Making Room for a PV Array

musingsheader image

Making Room for a PV Array

An unshaded south-facing roof is valuable real estate — too valuable to waste on solar thermal collectors

Posted on Nov 27 2015 by Martin Holladay
prime

UPDATED on December 4, 2016 with PVPhotovoltaics. Generation of electricity directly from sunlight. A photovoltaic (PV) cell has no moving parts; electrons are energized by sunlight and result in current flow. system production data for the first year of system operation.

Compared to a photovoltaic(PV) Generation of electricity directly from sunlight. A photovoltaic cell has no moving parts; electrons are energized by sunlight and result in current flow. system, a solar hot water system yields very little energy per dollar invested. I presented that argument in a 2012 article called “Solar Thermal Is Dead.” Two years later, in 2014, an economic comparison between these two solar technologies showed a stronger tilt than ever before in favor of PV, leading me to write a follow-up article called “Solar Thermal Is Really, Really Dead.”

According to the latest available (2009) data from the Residential Energy Consumption Survey (RECS), the average U.S. household’s energy expenditure for domestic hot water is $280 per year. Since a solar hot water system can be expected to provide about 63% of a home’s hot water — the rest being produced by a backup system during cloudy weather — it’s hard for a solar hot water system to save more than $176 per year (about $15 per month). If the solar hot water system costs $9,000 — a reasonable assumption — the investment in solar equipment will yield only 2% per year. That’s less than the current yield on a U.S. 10-year bond.

This analysis overstates the actual yield of an investment in a solar thermal system, however, for several reasons. First, this analysis ignores a solar thermal system's ongoing maintenance costs; and second, when a U.S. bond matures, you still have your capital — whereas when a solar thermal system wears out, it’s headed to the landfill or scrap heap.

High repair costs

A third article on solar thermal systems — Solar Hot Water System Maintenance Costs — discussed the trials and tribulations experienced by my brother Peter and his wife Elana in Massachusetts. Over the past few years, their solar hot water system has required a series of expensive repairs. When I last wrote about their dilemma, they were trying to decide whether to spend $900 to repair problems caused by a leaking expansion tank. (Eventually, after they found a different contractor with a lower repair estimate, they went ahead with the repairs.)

This summer, when Peter and Elana realized that their asphalt shingle roof needed replacement, they had to decide what to do with their three roof-mounted solar thermal collectors. Their ultimate decision was based on economics. Rather than re-install the solar thermal collectors, they decided to install a photovoltaic (PV) array on their south-facing roof.

Massachusetts has good PV incentives

Homeowners who invest in either solar thermal equipment or PV equipment can take advantage of a variety of tax credits and incentives. A federal tax credit provides a refund of 30% of the cost of a PV system or a solar hot water system.

If you look carefully, you can see three roof-mounted solar thermal collectors in this old photo of my brother's house from Google Street View.

Massachusetts offers a variety of additional PV incentives, including a state tax credit of up to $1,000. Moreover, owners of grid-connected PV systems in Massachusetts can sell their PV-generated electricity on the SREC market. An SREC, or “solar renewable energy certificate,” is a tradeable coupon that represents the positive environmental attributes of electricity generated from a PV system. Two-way electrical meters installed on PV-equipped homes facilitate the complicated accounting that the SREC market requires.

SREC purchasers include utilities that need to meet state-mandated targets for the production of electricity generated by renewable sources. Buyers of SRECs are willing to pay more for PV-generated electricity than the retail price for ordinary grid power. The number of kWh that can be sold through the SREC market is equal to 100% of the output of a PV system. The SREC market currently pays owners of PV systems in Massachusetts about $285 per 1,000 kWh (28.5 cents per kWh).

The SREC market is complicated, but here’s the bottom line: owners of PV systems in Massachusetts are guaranteed by the state to receive an annual SREC check for the next 10 years. The state even guarantees a floor price for these SRECs; over the next 10 years, this floor price will gradually taper down to a low of $189 per 1,000 kWh.

Lease or own?

After examining an offer from a solar leasing company, my brother decided that it makes more sense to own a PV season than to lease one.

“With the leasing option, you pay nothing up front,” Peter told me. “But the company owns the panels, so they get the SREC money, and they would also get about half of the money we would be saving on electricity. In our case that’s about $600 per year. So owning the system is a much better deal.”

Peter's old solar thermal collectors are leaning against his garage wall.

Removing the solar thermal collectors

Two of my brothers, Peter and Clark, worked together to remove the roof-mounted solar collectors and install new roofing. Peter has a three-story house, so the ladders were high.

