Solar Cost Still the Biggest Concern for Homeowners?

For all its inherent energy savings, solar energy is costly. Running at $8-10 per watt, the average 2-kilowatt residential solar system costs up to $20,000 – no small investment for recession-weary homeowners. So one would naturally assume that cost is still the biggest concern for homeowners. Yet strong efforts have been made by the federal government and by several states to ameliorate those concerns. The question is, has it worked?

Here are the incentives and benefits that homeowners have to look forward to:

• The federal government offers homeowners a 30 percent tax credit on the total cost of a home solar system. So for our $20,000 example, that would entail a $6,000 rebate, bringing the end-cost down to $14,000 in one fell swoop.
• Many states offer similar rebates but variations are equally common. In New York, for example, a residential photovoltaic (PV) system enjoys a $3 per watt rebate, equaling another $6,000 for our 2-kW example. Meanwhile, in Missouri, no state level incentive exists. Nonetheless, for the purposes of a best-case argument and due to the general trend in incentive availability, we will use the New York example as our state benchmark, bringing the total cost of our solar electric system down to just $8,000.
• Other incentives for solar systems are sales and property tax exemptions, low-interest loans, grants (although rare), utility rebates and net metering. Grants and loans obviously reduce all up-front costs for homeowners in exchange for deferment and interest paid. The city of Berkeley, California instituted a landmark and very effective lending program that is catching on around the country as well.

All other potential savings aside, a typical 2-kW system would only cost $8,000. That is a 60 percent discount. If you factor in increased home value (often exempt from tax increases) and energy savings, then the solar system starts to look almost free and soon to make money if the net metering rules are just right.

So how can cost still be a big concern for homeowners when half or more of their solar system would be paid for?

The answer lies in how the systems are paid for and rebated. The original $20,000 tab is the up-front cost while the more agreeable $8,000 is the end-cost of the solar system. While in some states – including New York as it turns out – the rebates are paid to the solar installer (who must then pass on the savings to the homeowner), the more common method of rebating comes through at tax time. And the same goes for federal incentives.

That means that most homeowners must come up with most or ALL of that up-front cost on their own, and wait a year or longer before reaping those whopping discounts. A homeowner can study and understand all the potential rebates and incentives available, but that initial price tag is still a valid concern – and the biggest concern to date.

Is it still worth it?

High initial costs, as daunting as they are, are not enough to erase the effectiveness of those incentives and low-end costs. Solar is still a fast-growing market. Although cost is a big concern for homeowners, it’s no reason to quit. Those with the equity can take out a solar loan to pay for the up-front costs, or initially even more effective (as evidenced by the Berkeley model), the local municipality will cover the up-front costs and the homeowner will pay it back over time by way of a voluntary property tax increase.

Local, state, and many federal officials continue to fight hard to bring down the initial cost of residential solar energy systems (solar thermal systems are also eligible for federal and state tax credits). That continued fight itself is proof that cost is still the biggest concern for homeowners, as well as hope that it soon won’t be.

Photo Credits: AMagill & clownfish

Posted on August 24th in Solar Information by Dan.