Fri, Apr 20, 2007 - Page 9 News List

The economics of installing solar power

Despite tax credits and rebates, switching to solar energy is not cheap, with an average payback of 14 years


ith a US$2,000 federal tax credit and generous rebates from states like New Jersey and California, it has never cost less to install a solar power system.

And it still makes no economic sense. You might want to install photovoltaic solar panels to generate your own electricity out a belief that you will save the planet. But, just as is the case with hybrid vehicles, you certainly should not do it to save money.

An online calculator -- -- created by solar power advocates and the US Department of Energy demonstrates just how hard it is to justify the switch.

For instance, a homeowner in New Jersey whose electric bill is an above-average US$100 a month could buy a system for about US$54,000, it says. After the state rebate of US$18,468 and the US$2,000 federal tax credit, the system would cost US$33,532.

And how many years will it take before you see any savings? From 11 to 22 years. The average payback is 14 years, said Polly haw, a senior regulatory analyst with the California Public Utilities Commission.

The calculator provides a lot of other information, but it doesn't figure in the US$1,580 a year your cash outlay would have been making had you left the money in a conservative investment like a government bond. That's more than enough to cover the monthly electric bill.

As electricity costs -- or the incentives -- go up, the numbers start to make more sense. A person living in the scorching desert of California, where the financial incentives are said to be the most enticing, and paying US$250 a month to stay cool would break even in three to eight years.

You can find what rebates governments and utilities are offering at a Web site set up by the North Carolina Solar Center and the Interstate Renewable Energy Council,

"At this stage, you don't put in photovoltaic panels for economic reasons," said John Anderson, senior principal at the Rocky Mountain Institute, an energy consultant and research organization in Snowmass, Colorado.

He said the energy generated by utilities for US$0.10 a kilowatt hour held a distinct advantage over solar power that cost US$0.20 to US$0.40 a kilowatt hour.

Ron Kenedi, vice president of the solar energy solutions group at Sharp, a major maker of solar panels, said: "The utility rates -- that's who we compete against."

The other variable, the cost of the solar panels, has not been dropping much. An incentive program two years ago in Germany distorted the market and created worldwide shortages of the silicon-based devices. Demand is still ahead of supply, which means prices have not declined.

Solar power advocates are urging Congress to make the tax credit even sweeter. It is scheduled to expire at the end of the year, but until then your federal income tax can be sliced by a third of the cost of a system, up to US$2,000. The lobbyists want the cap removed, as it is for businesses installing solar panels. (If you made energy improvements last year, whether they are expensive solar systems or just insulating the attic, you can claim them on your tax return due on Tuesday.)

Until Congress makes any change, the most compelling argument you will hear from advocates and installers is how solar power will increase the value of your home. Many pointed to a 1998 study by ICF Consulting -- "Evidence of Rational Market Valuations for Home Energy Efficiency," -- that concluded every US$1 reduction in annual energy costs would increase a home's value by US$20.73.

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