Economics and Rationale of Grid-Tied Rooftop PV Solar: An Example from Southeastern Ohio

Economics and Rationale of Grid-Tied Rooftop PV Solar: An Example from Southeastern Ohio

Even with the 30% federal tax credit and various state energy credits and other incentives the economics of current rooftop solar installations are marginal at best here in the Midwest. Even so, there are several reasons one may want to invest in a system. These include lowering one’s carbon footprint, increasing the resale value of one’s home, paying electric costs forward and hedging against electric rate increases, increasing the lifetime (partially) of a roof, and the simple fun of making power from the sun. Although some dislike the aesthetics of solar panels, others enjoy their looks and find that they can enhance the beauty of a house. 

The example given here was optimized by virtue of a large south-facing roof space and a high roof pitch situated to take advantage of non-summer sun. Predictions were based on a model at a lesser roof pitch (39% I think as that was as high as they could go at the time with their “solar pathfinder” shade prediction device – reason unclear) and the degree of shading by trees and topography. Location was predicted to be 76.5% unshaded. Prediction did not seem to take into account the projected 1% per annum efficiency drop in solar capture by the panels but it may have. In my graph I include the projected 1% per annum drop. The effect of cloudiness in October and November 2014 may have been strengthened by the high roof pitch as well as some tree and topographic shading not picked up by the ‘solar pathfinder,’ the device used to predict shading – in this case from three points on the roof. The pathfinder readings were done in the spring of 2014. October 2015 data confirms that less solar output in October and November is likely partially due extra shading due to the high angle of the panels. However, this decrease was small compared to the increases from the high angle. Presumably, this can be seen on the graphs in months where the actual output exceeds the 100% unshaded predictions (although it could be due to more sunny days since predictions are presumably based on monthly averages of cloud cover). From mid-May to late July 2015 there was unprecedented cloud cover in the area which definitely affected solar performance. Our 4.32 KW – 18 panel system was installed by Third Sun Solar in August 2014 with Trina Solar 240 W panels rated for 15.9% efficiency. Latest efficiencies for solar panels ranges up to 21.5%, but most are now between 17% and 20%. Capacity is the same as efficiency and can be directly compared to capacity factors for other types of energy production.

The economics of rooftop solar are generally inferior to industrial scale PV solar farms and thermal solar farms. Available space, orientation, and shading are always issues for roof tops while solar farms can find ideal unshaded spots, orient perfectly, and have unlimited space. Inversion can also be maximized and economically scaled up. However, rooftop solar has the advantages of being combined with storage for complete off-grid living. Even with Tesla’s new modules storage is prohibitively expensive. One financial advantage of having adequate storage is that grid usage costs can be avoided so one is not paying for transmission and distribution or any other base charges that a utility charges.

    

For our system, the payout given in the modeling is approximately 13 years at current electricity prices. If electricity prices rise, as they are expected to rise modestly, then the payout will be faster. In one graph they suggested payback at 9 years but provided no numbers. For us the system produces nearly half of our electricity. During peak sun times some of that electricity is sold back to the electric company, AEP Ohio, through net metering (the meter simply turns in reverse). The inverter and installation are warranted for 10 years and the panels are warranted for 25 years. If the inverter were to go out before 30 years it would change the economics negatively, especially if it went out shortly after the warranty expired. Our whole installed system costs were ~ $2.22 per watt after subsidies (63% paid, 37% subsidized). There was also the matter of having to purchase a power meter from AEP for around $300.00. Some electric companies will not charge for these or already have them. AEP did not although they had just upgraded meters earlier in the year.

We also receive state renewable energy credits (SRECs). In our case this amounts to a five-year term of $28 quarterly, or $112 per year. These are sold on a market and can be renegotiated after the term. The market is expected to ratchet down, ie. shrink and then disappear, presumably after PV solar efficiency and economics improve. In the past I think these were tied into state renewable portfolio standards (RPS) but since Ohio became the first state to freeze these mandates I am not sure what the future will be. The financial modeling for our system estimated a lifetime value of the SRECs at 7% the cost of the system. Thus our system is about 37% subsidized by federal and state. 

It has been noted that solar cost reductions are not likely to be much in the future. Panel efficiency is the big factor and has improved modestly over the last decade as a whole, yet significantly over the last few years. Other costs are pretty much fixed as costs of installation, parts such as inverters, wiring, racking system, meters, and permits are not likely to go down much. Thus, solar will likely need federal and state incentives for years to come in order to be economically competitive. Carbon pricing will mostly help wind be competitive with fossil fuels and help solar to survive. 

Certainly, there are many better investments than rooftop PV solar. Really, it is barely reasonable to do with the incentives. The Solar City model where they own and maintain the system is perhaps better for many people but apparently Solar City has been taking some pretty big hits in its earnings. They too are dependent on the federal tax credit for much of their business. When tax credits go away so do solar and wind projects, the data shows. 

Solar energy production is mostly confined to the middle of the day. It is also seasonal, with annual production graphs resembling sine curves. There will always be availability in the summer and at mid-day and scarcity in winter and at night. Thus, solar powered electricity can help more with summer air conditioning demand than with winter heating demand.

Below: is a copy of information provided by the solar company:

In comparison with other low risk investments, your solar will earn a much higher return. ------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------
7.3%  Return on Invetsment (ROI)
Example: 20 year Treasury Bills: 4.2% 20 year investment grade bonds 3.9%
Increase in property value
$11,407
National Journal of Real Estate Appraisal, Lawrence Berkley National
Net Present Value (NPV)	An NPV calculation uses a discount rate on future income (4% here) allowing different investments to be compared in today’s dollars
$20,965
Simple payback	Simple payback measures how quickly the system pays for itself. This incomplete measure ignores all the future income from this investment
Year 14
mount invested	Cash on Cash simple Return
6.8% -------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------  Our system has no battery back-up so when the power goes out there is generally no power. However, there is a switch that goes to an outlet that can run directly off of the solar being produced at the time. Thus, some power can be provided during the day. This is good for running a couple of lights but may not run a refrigerator on a winter day. System performance so far has been between 6 and 10% above that predicted by the model. A big factor I think is the high angle of the panels oriented directly south. I am unsure about average cloudiness but some key months were clearly cloudier than normal. A 10% improvement of the modeling is significant and improves the economics that much. Our system reduces our carbon footprint by an estimated 8074 lbs. of CO2 per year. There are also significant annual reductions in fossil fuel sourced pollution. The smaller electric bills are not a bad psychological feature either.