“Getting the collectors down was not simple,” Peter told me. “Putting them back up would have cost a lot. First we had to drain the fluid, which is a messy job. Then we had to cut the pipes, and there is always a little bit of fluid that gushes out when you cut the pipes, even if you think you’ve drained the system. It wasn’t too hard to disassemble them — we just figured out how they were assembled and then took them apart. But the collectors are large and very heavy. We tied ropes to them and lowered them off the roof and onto a ladder. It’s s job that requires at least two people, and it’s something to be done with caution and care. It’s not an easy procedure. I don’t know if I would have been able to get them back up on the roof even if I wanted to.”

PV economics

Peter and Elana signed a contract with a solar company (Direct Energy Solar of Hopkinton, Mass.) that offered to install a 5.4-kW system for $20,790 ($3.85 per watt). That was the price of the system before any tax credits or incentives; Peter and Elana only had to come up with $13,553 ($2.51 per watt). The installers arranged for a zero-interest one-year loan of $7,000. Next year, after Peter and Elana have filed their tax return with the IRS, they’ll receive a tax credit that will allow them to repay this loan.

The solar installers fastened aluminum racks to the new asphalt shingle roof.

The PV system is expected to produce 5,247 kWh per year, which is enough to cover 100% of Peter and Elana’s typical electricity consumption. Their annual electricity bill will be about $1,300 lower than it used to be, which is another way of saying that their electricity will be free for as long as the PV system lasts.

But that’s not all. Beginning next year, Peter and Elana will be getting an annual SREC check. The first SREC payment is expected to total between $1,000 and $1,400; these annual payments will taper down to about $991 by the end of the 10-year program.

In other words, their $13,553 investment will yield about 16% for the next 10 years, and about 9.5% for 20 years after that. These yield estimates are conservative.

A recent email from my brother conveyed his excitement. “The system is completely installed,” he wrote. “It looks amazing, and I am jumping out of my skin until they let it rip. Next Monday is the final electrical inspection, and after that we have to wait for NSTAR to come and swap out the meter.”

Paul Eldrenkamp’s experience

Right now, any Massachusetts resident who is saving money for retirement is unlikely to find a better legal investment than a rooftop PV system. The truth of this statement was confirmed to me by builder and energy guru Paul Eldrenkamp.

PV modules on the roof of Paul Eldrenkamp's house in Newton.

Eldrenkamp told me that the 4-kW PV system that he installed on the roof of his house in Newton, Massachusetts, cost $15,120. (The installation company originally estimated the cost at $17,320, but a group purchase agreement resulted in a discount.) After tax credits and incentives, the net cost to Eldrenkamp was $8,984.

The installer estimated that the PV system would produce 4,429 kWh per year, resulting in annual utility bill savings of $657. Over the life of the system, Eldrenkamp’s system should be able to earn $11,947 of SREC income. The expected payback period for Eldrenkamp’s investment is between 5 and 6 years, and the rate of return on the cash invested was estimated at 17.3%. (Since this estimate was based on the assumed cost before the group purchase discount, the actual return on the investment is likely to be even higher.)

“We installed the system in May of 2014,” Eldrenkamp recently wrote me. “It’s the best performing investment we have in our portfolio, by a wide margin.”

Valuable real estate

If you own an unshaded south-facing roof in Massachusetts, it’s valuable real estate. It’s as if you owned a storefront directly facing the main entrance to Fenway Park. If you owned this commercial property and left it vacant — instead of opening a sports bar or a stand selling baseball memorabilia — you’d be nuts. You’d be leaving money on the table.

If your unshaded south-facing roof has a solar hot water system on it, it’s time to remove those collectors and send them to the scrap heap. Then borrow some money and install a PV array up there, so that you can enjoy the economic benefits which the valuable real estate can provide.

“With all of the offered rebates — the federal tax credit and the SREC checks — PV is a no-brainer for homeowners in Massachusetts,” my brother Peter recently told me. “I will get my money back in 5½ years. I expect to get 10 years of SREC income — plus free electricity, of course. So I'll get all the money back, make money on the investment, and add value to our house.”

The south-facing roof of this new house in Newton, Massachusetts is marred by dormers that make the installation of a rooftop PV system impossible.

Developers are so last-century

For some strange reason, most builders of new homes are clueless when it comes to PV economics.

“There’s a lot of new construction in Newton these days — mostly tear-downs,” Eldrenkamp wrote me. “A lot of the homes have perfect solar aperture. But I haven’t seen one yet that can take advantage of that solar aperture — they all cover their south-facing roofs with dormers and gables. Developers in the Newton area are building the finest 20th-century homes anywhere.”

December 2016 update: One year of production data. On December 3, 2016, I received an email from my brother. "It has been exactly a year with my solar panels operating," he wrote. "They produced considerably more than they were predicted to produce: a total of 6,386 kWh (predicted production was about 5,200 kWh). This turned out to be well in excess of the electricity we actually used over the year; we had a surplus of 1,383 kWh."

Martin Holladay’s previous blog: “Wall Sheathing Options.”

