December 2018

Going with a solar installation is no minor investment. If you are considering solar, look at your annual consumption of electricity, in kilowatt hours (kWh). The generic prices for installation is around $3 per kWh.  That will put you in the ball park.  Our annual electric usage is 7,500 kWh.  Making a decision on whether to go solar or not takes in a lot of factors and it is no simple calculation.  And this disregards any important considerations of saving the planet.

First, a word about scalability.  Our system is on the smaller side, at 7,500 kWh/yr.  There is a bit of an economy of scale, so larger systems would be less expensive per kWh.  This is intuitive as the increase in the system will be through the addition of solar panels only.  For an average homeowner, the wiring into the electrical box, permits, inverter all would be the same regardless of the size of the system.  So the installation of 27 panels would not be half again as much as the installation of 18 panels.

Federal Tax Credit

The gross installation price is usually not the actual cost of installation.  Our Federal government provides a 30% tax credit for solar installations.  If you pay Federal taxes, this is a straight deduction against your tax bill, so if your taxes owed is $100, and your installation is $50, you would get a $15 deduction against your taxes, so now you would only owe $85.  Effectively, those $15 goes into your pocket, or if you wish, you can treat this as a 30% discount against the gross installation cost.  This tax credit is available whether you itemize or not.  Using our $3 per kWh figure from above as your gross installation price, the net installation price is reduced to $2.10 per kWh.  The tax credit is found through Residential Energy Credits at Form and Instructions for 5695.

SRECs

There is something called a Solar Renewable Energy Certificate (SREC).  These exist because of a federal regulation that establishes a renewable portfolio standard (RPS), which requires the increased production of renewable energy sources, such as wind, solar, biomass, and geothermal.  Energy providers in different states have different RPSs.  Power companies can build renewable power plants. but they can also buy credits from individuals or companies that generate renewable energy.  They are traded on an open commodity-like market. One credit is created from each 1,000 kWh of electricity produced. Our system should generate 7 credits each year. Because the mandate differs from state to state, the credits are worth more in some states than others.  For states that have a high mandate, the credits are worth a lot and genuinely subsidize the cost of the system.  In other states, such as Pennsylvania, where the RPS is lower, the value of the SRECs on the Pennsylvania market is correspondingly lower, currently in the $10-15 per credit range.  While there was a recent law (Act 40) to ban the sale of credits into Pennsylvania from out-of-state, this is still a squishy area.  For purposes of our calculations, we see only a $80-100 per year additional benefit from SRECs here.

            Solar as Investment

During our lives, we all make some major purchases: a car, a college education, a house, a wedding, a new roof, etc.  How we see these purchases differs, depending on not just the cost but on whether it is treated as an investment or not.  An investments can be thought of as deferred return for the money spent.  Perhaps the ultimate investment might be a retirement plan, where we don’t expect to see a payoff for 30 years.

How then to see a solar installation?  Leaving aside any warm and fuzzies about the planet, how does it make sense financially?  In our case, we plunked down a chunk of cash. What do we have for our purchase, even if subsidized by the Federal government?  For starters, we are talking about electricity generation. Each year, we normally consume around 7,500 kWh of electricity.  We are averaging about $90 a month for our electric bills (for charges above the basic customer charge by PPL), or $1,100 a year.  We anticipate using electricity for the rest of our lives, so this is going to be an annual cost for the rest of our lives. Our return on investment of the installation of a solar panel system would be $1,100 per year.  So the question now becomes how many years of electricity production does it take to amortize the cost of installation, also known as the Solar Panel Payback Period.  If you go on the internet, you will see numbers ranging from 4 to 15 years. This is due to different reasons.  In different parts of the country, the effective hours of sunlight will differ, figured in kWh/m²per day. Some parts of the country generate twice as much electricity per panel per day than others.  Pennsylvania is on the lower end of that spectrum. Secondly, some states offer additional incentives to go solar.  Pennsylvania does not.  In some states, the RPS is more stringent. In Pennsylvania it is not, calling for only 9% renewable energy by 2038, so the SRECs are worth less.  

To summarize, going solar here is like fighting with one arm tied behind your back – less sunny, lower RPS and consequent lower SRECs.  This would push us to the longer end of the Payback Period Spectrum.  Still, we think for us this Payback Period will be 13 years.  What this means is after 13 years, the system is paid for and will be generating electricity for free, electricity we would still be paying for.  The warranty on the system is for 25 years, but there’s an expectation that it should last longer.  Realistically, we think we could be here for another 20 years, so let’s use that for the time frame.  If electric prices do not rise (and they will), this means we will have made around $10,000 during that period. Comparing investments, if we had put the entire payment into a CD paying 3%, after taxes it would have been a wash. Now, 3% is not spectacular, but I have been conservative on all of the estimates so far, assuming current SREC and electric rates that do not increase.

