Increasing Your Home's Value!

Homes with solar electric systems have lower monthly operating costs, making them more desirable to prospective buyers. According to the October 1999 issue of the Appraisal Journal, every dollar saved in annual utility costs increases a home's value by $20. (1999 Appraisal Journal, "More Evaluation of Rational Market Values for Home Energy Efficiency.pdf).

A 3 kW photovoltaic system will save the average PG&E electric user about $1,200 per year in electric expenses. Theoretically this makes such a home worth $24,000 more ($1,200 X 20 = $24,000). The installation cost after rebates and tax credits is about $21,000* for a 3 kW system, which means the homeowner has instantly realized a $3,000 gain from this investment. Currently, there is not enough market data to back up this theory, as most of the grid-tied solar electric systems were installed after the electricity crisis in 2001, and there has not been enough market turnover of these homes to provide needed data of comparable home sales. Solar homeowners tend to stay in their homes longer than average and may be reluctant to sell, since they expect to save money as electric rates rise.

Thus when its time to sell, the solar home may command a price premium higher than the initial solar investment (compared to a similar home without solar), and in the mean time the electric bill was offset, yielding an effective income stream and providing a valuable investment for the owner. The value added to the property will depend on when the home is sold relative to the value of electricity at that time, the current performance (the main concern here is shade profile on the array, as annual solar module degradation is a small 1/4 of a percent per year or so) and remaining estimated useful life of the system. For instance homes sold several years after a photovoltaic system is installed should tend to command a high resale premium relative to the system investment, compared to homes sold near the end of a system's useful life (estimated to be about 35 years) due to these kinds of factors.

*solar rebates in California are required to decline on average 7% per year according the the newly approved California Solar Initiative that has a 10 year incentive program to promote solar energy. Thus these after rebate system investment amounts will vary due to current incentives and solar module prices that are set by the market and silicon availability.

The California Solar Initiative subsidizes the initial cost of grid-tied solar electric systems by providing rebates. California's highly successful solar rebate program has resulted in over 30,000 grid tied PV systems being installed in California over the past several years. This rebate is funded by a public goods charge, which appears on the utility bill for participating utilities and is administered by PG&E or the California Energy Commission depending on program qualification requirements. This rebate money pays for about a quarter of the cost of a grid-tied photovoltaic system. As of May 1, 2008 the rebate for grid tied PV systems under 100kW is slightly less than $1,900 per kW AC, depending on design factors that consider estimated system performance issues such as tilt, shading, orientation and regional solar irradiance levels. The rebate will drop periodically as megawatt triggers are reached. Check out the current rebate levels and scheduled future rebate levels on the PG&E Trigger tracker page (http://www.csi-trigger.com) Rebates are reserved on a first come first served basis. Horizon Energy Systems accepts this rebate as partial payment towards the up front system cost. It is required that a permit be obtained, the utility notified and an interconnection agreement between the utility and the customer must be signed to qualify for the rebate. For large PV systems over 100kW in size there is a performance based incentive program that pays the owner monthly based on actual kWh solar generation.

Income producing businesses can claim a 30% federal tax credit, as well as depreciating a solar system investment over an accelerated 5 year time period. These two benefits roughly halve the payback period for businesses when compared to residential solar electric systems. (Refer to Business Case Study and Federal Tax Credit form).

In August 2005 the Energy Policy Act of 2005 was signed into law. This created a new 30% Federal tax credit for solar electric and solar hot water systems "placed in service" between 1/1/2006 & 12/31/2008 (capped at $2,000 for residential systems, with no dollar amount cap for commercial solar systems, except the tax credit can only be carried over for 2 years for commercial applications. (Refer to Solar Energy Industry Associations fact sheet about Solar Federal Tax Credits).

