Monday, April 25, 2011

Solar Makes Financial Sense Right Now In Pennsylvania and Anywhere in America

Perhaps nothing that a family can do is better for the environment than installing solar.  My sister put 5 kilowatts of solar on her Maryland home last June.  And another neighboring family has followed her example.  Solar is happening in part because many people know installing solar is a powerful way of lessening their environmental footprint and increasingly financially viable.

How much you pay for electricity from the grid as well as the cost of solar to you largely determines solar's financial viability. 

Maryland's average residential electric rate is about 14 cents per kilowatt-hour, but rates are already much higher than that in New York, Connecticut, and Hawaii.  In those states average residential electricity rates are 18, 19, and 29 cents respectively. 

So putting aside any concern for the environment and health, let's ask, would it make financial sense to invest in solar in  New York, Connecticut, and Hawaii? 

If one assumes that solar systems in New York and Connecticut can generate annually 1,000 kilowatt-hours per kilowatt and 1,800 kilowatt-hours per kilowatt in Hawaii; an installed cost of $6 per watt; and 25 years of operation; each solar kilowatt-hour would cost 24 cents in New York and Connecticut, while just 13 cents in Hawaii (due to the greater production).

This first-cut calculation would indicate that it makes great financial sense to go solar in Hawaii and probably not just yet in New York and Connecticut. 

But even in New York and Connecticut a couple other factors move the calculation toward solar making financial sense.

First, the Laurence Berkeley National Lab study documenting increased value of homes that install solar changes powerfully the financial sense of solar.  LBL found existing homes in California that installed solar increased the homes value by the equivalent of $5.50 per watt.  Even if one assumes a boost to home values of just half of the LBL number in New York and Connecticut, the cost of solar falls to about 13 cents per kilowatt-hour there or well below the grid rate of 18 and 19 cents respectively.

Second, the US tax code provides a 30% tax credit for solar installation so the $6 installed cost is an after-tax cost of $4.20.  Assuming a $6 per watt installed cost, the after tax per kilowatt-hour cost of solar in Hawaii is just 9.3 cents compared to 29 cents grid power.  In New York and Connecticut, the after tax solar cost is 16.8 cents per kilowatt-hour or less than the 18 and 19 cent grid power.

Bottom line is that solar makes financial sense in New York, Connecticut, and Hawaii with either the federal tax credit or 50% of the LBL home value increase. 

If one were to apply both the 50% of the LBL home value increase and the federal tax credit, the cost of solar falls to about 6 cents per kilowatt-hour or well below the national average residential electricity rate of 9.8 cents per kilowatt-hour. 

At a solar cost of 6 cents, solar makes financial sense in New York, Connecticut, Pennsylvania and just about anywhere in America.

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