May 25, 2017

Best Residential Solar Power System Tips

This entry is part 2 of 2 in the series Renewable energy

Residential solar power systems are increasing in popularity. Various federal, state, and local incentives continue to make these solar systems a good choice for many. However, homeowners should be careful in calculating the benefits of such solar systems for their homes, and weighing the costs involved. This article shows the costs and benefits of a home solar power system, and the one critical game-changer you must use.

What do Residential Solar Systems do?

Solar systems convert sunlight into DC, or direct current electrical power, such as batteries provide. An inverter converts this into alternating current, the AC power your appliances can use. The majority of residential solar systems installed are so-called “clean” systems, connected to the grid. The advantages of such systems are reduced cost (no batteries needed), and the ability to sell excess power production to your electric utility. The drawback is that for safety, such systems stop working whenever the grid is down.

In some states, Maryland among them, utilities are required to install a two-way meter when a home solar system is installed, providing “net metering” in which the consumer is credited fully for any excess power production that flows into the grid. In other states the utility is required to purchase such excess power, but at a lower rate than that charged by the utility.

Things to Consider When Deciding on Home Solar Systems

Many solar system calculators are available online, especially from companies whose business it is to install such systems [1-3]. As you can imagine, such companies have a vested interest in convincing you to install a solar system, so they show you the maximal potential benefit and savings. Get a free estimate for your specific situation from several reputable installers before making a decision. You can also use a calculator from a disinterested party, such as the government [4].

Solar systems provide the most power when the panels point at the sun. Installing tracking systems to rotate the panels and track the sun maximizes power production, but is too expensive for most cases. Fixed panels should be pointed as nearly southward as possible, and at a tilt angle as close as possible to the local latitude (about 35-40 degrees for Maryland). Panels can be installed with those angles even for roofs that have a different orientation, but this increases both cost and the eyesore factor. Most calculators assume near-optimal pointing, and it is up to you to modify the assumptions to get a more accurate estimate. Further, if you have trees, buildings, etc. partially shading your roof, your energy production will suffer. Again, compare project proposals from several companies to know what would be best for you. Make sure such proposals take into account inefficiencies (e.g. inverter inefficiency). As a rough guideline, assume your usable AC power will be lower by a quarter than the DC power capacity of your system.

The estimated cost of a residential solar power system as of this writing (November 2010) is a fixed $6000 plus $5000 per kW DC capacity (this should be accurate to about 20%). All other things being equal, the cost per unit capacity thus drops as system capacity increases. However, all other things are not necessarily equal. For example, several Maryland counties offer a property tax credit of the lesser of $5000 and half the cost of the solar system (which can be rolled over into subsequent years if your tax bill is lower than the credit). Such a credit nearly offsets the fixed cost of a solar system [5]. Note that such credit programs may be over-subscribed, and you may not be able to get the credit in the year you install, or at all.

The State of Maryland currently offers a grant of $500 per kW DC capacity, up to a maximum of $10,000 (for a 20 kW DC system) [6]. Maryland also exempts residential solar systems from the 6% state sales and use tax [7]. A complete list of incentives available in Maryland is provided by [8]. A federal income tax credit of 30% of your solar system cost is also available. This credit is no longer capped at $2000 as it used to be, increasing its useful limit to your federal income tax liability for the installation year [9]. There are further online resources and links available elsewhere [10].

Even with net metering, you will likely not wish to install a system that exceeds your average power use. In homes with electric heating and cooling this may exceed 25,000 kWhr per year, requiring over 2700 square feet of optimally-pointed solar panels, far larger than the southern exposure of most roofs. If your house is all-electric, your usable roof area is likely to be a limiting factor.

Solar RECs – a Game Changer

When electrical power is produced from renewable sources, in addition to that power, a so-called “renewable energy credit” or REC is generated. Electricity suppliers that use e.g. coal-fired power plants can buy RECs and use them to (on paper) improve their fraction of renewable power generation. For any given unit of renewable power produced, the REC can only be sold once, after which that power is no longer legally considered to be renewably-produced.

As a homeowner you do not have any use for these RECs, so you can and should sell them. Some companies offer to buy your RECs either as a lump sum after installation of your system (reducing your net cost of installation), or else annually, increasing your annual savings by a factor of 4 or more (depending on the cost of electricity from your current supplier) [2]. Selling your RECs is a game-changer, reducing the time for recouping your system cost from decades to a few short years. A quick financial analysis shows that the annual option is far better if you can afford the higher net initial cost.

The Bottom Line on Residential Solar Power Systems

Until recently, installing a home solar power system large enough to provide most or all of your average power use was not financially feasible. However, it was an environmentally friendly thing to do. Three developments have altered both of the above. First, the advent of companies selling 100% renewable electricity through the grid has drastically reduced the environmental benefit of installing a solar power system on your home. Second, the removal of the $2000 cap on the federal income tax credit makes even large systems financially feasible. Finally, the ability to sell your solar RECs now provides 3 times more annual benefit than the reduction in your electric bill.

Selling RECs on an annual basis may reduce the time to recoup your investment from over two decades to as little as 5 years. With these credits in the mix, it makes sense to install the largest solar system you can afford, so long as (1) you can fit it on your roof, (2) it does not generate more electricity than your average use, and (3) you do not significantly exceed the maximum grants your state and local governments provide.

If you decide to install a residential solar power system, make sure you do so in a way that maximizes your REC revenue. This game changing factor finally makes a home solar power system an idea whose time has come.

As a disclaimer, the information in this article is highly dependent on your home’s location, orientation, and shading, as well as your personal tax situation. You should obtain several (free) project proposals from reputable installers in your area, and compare them (including especially if you can sell your RECs and for how much). Then, consult your tax professional and financial adviser to verify the tax benefits of each proposed system, and the expected time to recoup your investment.


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