Solar Panels Buy Now or Wait

The answer to that question depends on where you live, your cost of electricity, the orientation of your roof, and if you have to borrow the money to install the solar panels. However, the economics of solar panels with just the federal tax credit now make sense even in locations like Prince William County Virginia where there are no rebates or other subsidies beyond the federal tax credit. Above is a comparison of the costs and benefits of my solar panels compared to what that system would cost today.

There are several components to the cost and return of a solar system. The first cost is the cost of the system. The market cost of solar panels and installation has been falling for years. When I signed the contract to purchase my roof mounted solar system in 2009 (though it was not installed until May 2010) the cost per kilowatt for the Sharp panels I bought was about $6,700 plus permits and installation. These days that cost is about $1,800. I could probably have the same system that cost me $58,540 installed for around $19,000.That reduction in price goes a long way to make solar a reasonable purchase. Back in 2009 I was able to obtain a state rebate of $12,000 which is no longer available in Virginia. I also used the 30% federal tax credit which is still available. The net cost of the solar system in 2010 after rebates and tax credits was $32,578 today it would be about $13,300 for the same 7.36 kilowatt system.

To calculate the return on a solar photovoltaic system you need to know how much power the solar panels actually make. Now this is really weird, but with three years of data my solar panels make more power than predicted by the PV Watts model and the maximum output exceeds their rated power production. Instead of the expected 9 megawatts of power each year my solar panels have produced an average of 10.8 megawatts each year. This “bonus” was a pleasant surprise. I do not know whether it is due to having a steep angle roof that faces dead-on south over-looking a 3 acre open field or if the sharp solar panels are more efficient than rated. The dry weather in the past year might also have contributed to the higher than anticipated power production. Nonetheless, my solar panels make more electricity than predicted and that production rate would translate into a 9% return on investment (before depreciation) for solar panels bought today. It is not a spectacular return, but respectable and would justify installing solar panels and helping to reduce the summer peak demand on the power grid.

Lifetime power produced by my panels

However, with only the power generated by solar panels my return would around 4% before depreciation. To take the risk of buying and installing the solar photovoltaic system a chance for additional return on my investment was necessary. Solar Renewable Energy Certificates or SREC are another incentive that was available to me in 2010, but is no longer available for Virginia residents.

A SREC is a credit for each megawatt hours of electricity that is produced (and used by me). SRECs have value only because some states have solar set asides from their Renewable Portfolio Standards, RPS, which require that a portion of energy produced by a utility be produced by renewable power. Utilities in those states buy SRECs from solar installation producers. It is a way for states to ensure that the upfront cost of solar power is recovered from utility companies (and ultimately from the rate paying consumers). Most states at this point require their utilities to buy SRECs only from residents of their own states creating a closed market where the prices typically start off high until supply responds to that price. Other states, like Virginia, have no current solar RPS requirement and their RPS is voluntary. There are a couple of states, like Pennsylvania allow their utilities to buy their RPS from any resident within the PJM regional transmission organization. The Pennsylvania SREC price collapsed in early 2011 due essentially to oversupply and a method of calculating the penalty fee, the Solar Alternative Compliance Payment, SACP. It is to be noted that my electricity provider, NOVEC, would buy my SRECs for $15 each which is exactly what they pay for other forms of renewable energy they buy.

Within the PJM, a regional electricity transmission organization in 13 eastern states and the District of Columbia, I can sell my SRECs to utilities in Pennsylvania and Washington, DC (because I registered my system before the market was closed to outside systems). I had my solar system certified by both Pennsylvania and Washington though at the time only Pennsylvania was a viable SREC market. Today the Pennsylvania market has collapsed and in Washington DC my SRECs are worth around $400 for the moment. It will not last, all SREC markets get overbuilt in response to a high SREC value, but Washington DC has significant land constraints limiting large commercial solar arrays. So the SREC market may remain viable for a couple of years, I hope so, but I am not depending on it.

I had the choice to sell my solar renewable energy credits by estimate on the spot market or I can shop for a long-term SREC contract. The discount for a long term contract is huge and I refused to allow the company to put a lean on my house. A second option was a “guaranteed” price contract. In that case the fine print indicates that if the market collapses I might not have a viable guarantor of the payments. I would be giving up the upside without a true guarantee of price. The value of SRECs will go up and down depending on the supply and demand as determined by the number of solar installations, states requiring RPS, and states allowing sale within the PJM regional transmission organizations. RPS requirements are currently set to increase over time, but regulations and markets change. SRECs in Pennsylvania have ranged from $200-$300 per megawatt hour in 2010 and then collapsed and fell to $13 as the market remained open and became hugely overbuilt. Washington DC is currently undersupplied to meet the mandate so the SRECS have passed $400 each. The market will respond (I only hope not too quickly or too much). There was a time that New Jersey SRECS topped $670, they fell to $65 and are currently $140.

So while it lasts, the revenue from the sale of SRECs is higher than the value of the electricity the solar panels make. Today’s pricing make the return on investment in a solar photovoltaic system simpler to calculate here in Prince William County. There are other locations where various rebates and incentives and higher electricity rates make the return rich enough to support a market in financing alternatives, but it takes time and some level of expertise to optimize the solar incentives markets. Also, the incentives need to be paid for with either tax dollars (Department of Energy loan guarantees, grants and other incentives) or higher electricity rates- the renewable energy to fulfill the RPS and solar carve outs costs more than energy produced from other sources and results in higher electricity rates.