The Hidden Cost of Residential Solar Energy Systems

 

I live in the high desert of southern California. The weather here is perfect for solar electric systems: 300 clear days per year, bright sunshine and low humidity. This makes it ideal for installing a residential solar electric system on my roof to help reduce my high summer air conditioning cost of $340.00 per month. As I researched installing a residential photovoltaic system I learned a number of facts that made it so unattractive that I decided to pass. This brief page discusses many of those issues, in particular, one big cost that not only do all of the solar energy companies fail to mention but that for me made it economically unwise. While most of these issues are valid regardless of what state you live in, some are particular to California and may or not be applicable to your situation.

The first issue is that California homeowners can not install their own system. They have to hire a state recognized contractor. This means do-it-yourselfers are out of luck. We have to pay for these companies overheads and accept whatever they want to charge for their solar panels.

Second, perspective customers almost have to accept without question what a given company says about how many of the complex issues involved in installing a solar system are handled, such as what state and federal financial incentives are available. The reason is many of these incentives are so hard to find information about and, if found, are so hard to understand that it's very difficult to verify that what the company says is accurate.

In particular, the California system for determining how much financial aid is available is extremely convoluted. It seems that the state is divided into many solar zones. Incentives vary from zone to zone depending on how much solar energy has been installed in each zone. The regulation appears to be set up so that the greatest incentives go to those zones which have the least amount of solar energy installed. At first this makes sense because it encourages such zones to get on the solar energy band wagon. The problem is that it turns out to be a negative reward for anyone thinking about installing residential solar energy if they happen to live in a zone that is already heavily invested in solar. For example: someone living in a zone with little solar investment may get as much as 50-percent of their residential solar energy system paid for through federal and state incentives. In my case, because there's already a lot of solar energy systems installed, I'd be lucky to get 10-percent.

If I understand correctly, California has placed the regulation of the solar energy market in the hands of the companies selling residential solar systems. There doesn't appear to be an effective check-and-balance system in place.

There's a lot of press given to how much the cost of solar photovoltaic cells has come down. What is ignored is that as of 2013, most of the cost of a photovoltaic unit is not from the solar cells, but from the box in which they are mounted. Consider, it has to be mechanically strong enough for storage, transportation, handling during mounting, withstand weather without leaking, falling debris without breaking, intense solar radiation without the seals degrading and it has to do this for at least twenty years. For a unit with a $10 per watt cost, $8 per watt is for the box housing the solar cells. Even if the cells were free a solar photovoltaic system would still be an expensive venture.

But now we get to the reason I created this page: the hidden cost that turned out, at least for me, to indicate a solar energy system would not save money. In fact it would cost considerably more that it would save.

This hidden cost is something I learned back in an economics class I took more years ago than I care to remember. It's called "opportunity cost." Here's how it works:

The system optimized for my situation would cost $22,000 after incentives. The opportunity cost is the fact that if instead of installing this residential solar electric system on my house I took the $22,000 and invested it, I would earn money on that investment. Even low risk investments bring in 8-percent. Even lower, insured tax free municipal bonds earn 5-percent, which equates to 8-percent when the tax advantage is figured in. That's $1760.00 per year I'm not making if I install solar electric, which is the opportunity cost associated with this venture. That's more than what I'd save on my electric bills so for me, investing in a residential solar electric system would cost more than it would ever save. (An added advantage of investing the money instead of using it to purchase a solar system is that the money is available for use in case of emergencies. If used for a solar system, the only way I could get the money would be to take out a loan on the value of the system.)

The true cost is actually much greater. While most solar electric units are rated for 20 years, testing suggests their actual useful life is less. Photovoltaic cells degrade and the seals to the units that house them break down causing leaks that can destroy the unit. The only expensive solutions are to replace the entire system or add additional units to make up for the degraded ones. Most guaranties are prorated, so the amount a customer gets back if a unit fails decreases with every year of use. By the time 15 years have gone by a failed unit may be a complete write-off. Worse still, decreased output caused by early cell degradation may be expensive to prove and difficult to get compensated for. Another problem is that the DC to AC converters only seem to be lasting an average of eight years. Since they cost thousands of dollars, having to replace one can wipe out many year's savings.

