This winter I have shared the journey that an acquaintance and her family have traveled to install a solar photovoltaic system on their home in San Francisco. Though the specifics like orientation, tilt, shading etc. of an installation will have a significant impact on the solar power produced by the system, all things being equal, a system installed in San Francisco will produce 13% more electricity than the same system installed in the Virginia/Maryland and Washington DC area. I actually thought the difference would be greater, but I used the National Renewable Energy Laboratory's PVWatts calculator to determine the energy production and cost savings of grid-connected photovoltaic (PV) energy system in both locations holding everything else constant to calculate that difference.
However, it is unlikely that everything else is the same. Andy Black, author of “Economics of Solar Electric Systems for Consumers” Payback and other Financial Tests,” says that systems design factors, like air flow, orientation and tilt, system reliability due to wiring and quality of components, and shading can be far more important factors in solar photovoltaic system production than weather and temperature across the United States. The specifics of an installation that cannot be (easily) changed like the orientation of a home, height of the roof, and shading from other buildings, trees, and roof vents and the quality of the installation design can impact how much power a system will produce.
The overall return from installing a solar photovoltaic system is dependent on the cost of the system, the cost of power and how much power the system produces. Solar PV systems and solar thermal systems for heating water will not save enough from electric (or gas) bills to make them financially viable in a homeowner's lifetime. The economic argument for installing solar panels is based on financial incentives provided by the government directly and through utilities to make the cost palatable. Even with the high cost of electricity in San Francisco, incentives are necessary. In San Francisco where PG&E (Pacific Gas and Electric) just made significant changes in their retail electric rates lowering the effective rates to homeowners the electric rates are charged on a tier basis, the fist tier is $0.11877, the second tier is $0.13502 and the third tier is $0.29824. (Previously, there had been a 5 tier system topping out at just about $0.50 per kilowatt!).
Based on the size of the system, its location, and the new lower electric rates in San Francisco, my acquaintance’s system should have a return of about 10-12% after rebates and incentives (depending on the federal tax rate applicable). The incentives are very important. Currently, PG& provides an incentive of only $0.35 per watt. This is a very small incentive compared to the ones I was used to seeing in Maryland, Virginia and Washington DC. However, there are other incentives available for San Francisco city residents. To encourage more installations of solar power in San Francisco, the City, though a program at the Public Utilities Commission, PUC, is offering incentives to residential power customers based on their income and location and not tied to the size of the system installed. These incentives can be quite generous, depending on your circumstances.
The basic incentive from the PUC available to everyone is $2,000. However, if you live in Bayview, Hunterspoint, Portola, Potero Hill or Dogpatch neighborhoods or are a low income customer enrolled in CARE or CALHome you are eligible for an additional $1,000. In addition, there is a $750 incentive for using a San Francisco based installer where the market is quite competitive. Finally, there is a $7,000 incentive for low income households. In San Francisco a low income household may have unlimited equity in their homes, but the annual household gross income must be below $86,000 for a four person household (senior citizens on social security would qualify). The income guidelines are based on household size so check this link to see if you qualify. Typically, in the San Francisco market, the incentives are applied for and issued to the installer and they bear the risk of complying with the system requirements and the burden of completing all the paperwork. However, the customer will still need to pay a significant amount of cash to have system that will eliminate most of their electric bill. Note, that only the PG&E incentive is tied to the size of the system installed so that a small system installed on a small home in the “Avenues” would be relatively less expensive due to the pricing structure of the incentives.
The San Francisco customer would have to apply for the federal tax credit themselves, though the federal form is simple, they are advised to talk to a tax professional since strategies for utilizing the tax credit are situation specific. A tax credit is more valuable than an equivalent tax deduction because a tax credit reduces tax dollar-for-dollar, while a deduction only removes a percentage of the tax that is owed. The American Recovery and Reinvestment Act of 2009 extended the tax incentives under the Energy Policy Act of 2005 (EPACT) and eliminated the limit on the credit and extended the tax credit until 2016.
Solar Photo Voltaic panels are one of the least cost-effective ways of reducing your use of non-renewable resources, but with the smart utilization of incentives they can be cost effective. We are all subsidizing the cost. This is accomplished by tax credits, state, utility and other rebates, and renewable energy credits or payments. Without net metering to serve as a 100% efficient battery to store excess energy when produced would require too large a system. Even with rebates, tax credits and incentives like tiered electric rates and the ability to sell renewable energy credits it would still make no sense to install a system. Even with all these incentives and net metering there is still a significant cash outlay and most if not all conservation measures have a higher economic return and should be done first. DSIRE, the database for state incentives for renewable energy, allows you to find all the renewable energy and energy conservation incentives for your location. Check it out.