I currently serve on an Advisory Task Force for a Homeowner's Association in coastal California (The Sea Ranch) that is looking at the viability of implementing photovoltaic (PV) solar electricity generation systems. We’ve narrowed down two possibilities for our community; a large solar system that will provide solar generation to offset the Association’s usage across recreational facilities and water company needs, and discounted residential systems for member’s homes. After reviewing the possibilities and hearing a presentation from Solar City, I personally have made the decision to lease a system for our residence in Sonoma County (Santa Rosa).
I’ve considered a PV system for our residence in a very pragmatic and cost conscious manner. If you are a “green” advocate and have the financial wherewithal then your option is fairly clear. Build a solar system that will completely offset your entire electricity usage over an entire year and enjoy the fruits. By law you will pay the minimum Pacific Gas and Electric (PG&E) bill of $4 per month and you will be reducing your home’s carbon footprint to a minimum.
I wouldn’t consider myself an outspoken “green” individual. I’m conservative with my money and sought to simultaneously minimize capital outlay and maximize return on investment (ROI).
Where are the savings?
PG&E’s E-1 residential rates for electricity are built on a tiered structure with increasing cost per kilo Watt hour (kWh). The rate structure as it exists provides incentives for large consumers of electricity to either conserve or to look at PV systems to augment their electricity costs.
Here is the current tiered rate structure as of April 2009
Total Energy Rates ($ per kWh) (from PG&E)
Baseline Usage $0.11531 (R)
101% - 130% of Baseline $0.13109 (R)
131% - 200% of Baseline $0.25974 (I)
201% - 300% of Baseline $0.37866 (I)
Over 300% of Baseline $0.44098 (I)
The “cost” of generating a kWh of solar electricity is roughly $0.165. So you can see that if your average use falls below 130% of the baseline, your electricity costs with a PV system will be higher initially. However, if you consume more that 130% of the baseline, the cost of a PV system starts to become attractive. When your usage approaches or exceeds 300% of baseline, then it is pretty clear that a PV system will save you money over time.
Another benefit of going solar is that you will move to "Net Metering" through PG&E which means that your "net" consumption and production are compared and you receive only one electricity bill per year. If your house is empty during the day on weekdays you could gain further savings by moving to time-of-use (TOU) metering.
Our house in the Santa Rosa area is 2,700 square feet with completely open southern and western facing roof angles. We have a 5 ton central air conditioner, electric radiant heat in one room, and a four person outdoor spa. Our electricity usage during summer and winter months routinely exceeds 300% of baseline. The decision to implement a PV system was pretty easy for me to make. TOU wasn't an option for us because the house is occupied during the day most week days.
Vendor Selection
I selected Solar City based on the San Francisco peninsula as our vendor to design and install the solar system for our home. Our proposal from them is for a 2.4 kW DC system that will eliminate all of our usage over 100% of baseline. I chose this route as I believe that the California Public Utilities Commission (CPUC) and PG&E will continue to keep baseline electricity affordable and penalize large consumers like myself. This fact seems to be supported over time with PG&E rate increases. By doing this, I am in effect locking in the purchase of electricity above the baseline at $0.165 per kWh and shielding myself from rate increases in those higher tiers over the next 15 years.
Lease versus Buy
Our next decision was whether to lease or buy the system. This is a decision that each individual must make for themselves based on whether you want to own the system and put your capital to work, or whether you’d like the benefits of solar electricity but would like to retain your capital and pay over time.
I selected Solar City because they offered a lease vs. buy option where most solar installers can’t offer this. The lease option is spread over 15 years providing complete warranty on all parts during the lease, plus constant monitoring via the internet. Furthermore, in the 15 year lease you are purchasing the equivalent of a service level agreement (SLA), a guaranteed level of electricity output over the term of the lease. If the system falls short of the schedule in the lease agreement you get a rebate, if it exceeds the SLA you get the benefit.
After all tax credits and rebates an outright system purchase would be $12,000 but factoring in an inverter purchase at year 10 brings the purchase price to $13,000. The lease cost over 15 years is $14,500.
For me the decision was pretty clear to go the lease route. For a initial payment of $1,000, I will get a turn key system with a 15 year warranty and an SLA. When the $1,000 DC/AC inverter burns up in 10 years (it will), it gets replaced for free. Doing the numerical analysis, the lease costs me $1,500 more in today’s dollars which lowers my return on investment (ROI). However, I don’t have to tie up $21,000 of capital (of which I would get a $6,000 federal tax credit next year and ~$3,000 PG&E rebate).
The Details for our System
Initial Payment (at installation): $1,000
System size: 2.4 kW DC
First Year:
- Current Average Electricity Bill: $170
- Average Electricity Bill with PV: $90
- Lease Payment: $63
- Monthly Savings: $17
Financial Benefits Over 15 years
Assuming 6.0% historic average increase in electricity and 3.9% escalator in lease payment
Breakeven: 50th month
After-tax ROI: 30.4%
Savings over 15 years (2009 dollars): $9,600
Environmental Benefits Over 15 Years
- 54,000 pound offset of CO2 production (green house gas)
- 37 pound offset of NOx (smog)
- 11 pound offset of particulate matter
- 9 pound offset of SO2 (acid rain)
So the deal is done, we’ve signed the paperwork and have gotten in queue for our system which we expect will be installed by late summer. Yes there is a waiting list. The PG&E incentives are being phased out as more PV systems come on line. At this point waiting to move on a PV system in California will increase the cost of the sytem because of lower rebates.
This is a turn key proposal in that Solar City will take care of everything; from design, permitting, installation, inspection, to turn-on. As this unfolds I will post more blog entries.
