Bright Idea: Your Guide to Going Solar
In California, systemic fire-preventive power outages are becoming the new norm. And as people across the country face natural disasters — from earthquakes and tornadoes to floods — more homeowners are considering investing in solar electricity to keep the home lights on.
However, it’s important to know that a typical solar power system will not be very helpful during a power outage in your local area, even if it’s the middle of a sunny day. With solar panels, you aren’t directly using the electricity you produce. Rather, the energy you create is fed into the electric grid, and everything you use is pulled from the grid. So, unless you invest many thousands of dollars in a battery back-up system to store your self-generated power, you’ll still lose power during a blackout.
Nonetheless, there are still plenty of reasons for going solar. In addition to the obvious environmental benefits of harnessing the sun for your home’s power needs, a well-sized solar array will pay for itself over time and even generate a decent return on your investment. Moreover, generating your own power will help insulate you from escalating electricity costs and could even enhance your home’s value.
What’s more, Uncle Sam will subsidize your investment in solar power for another two years, making this an opportune time to consider going solar. There are a number of important decisions to make, though, which I’ll walk you through.
Buy versus lease
If you can afford the up-front costs, I recommend buying a system versus leasing because you’ll save much more money over time by owning your system. You’ll make a single investment, and from then on, your monthly electricity cost will be very low. In contrast, with a leasing program you have no up-front costs, but you’ll continue to pay a relatively high monthly cost to the solar company that owns the panels on your roof. Leasing is often preferable for people who cannot afford the cost of purchasing a system or who expect to sell their home in the near future.
How to chose a solar provider
Your solar panels should last for at least 25 years, so you’re going to do business with your solar provider for a long time. Therefore, it’s important to research companies in your area and select one with high-quality equipment, a solid reputation and staying power.
There are a handful of solar providers with national reach (for example, SunPower, SunRun, SolarCity and Vivint) and many local installers, and either approach is fine. There are several key things you should examine when selecting a solar provider:
Fully integrated vs. component system
There are four components to a solar array: the panels, the racking that fixes the panels to your roof, the inverters that convert the sunlight into usable electricity, and the monitoring system. As of now, only one company, SunPower, manufactures all four components. Otherwise, you’re looking at assembling a system using four different manufacturers. Four manufacturers equal four different warranties, which means difficulty in making warranty claims. But practically speaking, solar panels rarely need service as there are no moving parts to break.
Solar panels are rated on efficiency, with the most efficient panels converting approximately 25% of sunlight into electricity and the least efficient converting approximately 15%. Right now, the three solar manufacturers offering the most efficient panels are SunPower, LG Electronics and Panasonic.
If you have a large tract of land in the sun to place a little solar farm or a huge amount space on your roof that’s ideally situated (facing south and west with little shade), you could possibly buy the cheapest, least efficient panels to keep your cost per kilowatt hour (kwh) as low as possible. Otherwise, you’ll want panels with greater efficiency. Moreover, while the electricity-generating capacity of all solar panels degrades over time, the better panels tend to last longer than the older technology.
Provider history and warranty
Lots of companies have come and gone over time, so you’ll want a provider that has a long history in the industry and offers a comprehensive 25-year warranty.
How much will it cost?
The average price for a solar array ranges from $2.58 to $3.38 per watt, according to solar information website Energy Sage. Naturally, an array featuring more advanced panels and a better warranty will skew toward the more expensive end of this range. Most homes need to produce about 6,000 kilowatt hours of energy per year, so a typical solar system would average about $18,000; however, this can vary widely depending on factors such as air conditioning use, home size and efficiency, and electric vehicles.
Importantly, that cost is before tax credits. A 26% federal tax credit for installing solar power is good through 2020, dropping to 22% in 2021, and zero thereafter. So, the sooner you’re ready to commit to the investment, the better.
Many public utilities offer rebates for installing solar panels. Additionally, some solar providers offer special discounts if you have affiliations with certain groups or companies. Be sure to ask when comparing estimates.
