Saving Money with Home Solar Energy

Written by
David Mully
Read Time: 8 minutes

Solar energy has long seemed to be one of those things that is forever in the realm of "someday." So many homeowners may be surprised to learn that "someday" is now - solar has definitely arrived, and it can save you some big money on your energy bills.

You don't even have to live in a sun-saturated state like Florida or Arizona to benefit - even in northern states, you can often recoup the cost of your installation within just a few years - and then enjoy free energy for decades with minimal maintenance.

The increased viability of residential solar energy is largely due to two things. First, solar photovoltaic panels - which generate electricity from the sun's energy - have not only become more efficient over the years, but their manufacturing cost has dropped sharply, so their cost-per-watt is only a fraction of what is was a few years ago.

Second, government incentive programs have played a big role as well. Federal, state and local tax credits and rebate programs can often reduce the cost of a residential solar energy system by more than half. In addition, most states now require utilities to purchase or credit excess electricity produced by homeowner systems during daylight hours, which can offset or even exceed the cost of power used after dark. That means you can use effectively solar to meet all your electricity needs, even at night.

Cheaper solar energy panels

The big change, though, has been the lower cost and increased efficiency of solar photovoltaic panels. These are the rectangular panes that are mounted on your roof or elsewhere and convert sunlight to electricity.

The best solar panels can now convert as much as 18 percent of the sun's energy to electricity. That may not seem like much, but it's a sizeable improvement over the roughly 13 percent that was typical 20 years ago and a huge gain over the 5 percent efficiency of the original solar cells back in the 1950s.

More to the point, the cost of manufacturing solar panels has dropped dramatically. Solar panels are priced according to their cost per watt, or how much electricity they can generate. According to a report by the International Renewable Energy Agency, the cost per watt of solar panels fell by 80 percent from 2008 to 2013, and indications are that it continues to fall.

"The price has come down so drastically the solar panels are no longer the most expensive part of the system," said Brian Czubko, owner of Genesis Energy Alternatives outside Ann Arbor, MI.

Czubko, whose company designs and installs residential solar systems, said his own costs for solar panels these days are only about a quarter of what he paid when he entered the business six years ago. Add in the tax credits and other incentives, and a homeowner in even a northern state like Michigan can recover their costs for a simple installation in about five to eight years, he said. Homeowners in some states can recover their costs in as little as three to six years, according to the Solar Energy Industries Association.

Solar system durability and maintenance

The key thing needed for a solar installation is an unobstructed exposure to the southern sky, with no trees or buildings to shade the panels or otherwise block the sun. While solar panels are commonly installed on rooftops, they can also be erected in a backyard or other stand-alone location if that provides better exposure to the sun.

One installed, the systems are durable, with solar photovoltaic panels having an expected lifespan of 30-40 years. Better-quality inverters, which convert the DC current generated by the panels to AC for home use, generally carry warranties of 10-20 years but their useful lifetimes can be significantly longer. Batteries, for stand-alone systems not connected to the grid, can last up to 15 years or longer, according to various industry sources.

"The beauty of these things is there's very little maintenance once they're installed, they're very reliable and they last a long time," Czubko said, adding that general upkeep can be performed with a hose. "The maintenance of your solar system is you go out and wash your panels once or twice a year."

Selling power back to the utility

The most popular type of residential installation is what's called a "grid-tied solar electrical system." These setups use solar energy when there's available sunlight, and draw power off the commercial electric grid after dark or when available light is insufficient to meet demand. That eliminates the need for a generator or storage batteries for use during those times.

The neat thing about these systems, though, is that they also allow you to feed excess energy back into the grid at times when your solar system is generating more power than you need. Your electrical meter literally runs backward at those times. So you can design your system to produce excess energy during the day and summer to offset what you use from the grid at night and in the darker winter months.

"The grid essentially acts as your bank, if you will," Czubko said. "Not a battery, but a bank."

These systems are available in states that have adopted what's called a "renewable energy portfolio standard" setting forth renewable energy goals for utilities to meet. Reaching those goals means obtaining a certain percentage of their energy from renewable sources, which home solar systems can help provide.

In some cases, you can actually get an annual check from your utility company if the power you provide exceeds what you take back out of the system, although many utilities will limit just how much energy you can contribute.

"The utility doesn't want to be in the business of buying electricity from other producers, they're in the business of producing electricity," Czubko said. "As a system designer, I'll ask to see your electricity bills for the year and I'll design a system that will produce just less below that amount and the utility will approve that."

Other system options

Some users do opt for stand-alone systems, which have no connection to the commercial power grid. These are often found in remote locations without utility service, such as a vacation cabin, or in states that haven't adopted a renewable energy portfolio standard. Those systems require batteries to provide power after dark, and perhaps a generator for times when there are several days without enough sunlight to generate sufficient power.

Another type, called grid-interactive, is a combination of the two systems. With this type, you're connected to the grid but also have batteries as a backup for times when power from the grid goes out such as after a storm.

Residential solar energy options aren't just limited to producing electricity. Homeowners also can opt for a separate system to heat water for use in bathing, washing dishes and clothes, or for large-scale recreational uses like a hot tub or swimming pool. Such systems use the sun's rays to heat a circulating fluid that is used in turn to heat the water - and which can even be used in winter, by the inclusion of antifreeze in the heat transfer fluid.

Tax credits, other incentives reduce cost

If you opt to get a solar energy system for your home, you'll find there are lots of government incentives to help you with the cost. The biggest one is a federal tax credit that will allow you to knock off 30 percent of the cost of a qualifying system right off your tax bill. It's not a tax deduction, it's a credit - so if your system costs $30,000 to install, you get a credit to reduce your federal income taxes by $9,000. You can also stretch the credit over several years if you can't use the entire credit in one year.

In addition, many states, municipalities and even utilities have their own incentive programs as well. Combined with the federal tax credit, it's not unusual for such incentives to knock off half the cost of an installed solar energy system and sometimes even more.

The one thing to remember, though, is that these incentives are temporary. The federal 30 percent tax credit program is scheduled to expire at the end of 2016, and it's not at all clear whether Congress will extend it. So you'd need to have a system installed by that date to be sure of getting the credit.

Financing a residential solar energy system

Financing a residential solar energy system can take several forms. Depending on your situation,a home equity loan or line of credit ( HELOC) can be an excellent option, providing a low interest rate and allow you to deduct that interest on your taxes, if you itemize deductions. A HELOC also provides payment flexibility, as they can commonly be set up as an interest-only loan for 10 years, allowing you to pay off the loan principal as your budget allows.

Many solar energy system providers provide their own financing options as well. You can also opt to lease a system, in which the cost of the installation is paid for by the energy the system produces and feeds into the grid. This can be an affordable option for homeowners who don't want to make the expenditure for a system themselves, but are still looking to reduce their utility bills and their dependence on non-renewable energy sources.

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