Is a residential solar energy system in your future?

Iris Price | Improvement Center Columnist | October 20, 2014

Installing photovoltaic (PV) panels to harness solar energy is catching on not just with utility companies but with homeowners and businesses. According to research data published by Solar Energy Industries Association (SEIA), by the end of the second quarter of 2014 more than 6,500 megawatts of PV is forecast to come online in the U.S. SEIA says that represents 36 percent growth over 2013's installations.

The outlook for residential PV installations: Inevitable growth?

Lower costs are almost certainly one reason for this surge in PV installations. SEIA reports that in four years the price of the average solar panel has decreased 64 percent, and from 2013 through the second quarter of 2014, the installation cost of a system dropped 9 percent year-over-year to $2.73 per watt. Of the three market segments for solar energy system installations -- residential, business, and utilities -- residential accounted for 247 megawatts coming online from 2013 to mid-2014 in the U.S. More than half a million American homes and businesses now have solar installations.

In Europe, the solar energy picture is even sunnier. According to a post in The 9 Billion on October 6, 2014, European countries, in particular Germany, may be closer to making BigGrid energy a dinosaur. Small renewable power systems already account for more than 30 percent of Germany's power generation, and small battery storage solutions may, according to global financial giant HSBC, contribute to making a home solar system with battery storage in Germany cheaper than residential grid electric power by 2020.

Here in the U.S. small solar energy system production is in its infancy by comparison, but proponents see promise. Robert Damrau, with Western Regional Sales for Nevada Solar Designs, a PV installation company specializing in off-grid systems, speculates that Elon Musk, the owner of both SolarCity, a solar energy system leasing company, and Tesla, an electric vehicle manufacturer, "will align a combination of electric vehicle transportation (EVT) production with private solar maintained lithium battery electrical systems, removing the need for BigGrid electrical service for residential power appliance consumption -- and EVT overnite recharging." Tesla recently announced plans to build a lithium ion battery Gigafactory in Nevada.

Is BigGrid getting scared? According to an article in Slate on September 24, 2014, by Josh Voorhees, powerful conservative lobbies are pushing hard for policies that allow utilities to charge additional fees to residential solar energy producers who sell excess power back to the grid. This could be the residential customer, for example, or a solar leasing company. Will that deter the future growth of residential PV installations in the U.S.? Voorhees says that utilities companies "...view the rooftop panels as an existential threat given that they allow consumers to become their own energy producers. Such fears will only grow as the technology becomes cheaper and as companies develop cost-effective ways for homeowners to store the excess energy their panels produce."

Residential solar energy systems: Which homes benefit?

Despite the possibility of roadblocks, small solar energy systems appear to be making enough serious inroads to be here for the foreseeable future. If you are one of the many homeowners who are thinking of installing PV panels, take the time to research whether they are right for your home and your finances before you jump on the bandwagon. Start with these considerations for buying a residential solar energy system:

  • Have you already implemented other energy-efficient measures that could make buying a smaller PV system possible?
  • What is the condition of your roofing, your geographic location, and your home's orientation?
  • What are your regular patterns of electricity usage?
  • Do you plan to connect to the grid?

According to Damrau, "Almost anyone who has AC power provided to their private home or business with a south facing exposure is a candidate for adding a grid-tied solar system. The basic selling model to consumers is for single family homes, including manufactured structures."

If you live in an attached home, such as a townhouse, duplex, condominium or apartment -- situations where you don't own the property, the property rights, or enough area to install PV panels -- you may not be able to install your own system; however, solar garden communities may be a way for you to gain access to solar energy. As of October 2014, ten states had policies in place to encourage and promote shared community solar programs.

For those homes that do have the potential for a residential PV installation Damrau says that "...geographical location will drive the daily solar array output production performance. Beyond the actual latitude site location, local weather patterns play into the yield evaluation." For example, some coastal areas of California, the state with the most residential solar energy system installations, experience morning fog. A little further inland, however, optimal solar exposure may be typical throughout the daylight hours. These variations need to be considered when evaluating the projected ROI for an installation.

Which homes benefit most from installing small solar energy systems? According to Damrau, "Homes heated electrically or running heat pumps can surely offset their monthly bill by adding a grid-tied solar system," as well as "any home running AC-powered air conditioning." On the other hand, he adds, "Homes that heat with oil or gas won't receive any benefit from solar electrical generation other than offsetting the cost to run the AC fan circulating the air or water in the heat radiating elements."

Solar energy system installation models: Which plan is right for you?

Once you assess the basic considerations and conclude you could benefit, what are your options for residential PV installation and financing?

  • Pay outright for the system: You can pay costs upfront to an installation company that does an analysis of the site, designs a system, installs it, and commissions the system with your grid electric service provider. With this model you own the system and the rights to any rebates, federal tax credits and state and utility incentives, and for any excess energy you produce and return to the grid. Some installation companies take care of paperwork for power company incentives, connection, and commission, and permits. You pay cash, or you arrange your own financing through a home mortgage refinance or second mortgage, for example.
  • Third-party financing Power Purchase Agreement: You contract with a solar energy system installation company to design, install, and deploy a system but pay nothing up front. Instead, you pay them a fixed rate each month for the duration of the contract. The monthly rate is figured on your current electric consumption. They own the system and the rights to sell back to the grid any energy produced in excess of your needs to cover their maintenance and monitoring costs for the duration of the contract. According to Damrau, this can require installing a system larger than what you would actually need because the solar company has to "harvest more energy than the established consumption rate."
  • Leasing model: This model is typical of other large equipment leases, such as for automobiles or office equipment. If you don't want to pay upfront costs to own and have a system installed, you pay to lease the system over a period of years or decades. Generally, when the lease is up, you can buy out the system for what Damrau describes as a "modest fee."

Installing solar panels is no small investment. Still, there are plenty of incentive programs to help you financially make the most of your investment. "Federal tax incentives are the most famous," Damrau says, "but there are also asset depreciation models, often requiring guidance by a tax expert." If you think you can save more money going the DIY route, know that proper installation certification is required by utility companies when you are connecting to the grid. Also, make sure you thoroughly research everything you are entitled to get back before you calculate your projected savings.

If you decide to go with an installation company, there are a growing number of them. Do your due diligence, and get several estimates. Other than your home and your family, your relationship with your solar energy system may be one of your longest.

Image credit to ThinkStock/hansenn

About the Author

Iris Price is a single Baby Boomer whose antidote to a lack of retirement funds was to launch a long-delayed career as a writer. While others her age concoct bucket lists and travel the world, she bought a new-construction home and obsessively creates lists of must-have home improvements and personal realization goals. She specializes in writing about home services and self-motivation.