For residential PG&E customers who choose a time-of-use meter (using the E-6 rate schedule) the credits banked during summer on-peak periods (1PM through 7 PM) are more than 3 times greater than off-peak rates paid for electricity at night. The PG&E residential E-6 rate schedule has a partial peak period (10 AM till 1 PM and 7 PM till 9 PM during week days with another partial peak period from 5 PM till 8 PM on Saturdays during the summer period). The concept of adding a partial peak period is to better reflect the cost to the utility to generate power at various times of the day when demand is highest. The summer period is May 1 through October 31. During the sunniest times of the year, when a PV system is generating the most energy, the value of this energy in terms of retail price credits is much higher using a time-of-use electric rate schedule. This is a key reason why PV systems are financially attractive. This enables one to zero out the electric bill by installing a smaller system (about 28% smaller for south facing arrays using the E-6 rate schedule). During the winter billing periods (Nov. 1 through April 30), the on-peak and off-peak electric rates vary slightly with on-peak being about 10% more expensive than off-peak. Since the sun's energy is less during winter (due to clouds, sun angle and shorter days), these less valuable price credits reflect the sun's availability. Ask for a financial analysis that considers your particular energy usage profile, as in some cases it may be better to stay with your existing rate schedule (especially if a solar array is facing east), then to opt for a time-of-use rate schedule.

The idea is to conserve energy during on-peak rate times, so the meter spins backwards as fast as possible and to use energy at off-peak times when it is cheapest. For working families who are away from home during the day, this rate structure is easy to live with and thus maximizes energy credits without the need to change electric use. Those who stay home during the week have a financial incentive to schedule the heaviest electric use during the off-peak periods when it is cheapest.

Grid-tied solar homes draw electricity from the grid as needed at night and push power back onto the grid during the sunny periods of the day. When the meter spins backwards, extra electricity is credited to your account at the retail rate. Solar electricity produced by modern inverters is high quality (true sign wave) since it is produced locally and not subject to distribution shared uses and transmission efficiency losses from transporting energy over long distances. The excess AC electricity is pushed back onto the grid for your neighbors to use during the day when the meter spins backwards.

At the end of each year you will be billed for the electricity used in excess of what is generated (based on the value of this electricity at the time it is used or generated). For systems sized to zero out the electric bill, you will not pay anything to your utility at the end of the annual true-up billing cycle. This contract arrangement between you and your electric company is called a net energy metering interconnection agreement. This billing arrangement is a key reason why it is financially attractive to own a PV system. In California there is a net metering state law that requires utilities to credit one's electric bill at the retail rate for grid connected PV systems. Billing is done annually which means that electric credits accumulated during summer periods of maximum sunshine can be applied to night time and winter electric usage.

All PG&E customers must pay a minimum monthly electric meter charge (which varies between $5 to $8) to be connected to the grid, even if all electricity usage is netted out by a PV system. (Refer to ABC's of Net Metering.pdf).

For homeowners paying more than $95 in monthly electric bills, tax deductible monthly loan payments for financed systems are typically less than the electric bill. The more you pay for electricity, the more you can save each month with solar. A correctly sized system can eliminate or significantly reduce your monthly bill. Higher income households save more money in loan interest income tax deductions than lower income households, since home loan interest is tax deductible. Homeowners who typically save the most money are those in the upper income tax brackets (over $80,000 per year) and those who use the most electricity. Residential billing for PG&E customers is tiered, so electricity used above baseline rates is progressively more costly.

For those who use more than the average amount of electricity, it is usually less expensive to finance a PV system than it is to continue to pay the utility for energy. As electric rates rise, your effective savings increase proportionally and once the system is paid for the future monthly savings in avoided electric costs will be substantial, since electric rates tend to rise over time faster than the consumer price index (i.e. inflation rate). Every situation is unique and there are many factors that need to be considered to determine your cash flow advantages from going solar. Horizon Energy Systems will do a free site analysis, system design estimate and cash flow analysis upon request and you can decide how to proceed. (Refer to Positive Cash Flow).

Financial Tip: it may be financially preferable to pay cash for a system, compared to borrowing money since no interest payments will be made.

Buying vs Renting Electricity

Generating your own power with a PV system is like owning a home compared to renting one. A PV system increases in value over time as the price of electricity rises. Solar homeowners have control over their electric bills and are protected from rate hikes, just as a homeowner is independent from rent increases. PG&E electric rate increases have averaged higher than the general inflation rate over the past 30 years and this trend will likely continue especially as fossil fuels are depleted.