Click here to follow Martin Holladay on Twitter.


Tags: , , , ,

Image Credits:

  1. Image #1: Peter Holladay

1.
Nov 27, 2015 3:26 PM ET

Priorities...
by John Semmelhack

I notice that the PV went up before the lower roof was replaced. Good to see that Peter and Elana have their priorities straight. ;-)


2.
Nov 27, 2015 3:56 PM ET

Over paying for PV...
by John Semmelhack

I'm still amazed at the crazy SREC prices in places like Mass, NJ, D.C., etc. It's like being able to walk down the street to a store where they're handing out freshly minted dollar bills. While places like Austin, TX are signing utility-scale solar power-purchase agreements for under $0.04/kWh ...Massachusetts has committed itself to paying a minimum of $0.189/kWh for SRECs for another decade...and they don't even get the energy for that price...the PV system owner still gets to keep the energy!


3.
Nov 28, 2015 4:42 AM ET

Edited Nov 28, 2015 6:18 AM ET.

Response to John Semmelhack
by Martin Holladay

John,
You're right: only the roofing on the upper slope of the gambrel was replaced. One step at a time...

Your second comment raises several important policy questions:

1. Should society invest money to de-carbonize the grid?

2. If the answer to that question is yes, does it make sense (at this point) to encourage more PV installations?

3. If the answer to Question 2 is yes, what is the best way to structure the incentives to encourage PV?

In light of our current climate change crisis, I think that in the U.S., the answer to Question 1 is yes. I think that our attempts to de-carbonize the grid have been timid and slow -- too timid and too slow to achieve the targets that we need to hit to prevent an environmental and economic catastrophe. That's scary.

Concerning Question 2: PV is now a very minor contributor to electricity production in the U.S., in every state but Hawaii. In light of the slow pace of PV adoption in the U.S. (compared, for example, to Germany), I think that a strong argument can be made in favor of investments designed to encourage a more rapid adoption of PV. As PV installations increase, these incentives will need to be dialed back. But Massachusetts is still years away from having too much PV.

Concerning Question 3: Any discussion of PV incentives needs to start by acknowledging that most countries in the world (including the U.S.) provide several kinds of subsidies designed to encourage the use of fossil fuels. We don't have a level playing field for renewable energy.

There will always be those who argue that PV incentives flowing to middle-class and upper-class homeowners might be more efficiently spent -- for example, by encouraging the construction of large utility-owned "solar farms" rather than rooftop PV. It's not clear, however, that this argument has merit. There's plenty of opposition to the "solar farm" route.

All I know is that PV adoption in the U.S. is still too slow -- and that in many areas of the U.S., ignorant politicians, ignorant regulators, and stubborn utility executives are part of the problem. (More of a problem that overly generous incentives for homeowners who install rooftop PV.)


4.
Jan 11, 2016 9:04 PM ET

An amazing investment indeed
by David Leffingwell

As an owner of a recently installed 5.5kw PV system in Massachusetts, I whole-heartedly agree with your conclusion that "any Massachusetts resident who is saving money for retirement is unlikely to find a better legal investment than a rooftop PV system". It has been a fantastic experience in my first 18 months of ownership. Between the savings on my electric bill and the SRECs, every kwh that I produce is effectively worth about $0.48/kwh. The payback period for me should be less than 4 years, Amazing!
I have one minor correction for the article. You said "Two-way electrical meters installed on PV-equipped homes facilitate the complicated accounting that the SREC market requires.". I think it's simpler than that. The two-way meter (net-meter) is simply for the electric company to determine how much I've used or generated (net) for billing purposes. Separately, I have a regular utility-grade meter next to my inverter in the basement. Every month, I report the total amount generated to the Massachusetts Production Tracking System. That number is used to determine the amount that I've generated in a calendar quarter which then results in SRECs being crediting to my bank acount (with a six month lag). Simple, right? ;-)


5.
Jan 12, 2016 6:53 AM ET

Response to David Leffingwell
by Martin Holladay

David,
Thanks for your comments. I'm confused by your "minor correction" -- I can't tell whether your point is ironic, and that the SREC accounting is more complicated than I imply, or whether your point is that the accounting is actually simple.

In any case, here was my point: If you install a new grid-connected PV system, you need a new meter, and the intent of the meter is to simplify the accounting.

I don't think we disagree -- but we might.


6.
Nov 23, 2016 8:02 PM ET

The accounting is actually simple
by David Leffingwell

There are two separate meters. Both with simple purposes. The two-way meter (net meter) is for utility billing/crediting purposes. My system has an additional "revenue-grade" meter near the the inverter that measures the total lifetime power production. This second meter is the used for SREC accounting purposes.


Register for a free account and join the conversation


Get a free account and join the conversation!
Become a GBA PRO!