Sizing the system
Once you have decided on a solar provider, they’ll help you size the system for your specific needs. This involves sending someone onto your roof to measure orientation toward the sun, roof angle, shade, etc. to estimate the electricity production potential of your home. In addition, they’ll download your hour-by-hour electricity use data for as long as you’ve owned the home to determine the amount and timing of your historical electricity use.
When you’re producing more electricity than you’re using, typically June through September, you’ll feed more electricity into the grid than you use. Likewise, during October through May, when your panels are producing less than you’re consuming, you’ll be a net user of electricity. The power company will apply credits for the extra energy you produce in surplus months to offset charges for additional energy you need to buy from the grid other months, a billing concept called net energy metering.
Ideally, you want your annual bill to be close to $0. However, this isn’t as simple as saying, “I use 6,000 kwh of electricity annually, so let’s size the system to produce 6,000 kwh.” Rather, you’ll need to consider how your electricity production and consumption changes throughout the day and over the year.
As an owner of my own solar system, I can share an example to illustrate:
We have an electric car, which charges at night, and we don’t have air conditioning. Consequently, we use very little electricity during the day. In fact, approximately 75% of our electricity use occurs during off-peak hours (11 p.m. to 7 a.m. on weekdays and all day on weekends except 3 p.m. to 7 p.m.). That’s when it’s cheapest to purchase electricity from Pacific Gas & Electric, about $0.13/kwh.
Our solar array produces all of its electricity during the daytime, particularly during the summer months, which means we’re selling most of our electricity production to PG&E at the highest rate, approximately $0.50/kwh.
If we’re buying most of our electricity at $0.13/kwh and selling most of our electricity production at $0.50/kwh, we don’t need to produce anywhere near the amount of electricity we’re using. In fact, our solar array produces only about 60% of our total kwh of electricity used, but it wipes out virtually our whole electric bill.
As you can see, understanding your home’s production potential and the time at which you’re using electricity is critical to sizing the system appropriately. Misjudge this and you could end-up with a system that’s way too big (meaning you’ve spent more than necessary, leading to a very long time before you break even on your investment) or way too small (meaning you still have a large electric bill even after credit for your electricity production.)
Incidentally, once you’ve over-produced, some utility companies will credit you just a few pennies per kwh for electricity, so there’s no benefit in over-sizing your system. Also, depending on your utility provider, you’ll likely pay a small minimum monthly charge. So you’re not really going to zero-out your bill, but you can get close.
Fortunately, your solar company will do this analysis for you and propose a system size based on your likely production and your actual historical energy use. If you expect your electricity use to increase in the future (e.g., buying an electric car or building a pool), the solar provider will help you think about how to increase the size of your array accordingly.
Finally, the system proposal will include a rough break-even calculation, estimating how long it will take for you to recoup your investment. For me that was about eight or nine years. The average, according to Energy Sage, is seven to eight years. Given the expectation of a roughly 25-year useful life, that means you’ll recoup two to three times your investment. Not exactly a venture capital return, but not bad!
Investing in solar power for your home can help save you money in the long run, possibly increase your home value and reduce your carbon footprint. And with a battery back-up system, you may also be able to keep the lights on during a blackout or live off the grid for a while. Just be sure to do your homework and research the system and provider carefully.
To start, I recommend visiting the Energy Sage website. They have tons more detail on everything I’ve mentioned above, reviews of specific panels and panel manufacturers, details on the different types of inverters, the science behind solar power, battery storage and more. You can really geek out on everything solar if you want. You can also put your project out to bid. Energy Sage will gather quotes and put them into a handy comparison tool. And you can source financing, if needed.
You may also want to explore the Federal Trade Commission and your local power utility websites for more information about solar energy.
Finally, ask your wealth manager to help you sort through the tax incentives and run the numbers to help you decide whether going solar is right for you.