The Costs and Savings from Energy Efficiency Projects for the Home

Last Monday in the Wall Street Journal was an article “The Economics of Installing Solar Power.” They had a lovely chart with costs and returns that had virtually nothing resembling the actual costs and savings of my solar photovoltaic system. Though the costs of solar panels have gone down considerably since I purchased my system, and I discovered that solar panel installation costs less in San Francisco than Virginia and I assume cost less in urban centers than in rural areas. Nonetheless, the chart in the Wall Street Journal made me feel terrible, the cost of the fictional solar systems in the Wall Street Journal were all $5,500 a Kilowatt (KWh). Nonetheless, payback period is entirely dependent on the cost of electricity, rebates and incentives. Depending on how I continue to play the incentive game, my payback period could potentially fall in line with the fictional systems in the Wall Street Journal.

Right now (and for the past few years) electricity costs me $0.115 a Kilowatt. No matter how you look at it solar power costs more than the eleven and a half cents a kilowatt that NOVEC (Northern Virginia Electric Cooperative) is charging for residential power. The payback without tax credits and rebates would exceed the life of the system regardless of how good or bad a deal I got. In addition, my solar photovoltaic system cost way more on a per Kilowatt basis than the system cost they used. Prices have really come down on solar panels, but I do wonder if their costs include permits, plans and engineering, as well as the costs to change the electric panels and repair and seal the walls. The Wall Street Journal priced solar at $5,500 per KWh. The 5 KWh systems in the Journal have a listed cost of $27,500 while my installed cost was $58,540 for 7.36 KWh DC. Sizing their system up to my system size proportionally would be a cost of $40,480, but my cost included $1,500 for permits, plans and engineering. Nonetheless, you could probably install the same system today (even on the edge of nowhere) for $15,000- $18,000 less so even without the state of Virginia rebate the first year cost would be the less than my cost. 

My lifetime to date energy production

The actual cost of a solar photovoltaic system is really based on rebates, tax incentives and utility subsidies. Virginia no longer has rebates available and does not have any utility subsidies or solar renewable energy requirement, but I managed to snag a rebate when they were available and register my system in Washington DC before their market rules changed. My system was grandfathered when the market was closed. The Solar Renewable Energy Credits or SRECs are worth about $290 each right now (though I have sold them for between $95 and $350). Each SREC is a credit for each megawatt of electricity that is produced and used by me. SRECs have value only because some states have Renewable Portfolio Standards, RPS, which require that a portion of energy produced by a utility be produced by renewable solar power. Utilities in some states can fulfill that requirement by buying SRECs from solar installation owners and utilities in Washington DC are buying mine. As long as the market is not oversupplied (as is Pennsylvania) and there is a financial penalty for not meeting the solar carve out, then I can make more money selling SRECs than I save on the power I produce. With any luck I will be able to sell enough SRECs to get my payback period into the 10-15 year range. Energy savings from solar power are the most expensive no matter how you look at it.

A significantly shorter payback was from upgrading my heat exchanger. This past July I replaced my air heat pump with a new efficient system, replaced the ducting system in my attic and installed an attic fan and gable vent. The result is improved comfort and a $77 a month reduction in my electric bill during the summer cooling season and I assume an equivalent reduction in the winter bill. However, there are generally 3-4 months a year that I do not run the heating or cooling system so my annual savings will be closer to $600-$700 a year. That is about half the savings from my solar panels at fraction of the cost and I get a cooler, more comfortable home.

Though I had always assumed that when the time came I would replace my heat pump with a geothermal heat pump, that’s not what I ended up doing. After considerable research and getting several estimates I replaced my air heat pump with another air heat pump, a more efficient one, and re-ducting the attic to create a more efficient and effective system. The costs of installing a geothermal system in my existing home far exceeded the benefits. Based on the estimates I received the cost to reconfigure my finished basement ($5,000-$10,000) and install either a vertical coil or standing column well ($12,000-$18,000) on top of the cost of the heat pump and upgraded ducting combined with technical difficulties (a daylight basement and fractured rock system with no overburden), and the potential I might impact the drinking water aquifer or damage my garden ended my plans to retrofit a geothermal unit into my existing home. Instead I installed a more efficient and powerful heat pump, redesigned the ducts in my attic, and installed an attic fan. The result was heaven- a master bedroom that could hold 71 degrees at the heat of the day on a 100 degree day and the bedroom over the garage that in the past always was 10 degrees hotter than the master bedroom in summer and 10 degrees colder in winter was within 1 degree of the master bedroom and my electric bill fell by more than $77 for the month of July. (The decrease was about the same year to year or June to July.)

