Let the Sun Shine: A Solar PV Case Study

Last month on a sunny day in Raleigh, North Carolina, Governor Pat McCrory extended the state’s 35 percent renewable energy tax credit for one year, pushing the expiration for projects that meet certain criteria to December 31, 2016 instead of the impending December 31, 2015 deadline.  As solar installers across the state breathed a small sigh of relief, many potential solar investors were left wondering, “What does this really mean to the cost of solar PV for me?” A few months ago, I was asking myself this very same question. Today, I have a beautiful residential solar PV installation on my roof. Here is my story.

Location, Location, Location

Solar PV only makes sense for some homes. Luckily, I own a south-easterly facing house that is relatively unobstructed by trees. Other homes that face a different direction or are largely shaded might not be suitable for solar PV. The U.S. Department of Energy’s National Renewable Energy Laboratory (NREL) has a handy online tool called PV Watts® that allows a homeowner to estimate the performance of a potential PV system. A qualified local solar installer can also give homeowners a free assessment of a home’s solar suitability.

The Size of a System Matters

Due to way that local utilities meter homes with solar installations (see “Net Metering / Time of Use Rates” below), a residential solar PV system in North Carolina is generally sized to base load – the amount of electricity that a household uses for general everyday use. It is not built to match the peak energy usage during the hot summer months or colder months for homes with electric heat.

According to the Energy Information Administration’s Residential Energy Consumption Survey, the average U.S. household consumed 11,320 kilowatt hours (kWh) of electricity in 2009, of which the largest portion (7,526 kWh or 66 percent) was for base load uses – appliances, electronics, lighting, and miscellaneous uses. My base load usage is approximately 7,200 kWh annually or 600 kWh a month. Therefore, my new system was sized at 20 panels for a total 5.4 kW DC capacity to best meet this average demand.

Putting Group Purchasing to Work

The price of solar panels has dropped significantly over the last few years and group purchasing programs like SolarizeNC and Clean Energy for Us have helped to further reduce the price per watt. Today, group purchasing programs can range from an “all-in” per watt price of $3.50 to $4.50 depending upon the number of program participants and the type of panels purchased. My US-manufactured panels were purchased through the Clean Energy for Raleigh program at a cost of $4.00 per watt. The total cost for my system (including web monitoring and a slight surcharge for the pitch of my roof) was $23,005.

The Power of Incentives

There are many financial advantages to investing in solar PV sooner rather than later in North Carolina, including the aforementioned extension of the state’s renewable energy tax credit. My total net investment in solar PV will be substantially reduced by three incentives:

1. Utility Rebate – As a Duke Energy Progress electricity customer, I am eligible for the utility’s Residential SunSense Solar PV rebate program of $250 per kW AC. Note: This rebate is ONLY available to customers in the Duke Energy Progress territory and is not currently available to legacy Duke Energy or other NC utility customers. The rebate program will close when the number of residential installations reaches 1 megawatt AC (as of today, 595 kW in capacity remains available).

2. Federal and State Tax Credits – For homeowners who pay federal and state income taxes, renewable energy tax credits can be used to further reduce the solar PV installation cost. The federal credit is 30 percent of the fully installed cost of the system and can be taken over 2 years. The state tax credit is 35 percent of the fully installed cost of the system and can be spread over five years, but the credit in any one year cannot exceed 50 percent of the state taxes owed. In addition, taxpayers are required to pay federal taxes (approximately 25 percent) on the state tax credit. The federal tax credit is set to expire on 12/31/16. The state tax credit will expire on 12/31/16 for projects under 65 kW that have incurred 80 percent of its costs and completed 80 percent of the construction by 12/31/15. More on tax credits can be found on the Database of State Incentives for Renewables and Efficiency (DSIRE).

Net Metering / Time of Use Rates

Duke Energy and Duke Energy Progress offer residential customers “net metering” for solar electricity. Net metering allows solar PV customers to power their homes with solar electricity when the sun is shining and receive credit at the retail rate for generating more energy than is needed. This credit will offset the utility bill during times when the sun is not shining. The solar PV customer’s utility bill at the end of the month reflects the “net” amount of electricity used, or the difference between the total amount of energy the customer consumed and what the PV system generated. If the system produces more electricity than it uses in a given month, the “net excess generation” is carried forward into the following month. Think of it as “roll over minutes” for solar. Each June, any excess credits are zeroed out, effectively preventing a homeowner from oversizing a residential system.

In addition, as part of the enrollment in the SunSense Solar PV Program, Duke Energy Progress requires time-of-use rates for net metered residential solar PV systems (Schedule R-TOUD). This enables solar owners to gain credit for unused solar electricity production at the retail rate and to buy it back at reduced “off peak” night and weekend rates or at times when the system is not producing at full capacity.

Under my pre-solar rate schedule, I paid the same rate per kWh regardless of when the electricity was actually used. The analysis of my utility bill based on my new time of use rate structure will not be covered in this post, but will be detailed in a future blog post.

Putting it All Together

Here is what my 20 panel, 5.4 kW (DC) solar PV investment will actually cost after all of the tax credits and incentives are taken into account – far less than the original $23,000 purchase price:

Clean Energy for Raleigh Group Purchase Price:	$23,005
Less Rebates and Incentives:
Duke Energy Progress SunSense Rebate	($1,053)
Federal Tax Credit (30%)	($6,902)
State Tax Credit (35%)	($8,052)
Plus: Federal Tax on State Credit	$2,013
NET COST AFTER INCENTIVES	$9,011

I know the question that is on your financially-focused mind. What is my estimated payback period and the net present value of my investment? My system is conservatively projected to generate, on average, 5,653 kWh of electricity each year. Using an average cost of $0.13 per kWh (accounting for time of use rates and a renewable energy certificate (REC) incentive), this equates to annual utility bill savings of $735. Assuming electricity rates will increase by 2 percent annually, my estimated payback is roughly 10 years with a 20 year Net Present Value of $4,406.

Of course, this number is highly dependent on the number of sunny days during the year and my family’s energy use behavior. For example, NREL’s PVWatts Calculator estimates my production at 7,646 kWh per year which substantially changes the payback and NPV numbers calculated above. In addition, I charge an electric vehicle at night (off peak), which is now 50 percent cheaper to charge due to time of use rates. My system has been up and running for less than a month and as of today, I have produced 640 kWh of electricity, putting me on track for production closer to the 7,600 kWh annual estimate. As I start to see the actual electricity generated from the system, I will be able to better estimate its annual production.

Investing in solar PV is obviously a personal decision. Some may choose to invest for strictly environmental reasons, others for more financial reasons, and a few will choose solar for educational reasons. And me? I choose all of the above.

Stay tuned for a future blog post on the actual economics of my system. In the meantime, let the sun shine!