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Are Solar Panels On Your House Worth It?

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Installing Solar PanelsThis summer, on our trip to Lake Tahoe, we spent a night at my father-in-law’s childhood friend’s house. They had a pool that was heated using a series of black tubes put on top of their lattice patio cover. The tubes gave the patio shade from the sun, the sun heated the tubes, and the water inside the tubes went into the pool to give it a nice bath water temperature. The all powerful sun was used to heat the pool in a most novel of ways (only to me, I’m sure plenty of pools are heated this way, especially in California).

That made me wonder about solar panels and I quickly learned that they were expensive, a pain to keep clean (and maintain their efficiency), and generally more hassle than they were worth. I’m more of a long term planner than a short term one, I’m OK with it taking several years to pay off, so I wanted to calculate how long it would take to pay off the panels.

Solar Breakeven

The math is simple – take the cost of the panels and their installation and subtract any government grants or subsidies (taxes included), that’s how much fixed costs you need to overcome. Now calculate how much energy you anticipate you’ll get out of the panel over the year and divide by the cost of electricity in your area, that’ll give you the “profitability” of your panels. Finally, divide fixed costs by annual profits and you have the number of years you’ll need to break even.

The big question mark in all of this is in how much energy you expect the panel to generate. Fortunately, all it takes is a quick look at the solar calculator, created by solar power advocates and the Department of Energy, to realize that you probably won’t save any money with solar. Like a Prius, it’s an emotionally motivated decision, not a financial one.

I put in my specs and my breakeven point is 24.80 years. I’m a long term planner but nearly 25 years is way too long to recoup an investment of this size (just to breakeven!) and by then new technology will have made my panels badly obsolete. It’s like when today’s more powerful satellites pass those launched twenty years ago in the depths of space.

Solar Water Panels

Another options is to install solar water panels, which are similar to the black tubes used to heat my father-in-law’s friend’s pool. They’re sometimes called solar thermal panels or solar water heaters but they’re usually cheaper to install because the technology is more basic (no electrical connections), but it’s not something we’ve looked into.

Have you considered installing solar panels? What about the ones that just heat water (rather than generate electricity)? It appears to be all the rage in the UK where more generous benefits are provided to those who install them.

(Photo: waynenf)

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39 Responses to “Are Solar Panels On Your House Worth It?”

  1. Meoip says:

    In some states there are incentives that make them worth while. You may even be able to find a company to lease your roof and install panels on it so they can sell you and the power company electricity. Mostly they deal with non-profits but some do residential.

    • cubiclegeoff says:

      Same thoughts as Meoip. I think California and New Jersey have the most incentives, and it makes a huge difference. Although, California also has significantly more sun in most areas, so it really pays off.

      Also, there are companies now that will install and maintain the solar panels, I think usually for 20 years, you pay a little up front (like $1,000) and then pay a monthly lease. At the end of the term, they take them down at no cost to you, or you can buy them.

      Two other things, one is that if you sell your house, they generally add value. Second, this assumes that your electricity rates probably stay the same or go up some small percentage per year. Some would argue that this is unlikely, and bigger increases are more likely as developing countries use more coal, natural gas and oil.

      However, an emotional response is more likely to get someone to get the panels, whether it be for environmental reasons, hating large corporations, or having personal control over your electricity.

  2. lsward says:

    Yes, I looked into it. We have used smaller solar panels on our camper to help keep the batteries topped off and I got interested in something for the house. After a lot or research I decided it was not worth the money for the benefits we would get.

    On the other hand I may still do a small solar station for just a few lights in the house because I want to rather than because it would save me any money.

  3. live green says:

    So many people thinking they are doing the right thing by installing solar panels in their houses. Even Al Gore did it, so it must be the green thing to do.

    It’s great that you showed the breakdown in savings and that it might not make sense for many people to have solar panels on their homes at this time. Technology will improve and it will make sense to get solar panels, but that has not yet happened. There are still other ways besides just solar panels.

    RECs are available, even though the renewable energy is not directly used for your home. There are also other alternatives such as geothermal water heaters, small wind turbines and even homes that require no energy at all:
    http://www.treehugger.com/files/2007/06/enertia_house.php

  4. Sheila says:

    We haven’t looked into solar panels, though we’d like to build our next home and integrate them in from the start.

    I was at Costco yesterday and noticed that they were selling solar powered attic fans. Do you know of anyone who has tried those. I’ve heard an attic fan can really help reduce cooling costs in the summer.

