Are Solar Panels Cost Effective?

solar panelsI’m all for clean and renewable ways of creating power, and one popular option is installing a home solar power system. The problem is solar panels and the other needed equipment are not cheap, not efficient and only a few select locations will provide the means to recoup the cost of purchasing the system due to local climate conditions (amount of sunlight) and electric company incentives.

 For a very basic system, you will need solar panels, roof mounts, combiner box, DC disconnect switch, cabling, permits, and a grid-tie inverter. The inverter will take the direct current produced by the solar panels and convert it into a pure sine-wave AC signal that can be used by the 120 volt electric equipment in your house or can be pushed back onto the power grid. You can install this yourself, but it will require detailed plans before a permit will be approved by the city and your electric company. And in some areas, you must hire a contractor to do your install.

The above mentioned equipment will get you going with a basic system. You can also add batteries, but this will greatly increase the cost of the system. Here are some estimates on the materials needed for a basic grid-tie PV system:

  • Grid-tie Inverter = $3000
  • Solar Panel Mounting Hardware = $600
  • DC Disconnect Switch = $300
  • Utility Disconnect Switch = $300
  • 180-watt solar panel = $400
  • 100 feet of outdoor rated 6 AWG wiring = $500
  • Electrical permit = $200
  • Labor = varies greatly

Now obviously a single 180-watt solar panel is not enough to make the system worthwhile. That won’t make up the power used by two 100-watt light bulbs let alone a TV, computer, BluRay player, refrigerator, microwave, dishwasher, lights, air conditioner, furnace, vacuum cleaner, etc. So you will need to buy about 10 or 12 of these 180-watt solar panels at an average cost of $400 dollars. Add all this up and a basic solar power system for your house is going to cost about $9,000 dollars, and that doesn’t count labor to install it or permits. In reality, you will most likely need a 3-kilowatt system or more, which will run you about $13,000 dollars, if you install it yourself.

To get an idea of how many solar panels you need, take a look at your last electric bill. Somewhere you will see how much power you used and it will be measured in Kilowatt/hours (kWh). As an example, our home averages about 650 kWh a month (no air conditioner). To calculate how much solar power we need to break even, I’ll use the following equation:

  • 650 kWh per month divided by 30 days = 21.67 kWh a day
  • 9 hours of sun on a good day (Very optimistic)
  • 21.67 kWh divided by 9 hours = 2.4 kWh solar system

That may not seem like a lot, and it’s not. Furthermore, the sun isn’t positioned overhead all day long, which means less sunlight is hitting the solar panels early in the morning and later in the afternoon. There is only about 1 hour a day where the panels are operating at peak efficiency if they are pointed due south and titled at the right angle. If that isn’t the case, they’re even less efficient at converting the sunlight into electricity.

article-2011august-designing-solar-power-fig2If there is shade part of the day, they’re even less efficient. During the winter months, the days are shorter and the sun is lower in the sky which cuts their efficiency even more. Take this all into consideration, and it’s very hard to get sustained peak efficiency. The only way to do that is with a ground-mounted solar tracker, and those will run you about $4,000 (installed).

One thing a lot of people overlook is the attenuation loss of a DC signal across copper wire. The longer the cabling, more power that’s converted and lost to heat. Still yet, the inversion of the DC voltage to AC voltage conversion can cut the efficiency by another 10%. When you add just those two things together, you can lose at least 15% of the power generated by the solar array.

It’s also very important to make sure your electric company will allow you to spin the meter backwards. When your solar panels generate more power than you use, the electric meter on your house can spin backwards, because you are pushing electricity back out onto the power grid. You can actually get a credit on your bill in some cases. However, many electric companies will only allow you to have $0 balance. That is to say, they will not pay you for excess electricity created by your solar panels. Compensation rates are not the same everywhere. For example, in Colorado electricity costs about $.10 kWh, and most electric companies only reimburses $.07 per kWh of electricity pushed back onto the grid. That means one would have to push 30% more electricity back onto the grid to match what they use. That means 30% more solar panels. So if you had 10 solar panels, you now need to buy three more.

Also, electricity is cheap in Colorado as compared to other parts of the country. This makes it even more difficult to recoup costs. However in California and Hawaii, the electric rates are much higher, which means one can recoup electricity costs quicker.

To expand on the previous example earlier in the article, let’s say I was interested in how long it would take to recoup the costs of purchasing a basic home solar powered grid-tie system in Colorado. Because no one is home during the day, I use little to no electricity, and all the electricity my solar panels produce would be used to spin the electric meter backwards building a credit. Let’s also assume my electric company’s 70% payback on spinning the meter backwards and the 9 hours of sunlight a day is 100% efficient (again, this is not possible because the sun-angle on the panels is less prior to and after the sun is directly overhead, but I’m doing this to prove a point):

  • 2.4 kWh per hour X 9 hours X $.10 cents per kWh = $2.16 a day
  • $2.16 x 30 days = $64.80 a month
  • $13,000 (cost of a 3-kilowatt system) divided by $64.80 = 200 months
  • 200 months divided by 12 = 17 years to pay off

Most people don’t live in their house 5 years let alone 17 years! And please remember, the above example assumes 9 hours of 100% direct sunlight, which is impossible due to all the inefficiencies previously mentioned.

The next question you need to ask yourself is, what’s your weather like? The example I’ve been using assumes every day produces 9 hours of full sunlight. This won’t happen anywhere. As a best case real-world scenario, let’s say I lived in the Arizona desert which averages about 85% of all possible sunlight. We would have to cut back on the power production derived above by about 15%, so my 17 year payoff estimate is more like 19 years (if we also assume electric rates are the same). If you also include another 10% decrease in efficiency caused by the inverter and cabling, it goes up to 21 years. After about 10 years, solar panels can lose up to 12% of their efficiency. So that payoff date increase to 22 years. And you better hope nothing breaks and needs to be replaced during this time.

Now, there are Federal government rebates on all solar and wind powered home systems with no upper end cap, provided you qualify. But, you only qualify for the credit if a licensed contractor installs the system. If you do it yourself, you do not qualify for the credit.

The bottom line is, the equipment is way too expensive and the solar panels just aren’t efficient enough to make them cost effective.

Now, if you are serious about solar power, you are in a great geographic location and you don’t care about the costs, then you might want to make your home as efficient as possible before pricing out a solar power system. If you can replace electric range stoves with gas, use Energy Star appliances, and turn off lights when they are not in use, you can cut back on your electricity usage by about 15% which means you won’t need to spend as much money on solar panels. I’d stay away from the compact fluorescent light bulbs due to environmental disposal concerns, but LED lights are becoming more popular and they are even more efficient.

Look around your neighborhood. Virtually no one has solar panels and I suspect the reason why has to do with how much they cost and how long it takes to reach payoff. They aren’t cost effective … yet. There are a few new neighborhoods in my area that do have solar panels, but that was largely due to Federal incentives to home builders and didn’t last.

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