First of all my air heat pump like most is a split heat-pump systems consisting of two parts: an indoor (blower) unit and an outdoor (condensing) unit. Both units are designed to work together. Air Heat-pump systems manufactured today, by law, must have a seasonal energy efficiency ratio (SEER) of 13 or higher. Seasonal Energy Efficiency Rating (SEER) or Heating Seasonal Performance Factor (HSPF) for heat pump systems are the efficiency ratings on heat pumps, the higher the SEER/HSPF, the more efficient the equipment. The SEER is measured in average Btu output over the season divided by the watt hours and is the standard measure of energy use efficiency. Generally, the higher the SEER/HSPF of a unit, the higher the initial cost and lower the operating cost.

My old heat pump was a 3.5 ton with a SEER of 12 and a HSPF less than 8. Once the temperature reached 90 degrees in Virginia the heat pump ran continuously and could not keep the master bedroom or the bedroom over the garage cool. The master bedroom struggled to stay below 78 degrees and the bedroom over the garage was always 10 degrees warmer despite additional insulation. The old system was only 8 years old when the coil failed, but replacing the coil ($2,500) seemed like throwing good money after bad. We decided to do it right. After getting several bids and weighing my options, I had Randy Hayes and his boys (Hayes Heating and Air Conditioning) install a 4 ton Carrier Infinity 19 seer heat pump model #25HNB948, its matched multiple speed air handler and a programmable thermostat. The high efficiency two-stage heat pump allows me to oversize the unit slightly so that it can handle the hottest days without sacrificing optimal performance on more temperate days so the old rule that if a system is oversized, the system will cycle on and off too frequently, greatly reducing its ability to control humidity and its efficiency is no longer strictly true. I rounded up from base line Manual J to get the 4 ton.

In addition we (Randy and his boys) removed the old sagging flexible ducts and installed two new galvanized steel trunk lines (one to each side of the house) with 3 inch reflective duct wrap and tied the new flex lines into the existing vent boots with as little sag as possible (thanks to Randy’s middle son) using silver flexible ducts insulated with R-8. We minimized the amount of flexible ducting in the attic using as much galvanized ducting as was feasible (at an additional cost of $3,000, but the galvanized portion of the ducting will last longer and in all real world tests gives better air flow). Flexible ducts consist of three layers an inner core of a metal helix encased in a foil film, an insulation layer and the outer vapor barrier jacket. While fully extended properly installed flexible duct can be as good at maintaining air pressure as a galvanized steel duct, performance deteriorates as the ducts sag.

In the real world there is some degree of sag even in good installations and it tends to increase over time. In poor installations (like mine was) there were sharp bends and excess lengths snaked all over the attic in a daisy chain of connection using fiberglass plenums. This caused the inner layer of the flexible duct to crumple (it is a soft spring) and the helix pop out. Instead of smooth circular tube the flexible duct turned into a bumpy pathway for the air that caused turbulent flow and very significant pressure drop from the beginning to the end of the duct. In my case, there was almost no air flow in the bedroom over the garage (the room furthest from the air blower). The reason the drop was so great is that the ducts operate at very low pressure and small resistance due to friction can have a very big impact on flow. The old ducts were also R-6 insulation and black collecting more heat. Now I have conditioned air flowing into the bedroom over the garage and you can feel the cool air come out of the duct.

Finally to help the whole system work well, we added another gable vent (on the south facing gable) and a temperature controlled attic fan in the east gable. The result was that fabulous feeling of luxury (during the test period) of lying in bed in the middle of the day on a 100 degree Sunday and pulling the covers up because it’s cold. After a week of freezing out the bedroom at all times of the day and night, we settled back at a more reasonable temperature, but still reduced our energy use by about 670 KWh for the month. Total cost $16,300 for everything-heat pump, ducting, attic fan, installation, removal of the old equipment and cleanup. Part of the cost was simply to have heating and air conditioning, part for improved comfort and the rest for energy savings.

So, I did not get a geothermal heat pump, but I am more than satisfied with the cost savings and comfort improvement of my new air heat pump over the old one. The geology of my property was not ideally suited for a horizontal coil, too many rocks. The water table is shallow (under a hundred feet). My septic field and 56 new trees were in the way of the drill rig needed for a vertical loop or standing column well, and the location of my ducting and blower were not easily accessible to a new well without digging up the driveway, patios and/or garage or moving all the utilities in the house. For another house geothermal could be an easier or better solution. I had not thought through the requirements of geothermal when I purchased the house and finished the entire basement.