    • Vzak says:

      I have 3 of them and love them! 1 in the uninsulated garage and one in each attic. (we have cathedral cielings thru the center of home and 2 attics.). Thaey have reduced my a/c usage about 25%.

  5. James says:

    More info, if anyone is interested: http://homepower.com/home/

  6. tbork84 says:

    Solar just isn’t there yet in terms of profitability on any scale. There are some new methods and technology being developed, but its still not really commercially viable. A good rule of thumb: if there isn’t someone already making money hand over foot doing it on a large scale, it won’t work out on a small scale.

  7. Andrew says:

    I built my Florida home in 2007 with solar in mind – there are about 2000 sq ft of uninterrupted metal roof facing the south side where solar panels would be most efficient. I got a quote to do the installation and they quoted me based on me tapping a home equity line of credit for funding. In their payback figures was no mention of the cost to pay back the HELOC. It was still going to cost me several thousand dollars up front and the installer had only 2 installations prior to mine so I decided not to install. Since then there is no equity in my home and the incentives are not enough for me to make the commitment.

    You need to do a lot of research on the feasibility of solar before you make the commitment. Don’t only listen to the installer; they manipulate the numbers to sell their product and they pass over the negatives.

  8. cdiver says:

    Even if they are 10 times better than my solar garden lights, count me out.

  9. I’ll chime in with everyone else. I would like to do solar energy at my home. However, the technology is just not viable right now. And it’s very difficult to justify the cost of the system.

    In Louisiana, the feds give you 30% back (over some stretched out length of time) and the state gives you back 50%.

    I’ve run the numbers. Even with essentially an 80% discount, the ROI is about 14 years. If I was building a new house and could get the solar energy included in my mortgage, that’s one thing. But paying out of pocket now and waiting 14 years for it to make sense, that’s much hard to do.

    • billsnider says:

      In some states the incentives are even higher.

      My neighbor did it recently. I told him I paid for it. It was my tax money that went to the company and him to pay for it.

      Doesn’t seem fair.

      Bill Snider

  10. Mike says:

    I’d like to know the return when it comes to resale of the house (how much does it increase property value)?

    I’d put them on if I could because I have enough room to produce excess and sell it back to the power company; thus reducing my payback time.

    I do plan to put in a solar-powered attic fan!

  11. daenyll says:

    I’ve been more interested in small wind generation. I don’t actually own property at this time, but my father’s house would seemingly be a good candidate. The initial costs are lower, and wind or water energy have been used much longer than solar. I’m still waiting on efficiency and technology improvements on the solar power front before doing any real research into this alternative.

  12. Michael says:

    I am always confounded by the logic and choice of words used to describe the economics of solar – be it PV panels for electricity or thermal panels for hot water. The average annual return on investment (ROI) is generally significantly higher with hot water.

    “Years to payback” (YTP) is the “half-empty glass” view of the economics. I prefer the “half-full glass” assessment. YTP can always be expressed as average annual ROI. Fourteen years is 7.1%. Twelve years is 8.3%. Ten years is 10%. Eight is 12.5%, etc. While these ROI’s do not account for compounding (of, perhaps a loan balance for up-front costs) or for the increase in rates being offset by the solar installation, an 8 year YTP is a 12.5% ROI which is a better ROI than anything else out there.

    People say it’s not “efficient”. “Efficient is a matter of degree. Tbork’s word is “profitability”, Live green: “make sense”, Meiop: “worth while”. All are subjective, a matter of degree, and should be translated to average annual ROI. One must choose the half-full-glass approach, realize that you are installing a money-making machine on your roof, acknowledge the past and future rate increases, and do (all) the math.

    • cubiclegeoff says:

      Great explanation. Also, to include in all the costs, if I believe they also protect your roof better, increasing the lifespan of your roof, which can be a costly repair.

  13. Michael says:

    I would welcome any further thoughts on the economics; especially those which delve into the ramifications of compounding, inflation, the history of rate increases, and the future of rate increases.

  14. freeby50 says:

    I looked at solar a couple times. Our state has pretty generous incentives plus don’t forget right now federal tax credits cover 30% of the cost. Best case for me was a smaller 1-2kW installation which would have about a 10 year payback period. So its not a horrible deal given all our incentives, but not really great payback.

    For me there are better ways to invest in energy savings. For one a heat pump would have a lot better payback.

  15. zapeta says:

    I think they can be worth it depending on the amount of sun you get and the amount of tax breaks available. I’m definitely interested in the solar hot water heater but I haven’t looked in to it.

