cash for the balance of ten years and defray the cost of electricity (or even produce a cash generating surplus) for the balance of their useful life of about 35 years.  Needless to say, this can amount to very serious money generated/saved over the life of a system.

So from an economic perspective, all the stars were in alignment and economically, and the time to pounce had arrived. But what about my house and my roof?  Could I even do solar panels on my house?

Story continues…  This post is part of a series about our net-zero residential solar project – see a list of links to the full series here, a list of frequently asked questions here or click here to bring up all Green-related posts. Next Post in Series / Previous Post in Series.

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Comments

  1. Chris,

    Those 20 and 36 year numbers sound great, but what about roof lives of 15-25 years? Are the shingles under the panels removed? If not, they are still exposed to the elements – although in a diminished manner – What happens when the shingles reach the end of their life?

    In theory, you could remove the panels, re-shingle the roof, then re-install the panels, but that is a significant expense (beyond what shingling a normal roof would cost). Is this factored into your economics?

    Ken

    • Christopher says:

      Ken: Great questions. In our case the questions are moot, because we have a “100 year” standing seam aluminum roof which will outlast the panels (and possibly us!). I think what most people do is either replace the shingles before they put the panels up and recognize that because the panels will keep the sun and weather off them, they will last considerably longer – good 20 year shingles would probably last the life of the panels, except perhaps at the edges. Or they save the expense and put that savings aside to defray the cost of unpacking the panels when it is time to re-do the roof at some point down the road.

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