The Economics of Solar

The Economics of Solar

  • Solar electric panels being installed at lead carpenter Jeff Johnsons' house

By Rachel White

Thanks to improvements in technology, reductions in cost, and new financing options, the market for small-scale solar electric systems (solar pv, or photovoltaics) is booming in Massachusetts. The favorable market conditions have significantly increased the number of projects into which we are incorporating solar pv. Indeed, many if not most of the installations we've worked on in the past year probably wouldn't have made financial sense just 2-3 years ago.

The market expansion has also enabled several members of the Byggmeister team, including company owner Paul Eldrenkamp, to install pv at our own homes. Paul's experience is emblematic of the shift in the market. Over the past ten years, Paul solicited proposals for pv for his home several times, but until this year "none of the companies were very enthusiastic. The economics of the project just weren't right."

Massachusetts state policies favorable to solar have been key to the market shift. In 2010 the state set up a market-based incentive program to support the development of solar systems. Under this program generators of solar power can sell "the positive environmental attributes" of their generation as solar renewable energy certificates (SRECs). Utilities purchase these certificates in order to meet the regulatory requirements of the state's renewable energy portfolio standard, which mandate that a certain portion of the state's power supply come from renewable sources, including solar.

But even with the SREC market up and running, Paul initially wasn't able to interest any companies in installing pv at his house. In his case what made the difference was the Massachusetts Clean Energy Center Solarize Mass program. Rolled out in 2012, Solarize Mass works with solar companies to offer discount pricing for volume, and with municipalities to sign up enough residents and small businesses to take advantage of the discounts. Paul believes that Solarize Mass "created a critical mass of installations such that it finally made financial sense" for an installer to work with him. 

Even under such favorable market conditions, not every home is a good candidate for solar. If you don't have decent southern exposure, either because of your roof's orientation and geometry, or because of shading from trees or adjacent buildings, then the economics still may not make sense. Production manager Cador Pricejones explains that in order to qualify for state incentives, including SRECs, you need to have "at least 80% annual solar access."

How do you know if you meet this criteria? According to Paul it's possible to "get an intuitive sense just by looking at your house in Google satellite view." But it's just as easy (and free) to call up a couple of solar companies and ask for proposals. Paul recommends that you select companies the same way you would for any other home improvement project: ask for referrals from people you trust, including (and hopefully) us.

Assuming your house is a good candidate for solar, you'll need to decide whether to buy the system yourself or finance it through a lease or power purchase agreement (PPA). If you have the cash and plan to stay in your house longer than it takes for the system to pay for itself, then purchasing the system could make good financial sense. This is what Paul did: with rebates, tax credits and income from the sale of SRECs, he expects his system to pay for itself in 6-7 years.

If these "ifs" don't apply to you, then financing may make better sense. Lead carpenter Jeff Johnson recently installed solar on his house through a lease with "no upfront costs and a monthly lease payment that is always less than my lowest electricity bill." As a lessee he isn't eligible to receive rebates, tax credits and SRECs for his system; these accrue to the company he leases the equipment from. But he says that the money he saves "as well as the green energy, amount to a healthy 'profit.'"

How much you save under a lease or PPA depends on several factors, including the structure of your financing arrangements. Jeff advises anyone who is considering financing to "make sure you know who owns the power, and what the fees are. Do the math yourself, know your energy costs." 

Whether your purchase or finance your system, you can't be completely certain about your actual savings and ROI. No one knows for sure how fast electricity rates will rise (though Massachusetts regulators predict a large increase for next year) or whether the installed price of solar systems will continue to drop—even your usage may change in ways you can't anticipate. But even with these unknowns, solar looks like a very good investment for anyone whose house meets the eligibility criteria for financial incentives. 

You can learn more about the economics of solarat the Mass Clean Energy Center website.