  16. Phyllis says:

    For me it’s not really about saving MONEY. I’m definitely for the CHEAPEST energy (and everything else, too!), BUT, the real issue is using an alternative energy source instead of fossil fuel. For me, if the cost is the same, or even just a LITTLE more,I’d rather do the solar, wind or whatever else, because it provides an alternative to the use of the disappearing fossil fuel. I think we need to travel much farther along that path, and a lot FASTER than we are already doing. As long as it is not a worse application/use of the energy, then I’m all for the ALTERNATIVE, if possible.

  17. Eli says:

    There are several factors that aren’t considered in most financial payback calculations for solar. Investing in solar provides two hedges that have definite value. One obvious hedge is against rising utility costs. The payback period can change dramatically depending on the rate increase assumptions. Another hedge or benefit is against power outages, natural emergencies, etc. The value of this is debatable, but losing air in the summer or heat in the winter can have big impacts.

    I don’t own a house or have solar, but I know folks that do and they have an added peace of mind because they don’t worry about rising costs or outages. They also end up paying more attention to energy usage and save more due to the psychology of wanting to go off-grid.

  18. bub says:

    These things are pretty expensive. I live in upstate New York and there have been a few reports over the years of robbers climbing on roof tops and steeling the panels when the owners are not home.

  19. FlyFisher says:

    Interesting concept that I am excited about for the future. As people have said, the economic payback of such a decision is not worth it for a LONG time. These technologies will improve and it shouldn’t be too long until it is viable in some instances.

  20. Bryan says:

    Eli: Do solar panels really protect you against power outages? The way my friend explained it to me (he just invested 75k in solar on his roof) was the power drawn from the panel is shot back to the grid. So its a debit and credit system billing system that keeps track of how much you sent to the grid vs used. No actual storing of electricity on site (battery backup etc…)

    • neerpatel says:

      That is the way it works! You can get a battery system.. but it increases the cost dramatically and they have a higher maintenance cost.

      My neighbor got it a 900kw system. His system generates power during the day and turns his meter back, and then at night it goes forward. At the end of the month, it’s usually back to were it started. Also, he has Green Mountain as his provider, and they pay him market rates for the kw he sends back. So at the end of the month, he gets a paycheck for $100-150.

      *Note, most providers pay a lower rate for the return energy or don’t pay you at all.

      • cubiclegeoff says:

        I knew someone whose family put a pv system on their vacation home that was really only used during the summer months. Since the pv put energy into the grid all winter as well, they pretty much always had a credit to their electric account all year.

  21. Eli says:

    One person I know spent 15k after incentives on a system that meets 75% of the household needs and has battery backups that have worked great through several power outages. The installation is in upstate NY which isn’t well known for sunlight.

  22. The payback period and value is very variable depending on the cost to you. We are in Perth, Australia and paid $8000 for a 1.5kw system that produces an average of 6-10 units (kwh) per day so far (autumn, winter, spring). We got the more expensive German panels and inverter but some local electricians are advertising a 1.5 kw system for $2000 – both after the government grant. So with our costs and returns it takes 2 to 8 years to pay back and thereafter it is profit. Power is currently almost 20c a unit to buy from the company and we get back 40c a unit from government and company for what we feed back into the grid. I work from home and we put 2 to 3 units back into the grid per day during winter and it is currently around 4-6 units going back in spring.

  23. Long Island NY says:

    I had 4.8 KW system installed on my roof four years ago. The system’s total cost before rebates and tax credits would have been $40K but net cost came out to $12K. My calculated payback period was little over 8 years at then prevailing electric rate. However, electric rates at local utility has gone up by about 20% since and my awareness of electricity has gone up as well. As such, the system was was suppose to cover 90% of my household usage is yielding credit balance annually and I have been using electric space heaters to use up the credit. The utility only pays wholesale rate for excess power so it is in my interest not to have any credit left over.

    Now, my heating bill is down by 50-70% from before these panels were installed and payback period has gone down to 6 years. In two years, I will be at break even and since the panels are warrantied for 25 years, I will get at least 19 more years of free electricity and savings on heating. I would say these panels have been a great investment for me!

  24. too expensive in NJ right now

  25. Macy says:

    I desparely want to “green up” my home in terms of energy consumption. However, we live in central CT and I’m not sure that solar would be worth bothering with, because of our Northly latitude, snow cover in winter, et cetera. I was thinking of geothermal heating instead!


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