Solar power is Competitive with PG&E Electric Retail Rates

The cost per kWh of a solar electric system when amortized over a 30 year economic lifetime (after factoring in current California financial incentives), is competitive with current PG&E electric rates (refer to PG&E Residential Rates).

How does one calculate the life cycle cost of electricity for a PV system? One way this can easily be computed is by dividing the after rebate cost of a PV system by the number of kilowatt hours (kWh) the system is forecasted to generate during its estimated useful life.

According to the Clean Power Estimator, a PV system on a south facing 20 degree slope will generate 1,700 kWh per rated AC kW each year in Santa Clara County. A residential sized 3 kW solar system can be installed for about $20,500 with California rebate levels of $1,900 per kW and the 2,000 federal income tax credit. A formula to compute the cost per kWh over a 30 year period is:

$20,500 ÷ 3kW X 1,700 kWh per kW per year X 30 years = $0.13 per kWh

Thus over a 30 year period, the cost per kWh of electricity for a 3kW PV system is about $0.12 per kWh. As of January 2007 PG&E baseline rates are about $0.12 per kWh. The rate charged for electricity in the higher usage tiers is much higher. As of May 2008 the top tier, or tier 5, (the category for electricity used at 3+ times the baseline rate), is $0.36 per kWh. Thus solar electric system costs are close to baseline PG&E electric rates and less than electric rates billed to PG&E rate payers using power in the upper rate tiers. Thus the net value of a PV system exceeds its costs for energy avoided above tier 1. A no brainer to save money when considering life cycle investment benefits vs. costs of electricity without solar (Refer to Solar Value.pdf).

Pacific Gas & Electric Residential Electric Rate Schedules

PG&E offers several residential electric rate schedules. A Time-Of-Use (TOU) schedule normally benefits solar customers the most, because electric rates are highest during on-peak periods and this correlates nicely with peak summer sun, also winter rates tend to be low and this also correlates well with lower solar output levels and during the winter more energy is typically used than is generated by a photovoltaic (PV) system. Each of these schedules have tiers that charge more for energy as more energy is used. For solar customers with properly sized PV systems designed to zero out the financial portion of the electric bill, the vast majority of energy is billed or credited at the Tier 1 rate. Here are the most common residential rate schedules in PG&E territory:

E-1   This is the standard rate schedule used by most residential customers who so not have a PV system. This schedule has multiple tiers with various rates. With this schedule the more energy you use the more you pay. This is not a TOU schedule, as electric rates are the same throughout the day and (i.e. rates do not vary depending on what time the energy is used).

E-6   This TOU schedule is currently the rate schedule used by virtually all new residential solar customers as of 1/1/2008. There are on-peak, partial-peak and off-peak periods with this schedule. The on-peak period generates valuable credits at about three times the off-peak period. With the exception of the E-9 schedule this is the only TOU rate schedule that residential PG&E customers can select as of 1/1/2008.

E-7    This TOU schedule has on-peak and off-peak periods. This schedule is closed to new solar customers as of 1/1/2008.

E-8    Residential seasonal rates. This a non-TOU rate schedule and it is closed to new customers.

E-9    Experimental TOU residential rate schedule for low-emission vehicle customers. There are on-peak, partial-peak and off-peak periods with this schedule The off peak rates on this schedule are very low which works well for people charging electric vehicles. The on-peak rates are high as of 5/1/2008 which may also benefits solar customers.

For new solar customers, a rate schedule is chosen in writing on the net energy metering agreement that is submitted to PG&E after the PV system is installed and inspected. PG&E installs a digital meter that records energy flow in both directions. With TOU schedules the electricity rates will vary depending upon the time of day and season when the energy is used or generated.

Here is how to read the E6 electric meter
Here is a PG&E E7 fact sheet on how to read the E7 electric meter.

Here is a residential analog electric meter fact sheet on how to read the old style analog meters.