House Resale

Does the installation of a solar system increase the resale value of the house? Definitely.  The rule of thumb is $3 per kWh, meaning the added resale value to the house would be around $22,000.  Clearly, the new owners would have the generating value of the system for their electric needs. How long a solar system could last is unclear. Data shows that the panels do slowly degrade over time, generating less electricity.  The 25 year warranty is generally for 80% of the original capacity, meaning that after 25 years, the panels are warranted to generate at least 80% of the original production.  Well-made panels should last longer, so that the 80% threshold should not be reached for 30+ years. 

Financing

We also chose to finance the system by writing a check, a luxury we had due to a sick leave payout when I retired.  A lot of folks simply don’t have the necessary Simoleans handy, so other means of financing would be considered.  For starters, this project would qualify for a home equity loan.  Currently, if you are itemizing (big if), you can still deduct the interest paid on a home equity loan to install a solar system.  There are other cost-free schemes out there, such as Solar Purchase Power Agreements.  A PPA means your solar company owns the panels on your roof, and you pay for the electricity they produce, at a discount. Anything that would not call for you to pay out of pocket also would not be as remunerative.   Whether you would buy outright, finance, or enter into an agreement, I believe that even here in suburban Pennsyltucky, the economics can work.

Fiscal Bottom Line

If the only consideration we had was fiscal, then installation of solar panels at our home made sense.  Not only does it give a return of 3% over 20 years, but adds to the resale value of the house.  The installation also functions in the same way that a fixed mortgage works. We have a known and fixed cost of electricity for pretty much as long as we live here.

December 2018

The basic technology and economics of solar PV panels has been worked out and other than a brief overview, I would point you to the Internet for as much detail as you would like.  First, solar comes in two flavors, one of which is the PV collector system we got.  The other is a solar water heater, which uses the sun to concentrate heat on tubes that produces hot water for home use.  Within the solar PV universe, there are again two choices: on the grid or off the grid. Most people probably think of the off-grid option when the words “solar panels” are spoken.  Off-grid means that the solar panel system is self-contained and the home would not be connected to any external electrical service.  No solar system will generate electricity at night (remember the joke about the solar powered flashlight?). For an off-grid system to work, it must be paired with a battery backup and be robust enough to generate enough electricity during the maximum months of usage (for us in the summer).  Off-grid systems make sense in remote areas with sketchy electrical service.  But we are in suburbia and with a generally reliable system (thank you, PP&L).  We have perhaps 1-2 outages a year, which rarely last longer than 4 hours. For us, an integrated on-grid system makes more sense.

Solar generation is the same on- or off-grid, the sun hitting PV collector panels and making DC electricity. From there, each panel has a power optimizer attached to it that independently maximize the power produced and coordinates with the other panels to keep voltage constant and maximize power production.  The electricity is merged into a single line that goes into an inverter.  The inverter changes the DC electricity to AC.  If you have rechargeable batteries in any form – think power tools or cellphone –  you have inverters.  This inverter does a bit more, since it also gathers and transmits data regarding the real-time operation of the system and can link to a computer.  From the inverter, the AC electricity feeds into an independent meter that tracks generation and then into the service box.  The service box is still connected to the meter outside the house. When we use less electricity than we are generating, we are energy producers and the outside meter runs backwards. When we use more electricity than we are generating we are energy consumers and the meter runs forward. Once a year, there is an accounting of the net usage.  So some months we are going to be to the good, and some months we will be drawing on that surplus

As a matter of estimation, we calculated enough panels to produce 95% of the electricity we use each year.  In Pennsylvania, PP&L will buy our excess if we were to use less than we produce, but the rate is not ideal as it does not include distribution costs.  Generally, the perfect situation is produce 1 watt/hour less per year than we would use.  We have 18 panels in a 6×3 array, that is anticipated to produce 7,500 kWh per year, close to our annual consumption.

Other Considerations

As noted above, if your energy needs are greater than ours, solar may make even more sense.  We don’t heat with electric, but some do.  We do not have an electric water heater, but some do.  

Even with the constraints of being at this latitude in Pennsylvania, there are clearly better and worse spots.  Ours is nearly ideal with a south-facing and unobstructed roof that is far enough away from large trees and large enough to hold an adequate array.  The pitch of the roof also makes a difference.  Ideally, a fixed, roof-mounted solar energy system should be at an angle that is equal to the latitude of the location where it is installed. Our latitude here in New Cumberland is 40 degrees.  Our roof pitch is much less – 23 degrees.  The recommended range of pitch is 30-45 degrees.  We are probably giving back some watts, but that is the pitch we have to work with.  If your pitch is closer to 40 degrees, you have closer to the ideal pitch for this area.