And don't forget the property tax issue. Installing a $22,000.00 solar system increases the value of my house by the same amount. That increases property taxes by almost $500.00 a year, another loss eating into any solar earnings.

IMPORTANT UPDATE!!!

I continue to research residential solar systems in the hope I can find a way to make such a system make financial sense. Unfortunately, I've recently learned new reasons not to do so.

The first relates to the growing trend for homeowners to lease a solar system. This looks attractive because it allows people to get into solar with little or no money down. The first problem is that because the owner doesn't own the solar system, it complicates the sale of the house should the owner choose to do so. Second, and more importantly, I've found several horror stories where the original solar company was purchased by a new company, who found legal ways to cancel the original lease agreements and demand immediate full payment. This situation isn't as rare as might be imagined. Few companies survive 20 years, the period on most leases, in these economically tumultuous times.

The second problem involves roof integrity. If you're installing a residential solar system on a new house or one with a newly refurbished roof, having a roof problem isn't a great risk assuming the contractor does a good job. But, if you have an older house and it needs repairing after a solar system has been installed, the odds are good that most if not all of the solar system will have to be torn down, the roof repaired, and then the solar system reinstalled. This can add $10,000.00 over and above the cost of the roof repair by itself. If you have an older roof, it might be wise to have it replaced before installing a residential solar system, which raises the cost still higher.

Related to the issue of roof integrity is the problem of damage done during installation. If the holes drilled into the roof to bolt down the mounting frames leak, the repair cost to the homeowner to the inside of the home can easily run into thousands of dollars. If the installation company doesn't adequately guarantee its work you could be headed for a lengthy and costly lawsuit to get reimbursed.

Finally, almost every electric power provider is investing heavily in changing the laws regulating how much they have to pay or credit homeowners for the electricity they produce from their solar systems. Currently, the law states that the companies have to buy the power at retail rates, the same amount a homeowner pays for the power. The company's are arguing that they should only have to pay or credit homeowners at the wholesale rate the companies pay electrical generators for the power they sell to us. If they are successful, this could cut payments and/or credits owed to homeowners by half, further reducing any financial incentives to go solar.

 
All of these problems with residential solar systems beg the question: If residential solar doesn't make financial sense, how can commercial solar farms make money?

First, they purchase their panels at wholesale prices. Second, they aren't installed on roofs but on low-to-the-ground frames, which greatly reduces installation costs. Third, because they aren't working on roofs, insurance costs for workers and covering potential damages to houses are enormously less. Finally, as a large commercial power supplier, they have access to greater federal and state financial incentives.

 
One last issue relates to maintanence. Even on roof tops, dirt and debri can build up on the panels, significantly reducing the amount of light hitting the cells and therefore the amount of power they produce. Homeowners need to address the problem of how they are going to be able to clean their solar system on a regular basis to keep them running at peak performance. If you have a two story house, this isn't a trivial issue.

 

Please don't misunderstand. I think solar energy is great. If it honestly saved me any money I'd install a system today. People living in other areas may be eligible for greater financial incentives that make it a viable option. I wish I lived there. But, the complex way in which California regulates solar, questionable accuracy on the longevity of solar units, and most importantly the fact that solar supply companies fail to point out the issue of opportunity cost makes me extremely cynical of the entire residential solar electric industry.

If you are considering a residential solar system, please consider the issues this page raises. Be careful about asking solar sales people for answers to these questions. They have been trained to say whatever they need to in order to make a sale and have memorized carefully scripted answers that may sound reasonable, but in fact may be more designed to mislead. All this also goes for buying a new house with a solar electric system already installed on it. Compare the annual savings to how much you'd earn if you got the house without the solar systems and invested the cost savings.

 

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