Finally, the first energy project I did and you should too, was to seal and insulate the house. Heating and cooling account for 50% to 70% of the energy used in the average American home. Inadequate insulation and air leakage through ducts, walls and roofs are the major sources of wasted energy in most homes (see upgrading my ducting above). Though, my house was built in 2004 the insulation and thermal properties were not optimal. I turned to the Building Envelop Research of the Oak Ridge National Laboratory for guidance. The Oak Ridge National Laboratory performs their Building Envelop Research for the US Department of Energy, DOE, and publishes their guidance in their “Insulation Fact Sheet,” which is available on the blog home page and through this link. Insulation and sealing was the most cost effective project I had done. Despite having it professionally done the payback was under 4 years in straight energy savings.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

Solar Power Incentives In San Francisco- Making the System Work for You

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.

Fleeting Solar Incentives and Regional Markets

The government has determined that solar, wind and geothermal sources of renewable energy are to be encouraged. Tax incentives, cash incentives and rebates targeted at end users were created to encourage the adoption of renewable energy projects including solar panels. These incentives change from location to location and from year to year making the decision to invest in solar photovoltaic system very complex and potentially risky. The renewable energy credit that I obtained in Virgina to help offset the cost of my solar photovoltaic installation has been exhausted and there are no current expectations to continue to fund the program in Virginia. However, I have discovered as I look at programs in other locations that the state rebate in Virginia at $2,000 per kilowatt PTC was quite generous.

Over the past few months I have watched the price for SRECs (solar renewable energy credits) fall each month in Pennsylvania where I have been selling my SREC. If you recall, SRECs are not physical entities, but merely a credit for having made power (I used all the power produced by the panels in my own home). Because SRECs are not physical items their value depends entirely on regulation which can change over time and that is the inherent risk in making financial decisions based on regulations. There was always a risk that SRECs could become worthless at any time if regulations change. Of course they could become worth more. Meanwhile, I will continue selling SRECs on the spot market. I continue to observe the market and it appears to be due to changes in regulation.

Utilities in the state buy SRECs from solar installation producers to meet their mandated Renewable Portfolio Standard, RPS. 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). Some states, like New Jersey and Maryland, require their utilities to buy SRECs only from residents of their states creating a closed market where the price is kept high. Other states, like Virginia, have no current RPS requirement. Still other states, like Pennsylvania allow their utilities to buy their RPS from any resident within the PJM regional transmission organization. The power in the grid is purchased and sold on a regional basis, so I suppose there is some logic to a regional SREC market, but it may not be in the best interests of state residents. There is a virtual market place where nothing is sold by virtual companies. Only accounting entries change hands in this market.

The SREC programs in the eastern states of Pennsylvania, Maryland, Delaware and New Jersey, have been one of the catalysts for solar development because they increase the return on investment in a solar photovoltaic systems in their markets. When Maryland, Delaware and New Jersey recently updated their SREC laws to increase the requirements and raise the fines, the price in their closed markets went up. However, that change coincides with the falling SREC price that I have received. In addition, Pennsylvania has been examining closing its SREC sales to out of state installations.

When the original PA SREC program was created in 2004, the law included SRECs from out-of-state facilities. A recent PA bill to increase RPS failed, but it would have excluded all out-of-state facilities that have already been built and certified by the Pennsylvania AEPS Program to sell SRECs in the state’s market. These are existing solar facilities like mine that have been selling SRECs for the Pennsylvania market, and could be shut out of the SREC market in the future. This may actually be a good thing for the PA SREC market, but has the potential to significantly reduce the return from my solar photovoltaic installation. This; however, was always the risk with financial incentives based on regulations and laws in other states. This was a risk I accepted and must now live with.

The legislation creating SRECs and RPS in various markets is always in flux. In the District of Columbia, the RPS market has requirements of about 8 megawatts of installations at the current time, but there are over 27 megawatts of solar photovoltaic systems currently registered and certified in DC that are eligible for the DC SREC market. Only 1.1 MW of the 27 MW are actually located within the District. This situation creates the dynamics to limit access to the market in the future.

California has a series of solar financial incentives that are location specific and very different from the eastern markets. I will be looking the various incentives and costs associated with a residential solar project in San Francisco in the coming days. California does not have a SREC or as they call it a Tradable Renewable Energy Credits (TRECs) market to meet California’s RPS. Though there are stiff RPS in California utilities have not been allowed to buy TRECs to comply with RPS. In addition, the CA PUC has maintained cap on TREC volume and price preventing the development of a TREC market in the state..