December 2018

Mr. and Ms. Green Jeans

As a background to this story, I’d like to share our energy and consumption habits.  We have tried over the years to hold and maintain a green energy ethic, including conservation, re-use, and recycling.  We converted our old boiler from fuel oil to the highest efficiency natural gas boiler we could find ten years ago.  Our hot water is on demand.  When we buy a fridge, or dishwasher, or washing machine, we always look for the most energy efficient.  We’ve swapped out light bulbs for LED’s or CFL’s wherever possible.  We garden and we compost.  We cook from scratch a lot and stay away from pre-packaged foods, when we can.  We take our bags when we go grocery shopping, and refuse plastic bags whenever possible. We save and re-use when we can’t. We bundle our newspaper and fill the recycling bin.  We bought our house big enough to raise our family, but no bigger.  When I was working, I either bicycled to work or took the bus, keeping my driving in to less than a dozen times a year.  Our strategy is to buy quality new and then wear it out over a longer period of time before replacing.  If it can be repaired, we generally will fix it before replacing it.  (Other than books) we have shied away from owning things, especially now that the kids are out of the house.  

And in raising a family and living our lives, we have made knowing compromises with the environment.  The natural gas that warms our house and cooks our food is still a fossil fuel, and while cleaner than coal or fuel oil, is not ideal.  We have and use central air conditioning, increasingly so in recent years.  Either it has been warmer or we are older, or both, and no we are not getting rid of it. We still have two cars, and although one is a Prius, the other car is an small land yacht that gets 18 mpg (we try not to drive that one when we can).  I have a gas-powered lawnmower. We eat meat.   We fly across country to visit family, our contrails scratching across the sky.

Why Solar Now?

I would like to say that our decision to install solar photovoltaic panels came from a galvanizing moment, but in fact resulted from the convergence of a several seemingly non-related events.  In no order of importance, the first was probably my retirement from State Service.  For those of you who haven’t retired from the Commonwealth, there is a nice little cherry on top besides getting the sought-after pension.  If you have been reasonably healthy and have worked a reasonable number of years, you accumulate a healthy reserve of sick leave. At retirement, the Commonwealth will buy it from you at a set formula, which could result in your getting the equivalent of up to a dozen extra paychecks, all at once (closer to 7 in my case).  If you have any unused annual leave, that is thrown in on top.  So even after taxes, you find yourself looking at a last pay statement that could indulge most of your most modest fantasies.

The second event was our trip to Scotland, a week after I retired.  Now, almost nothing from the trip is relevant to this story.  It was a wonderful and exciting journey through the Highlands, worthy in its own right.  However, we did notice a proliferation of large wind mills and wind farms throughout the Highlands, as well as more than an occasional solar panel.  This in a country more noted for foggy moors than tropical sun.  It turns out that Scotland, the entire country, has set a goal of 100% renewables for electric energy by 2020, and 11% of all heat demand by the same year. Renewables in Scotland include wind (onshore and offshore), hydro, wave, tidal, biomass, solar, and geothermal.  Being Scots, yes, they are on target to meet those goals.  Now Scotland has a wee more than 5 million people, with 20% in rural areas, so it is not that large a country.  The United States has 22 states with more people than Scotland.  States close to Scotland in population include: Alabama, South Carolina, Minnesota, Colorado, and Wisconsin.  So you could visualize the equivalent of Scotland in several places in the US.  But in no state are renewable targets like Scotland’s being set and made.  The closest is Hawaii, with a target of 100% renewable but by 2045.  Scotland is a western, industrialized country. Hell, they invented industrialization. We are a western, industrialized country.  We’ve even acquired a lot of Scots through immigration.  But outside of a few pockets in California, Arizona, Texas, and the Southwest, there is not this level of commitment to renewables. Scotland is making it work, and they are not idiots, and (as Scots would have it) they are making it pay off.

The third event was the release of several world climate reports this Fall, beginning with the UN Intergovernmental Panel on Climate Change Report, released October 8^th, followed by the Fourth National Climate Assessment (November 23^rd), and the NOAA Report Card on the Arctic (December 3^rd).  The tie between human-induced emissions of CO₂ into the atmosphere and accelerating climate change was presented at Toronto 30 years ago with a call for world action.  Collectively, these 2018 reports reaffirm the science behind climate change and demonstrate that the original projections for the world heating up were in fact too conservative and that the rate of change is faster than we thought.  The bottom line is that unless we as a world society make substantial changes in the emissions of CO₂over the next 12 years– emissions caused by the burning of fossil fuels – our children will face a substantially hotter planet and everything that comes with it.  The call for action is now.

