The True Cost of Solar Power

The sticker price of a solar system doesn't tell the whole story. Learn how to factor in financial incentives and long-term savings to calculate the real cost of solar power.

Cost of solar power

Whether you're remodeling your home or on the hunt for the ideal nest, solar power is on the real estate radar these days. Installing a solar energy system can give your home that extra edge while saving you in monthly utility bills and curbing your carbon footprint.

Many prominent companies and individuals are investing in solar energy — our president's personal abode, the White House, has plans to install a solar system on its roof in 2011. Before hopping on the wagon and looking up your local solar panel installation company, it is important to decide if it is feasible to invest in a personal power grid for the home in your region. To determine the effective cost of solar power, homeowners should understand the up-front costs, the expected amount in savings and the available financial incentives.

Calculating Up-Front Costs

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First you will need to determine your budget. Your budget will reflect whether you wish to convert the whole house to solar energy or consider a partial conversion — for example, setting up a water heating system instead of a full conversion. Converting to solar energy calls for a large initial investment in solar panels. However, installing the panels is a step toward long-term savings. Up-front costs must be analyzed against future utility costs.

Determining how much your solar panels will cost depends on what size system you install, if you want to be on or off the grid and the solar resource at your location. To calculate what size system you need for your home, you need to calculate the potential solar radiation power in your region, which will determine how many solar panels you need. Utilizing radio resource maps and studying copies of your utility bills for the past 12 months are good starting points in determining the projected size of the system. The government's U.S. Solar Radiation Resource Maps website provides solar radiation trends in the United States. The greater the solar radiation availability in your region, the smaller your system needs to be.

Studying energy usage levels from your utility bills will also help indicate the appropriate solar panel system for your household. As a general rule, a 3-kilowatt-hour system will generate approximately 3,600 to 4,800 kwh per year; a 5-kwh system will produce 6,000 to 8,000 kwh per year; and a 10-kwh system will produce 12,000 to 16,000 kwh per year.

For example, a home in Los Angeles with a roof size of 1,352 square feet that uses 1,954 KWh/month will probably need a 13.53 kwh solar power system. Before factoring in available credits/incentives, the system will cost $94,688.

Factoring in Incentives and Savings

In this example, the post-incentive cost is $9,213. Incentives for this system consist of the federal tax credit of 30 percent, a property tax exemption from the state and a rebate of $0.12/kwh for 20 years from the city of Los Angeles. The breakeven point is 3.64 years — where the savings equal the initial investment. Over a 25-year period, the total savings is almost $100,000.

To figure out the tax credits and various financial incentives that are available in your state and local area, the U.S. Department of Energy website is a good source of information. Additionally, the Cooler Planet website features a convenient solar calculator for making cost calculations for your home's energy needs. Do keep in mind that there are major variances in state and local incentives to solar energy. Careful research at the local level is very important when calculating the financial feasibility of converting to solar.

Homeowners hesitant or unable to commit to the heavy initial costs of solar panel systems may wish to start at a lower scale by acquiring a solar water heater system. The average initial cost for a solar panel system is $50,000 for a 6.25-kwh system at $8,000/kwh installed, pre-federal and local tax incentive, while the average cost for a solar water heater unit is $2,500, pre-federal and local tax incentives.

According to Elysia Niemi, account manager at the solar panel resource websites Cooler Planet and Find Solar: "Payback periods in general depend on the incentives available in the homeowner's particular area, but at the very least, people are able to get the 30 percent federal credit. Generally, the payback period is anywhere between five to 10 years. A really good payback period is anywhere between five to 10 years, but generally it's not going to be any shorter than two years."

On top of the savings in monthly utility bills, relying on solar energy means you will no longer be releasing 35,180 pounds per year of carbon dioxide, which would require the planting of 88 trees per year to offset the emissions.

Additional Considerations

Without government and utility incentives, conversion costs can be very difficult for many. That's why it is critical to investigate the specific incentives available in your state and local region. Additionally, some states require local utilities to buy surplus electricity generated by a homeowner's solar energy system, another key benefit of investing in a solar system.

Another major factor is local solar radiance, which is the amount of sunlight available in your area. A region with a lot of overcast or foggy days will provide much less sunlight than a more temperate climate, thereby requiring a longer payback period.

The reasons for going solar are compelling. Unlike fossil fuels, solar energy is renewable, significantly less polluting and very cost-effective. With wider usage, the initial costs should drop. It will take more education along with more aggressive marketing to increase usage significantly. This energy may not be a panacea for all, but it can make a major impact on reducing the carbon footprint and lowering the monthly power bill.


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