Monday, June 25, 2012

DeMarrais: It Pays To Go Solar, If You're Willing To Wait For The Savings

It's logical from an environmental standpoint, but does going solar make financial sense when you consider the hefty upfront cost?

Five years ago, when I had seven solar panels installed on my roof, there was no question about the financial benefits.

Thanks to a rebate from the state and a federal tax credit, along with ongoing energy credits and reduced electric bills, I figure I have just about paid for the $15,000 system.

And I will continue saving for at least 20 more years.

But the solar market has changed. While the 30 percent federal tax credit remains through 2016, the state rebate has been phased out and state-backed solar renewable energy credits, or SRECs, are about half of what they were when I went online in 2007.

Even so, consumers have an attractive option that didn't exist a few years back: long-term lease deals that allow you to go solar with little or no money down. You save upfront, but in doing so, you lose the benefits that owners like me enjoy long after they've paid for initial capital costs.

"I think it can be a good deal, but it depends on your expectations," said Stefanie Brand, director of the New Jersey Division of Rate Counsel, which represents consumers in utility matters.

What makes decisions tough is the uncertainty that is the New Jersey solar market. In its early days it was supported through incentives administered by the Board of Public Utilities. The strategy worked as the state has been second only to California in solar activity.

But the goal has always been to make the industry self-supporting, and that has led to wild swings in the value of the SRECs.

Awarded for every 1,000 kilowatt hours of electricity generated, SRECs are commodities, traded like oil futures and pork bellies. Their value comes from their being needed by utilities to meet state-mandated renewable energy goals.

When I first planned my solar installation they were worth about $200 each, but by 2007 they had soared over $600. Since then the value has fallen to around $130 to $150 each, which means a longer time to recoup installation costs.

The total cost for my modest 1.8-kilowatt rooftop system was $15,077, but more than half — $7,830 — was covered by the state rebate and another $2,000 came from the federal tax credit. In addition, I pre-sold five years of SRECs to the company that handled the installation, making my total out-of-pocket cost $4,048.

When you combine what I generate for myself and the excess that I sell to PSE&G, I figure I have saved at least $2,300 in electric bills in less than five years.

That means I am out just $1,700 or so, and should be in the black in another two years — or two to three years faster than expected.

But my system is small. A typical system today costs between $28,000 and $39,000; many are much higher. Of that, 30 percent is covered by a federal tax credit, but you have to lay out the money upfront and wait until filing your federal tax return to benefit.

Still, going solar can make sense, says Pamela Frank, vice president of business development at Sun Farm Network, a Flemington-based company that has been among the solar leaders in New Jersey (and the company I hired to do my home).

Even though the value of the SRECs has dropped, the cost of solar panels has also decreased, by as much as 40 percent, due to low-cost Chinese imports. But the reduction is due to illegal dumping, the Commerce Department charged last month, and that could lead to higher prices through tariffs that will be imposed.

But SRECs are also likely to increase in value, as the marketplace settles with a supply/demand balance after a decade of turmoil, Frank said. We're unlikely to ever see $600 SRECs again, but prices in the $200 to $300 range are quite possible, she said.

"I think the market has started to normalize," she said. "We were in a period of irrational exuberance, with a perfect storm of incentives, tax credits."

Now, the biggest savings can be on the electricity itself.

For one thing, the state says that when your system generates more electricity than you need — and that happens frequently — your local utility has to pay full retail rate, including the transportation and delivery costs that can be half of your electric bill, Frank said.

Even without the state subsidy, homeowners can often recoup upfront costs in seven to eight years, and enjoy continued savings as the system generates electricity for another 30 years.


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