There was one other reason to fan the urgency for action. Currently, the Federal Government gives a 30% tax credit for installation of solar panels.  If you have an annual Federal tax bill, this is real money. The credits were due to expire in 2016, but were extended through legislation.  The December 2015 tax bill extended the credits through 2021, but the full 30% credit is only good through 2019.  As we have seen with this Federal Administration, there is an open hostility toward renewables, shared by many republicans in Congress.  Prior to the November 2018 election, there was a palpable chance that the credits could go away entirely in early 2019.  The clear message was that it was the time to act.

The elements for the decision to install solar PV panels were in place:  a predilection toward green energy, an urgency, a vision of someone actually doing this (the Scots), and enough funds to pay for it.  If there was anything resembling a triggering event, it was a domestic disagreement over the second car, a a big lumbering beast that gets terrible fuel economy (18 mpg). Nicknamed “the Couch” for its ride, both of us hate the car and hate driving it.  The saving graces were that it is paid for, mechanically sound, and is only used as a backup vehicle.  Both of us wanted to replace it, but we could not agree with what.  Linda wanted another Prius, which we both like and appreciate.  I wanted either to get rid of the second car entirely and go down to one car (probably not practical at our point in our lives), or to get an electric car like a Bolt or Leaf and make the electric our primary local car, saving the Prius for trips. Because we could not come to an agreement, and status quo could work, we dropped the idea for a change in cars. Instead, we took part of the payout to reduce the mortgage on the house and started our research into solar PV (photovoltaic) panels.

The Green Payoff

Solar PV systems can work financially, even in a place like Central Pennsylvania (see my post on Solar Economics).  However, to be clear, economics was not the primary driver for our decision.  We made our decision more for other reasons, but didn’t want to take a bath on the costs.

The recent news on greenhouse gases, especially CO₂, is uniformly scary.  If we do not act now as a society, we (by we, I mean our children and our grandchildren) face a greatly warmed and destabilized planet.  Yesterday, I heard a vivid analogy.  Our house is on fire and our children and grandchildren are in the attic. How do we get them out?  I’m not saying that installing solar panels will save the planet, or cure cancer, or whatever. But I think this it is a meaningful act.  Here is what we are facing.  We are dumping carbon, in the form of CO₂, into the environment at unprecedented rates. In order to keep world temperatures from rising more than 1.5 degree centigrade (2.7 degrees Fahrenheit) from pre-industrial levels, we need to halve greenhouse gas emissions by 2030 (in 12 years) and reduce greenhouse gas emissions to zero by 2050. This is what the Paris Climate Accords called for.  Even with only a 1.5 degree increase, we would face stronger storms, more erratic weather, dangerous heat waves, rising seas, and largescale disruption to infrastructure and migration patterns.  Past 1.5 degrees, we will see hotter summers, larger and more severe storms, longer droughts in areas, rising sea levels and an acceleration in rising sea levels, decrease in agricultural productivity, and a destabilized environment in places where there is currently political and economic unrest. Just look at Syria, for example.

Is our conversion to solar going to halt all this? Nope.  In the United States alone, in 2017, the electric power sector put 1,744 million metric tons of CO2 into the environment.  The current population of the US is 325 million residents, so each man, woman, and child is responsible for 5.37 metric tons of CO₂each year, just from electric production.  Our modest 7,500 kWh of annual electric generation saves somewhere between 3.1 and 7.3 metric tons of CO₂each year, about what one person would generate based on a national average.  Removing this CO₂from the environment reduces US  greenhouse gas emissions from electric generation by 0.000000308 percent.  Whoopee!

Still, each of us has a responsibility to be good citizens, not just of the United States, but of the world.  And to quote Margaret Mead:

Never doubt that a small group of thoughtful, committed citizens can change the world; indeed, it’s the only thing that ever has.

We want our action to be a call for action.  Conveniently we are just across from the New Cumberland Library.  Maybe seeing solar panels by patrons of the library will start a conversation.  We are trying to start a conversation by merely posting this blog.  We want everyone to go solar, as long as they can manage it.  Ask us how.  We want and need everyone to start thinking about energy conservation and how to reduce each person’s carbon footprint. And we need everyone to press their legislators on ways to support carbon emission reduction through public policy.  Upping renewable targets would be a start.  A carbon tax would be another.  Exempting solar installations from income tax and property taxes would be a good thing.  The Commonwealth should restart and fund the Pennsylvania Sunshine Solar Program, which ended in 2013. 

A rapidly warming planet is no boutique issue. Remember, the attic is on fire and our children and grandchildren are trapped in there.