Why we chose to go solar — and why you may not want to

For the first six years we lived in our house, our electric bills averaged $1,500/year. While we wanted to go solar for a variety of reasons, we didn’t think it was likely to be worthwhile financially. So we tried to economize by limiting our use of electricity. That generally didn’t work, as our house came with a pool which runs a filter 24/7 in summer months, a greenhouse with electric heat for winter (it’s freezing in there), and an exhaust fan for summer (it’s boiling in there), and a couple of rooms in the back — the part of the house that used to be a barn — which also have electric heat.

The back of the house — the former barn — had a large south-facing roof with asphalt tiles (the front of the house has a slate roof). There’s a huge unfinished area under that roof that turns into a furnace all summer, so we figured it must be getting some good solar exposure.

As it turned out, solar companies told us that this south-facing roof could hold enough solar panels to cover our electricity usage and more. They also believed that it could work out financially, by which they meant that if we invested in a solar system, we could most likely get our investment back in 5–8 years.

But it was a long road from discovering we had a viable situation to moving forward, with many tough choices to make.

The basic criteria

My wife Jennifer adores the look of our house and wanted to be sure that our panels would have minimal visual impact. For her, the look of the system would trump every other consideration. The plainer the better.

For my part, I wanted efficient panels that would last a long time, so that the savings would be maximized. I was also hoping the panels would still contribute to the house’s value in the distant future when our son would head off to college and we would move into a more manageable house.

The dealer-installers

We chose two installers in our area to go through the bidding process: Northeast Solar, a highly-rated local business with some beautiful installations within driving distance, and Pioneer Valley Photovoltaics (PV2), an employee-owned co-op with a strong local reputation and many local installations. I had seen yard-signs from both companies while cycling within a few miles from our house. Personally, I was biased against the “employee-owned co-op,” as I imagined a hippie-run company that would lack organization and strong business practices. As it turned out:

• Both sent competent people to talk with us;
• Both offered impressive monitoring systems;
• Both had excellent references;
• Both offered similar panels;
• PV2 was more expensive.

It was important to choose which company we would work with, but before doing so we had to compare apples to apples. Not only did we have to compare estimates and understand if they were using similar photovoltaic panels, mounting systems, electrical systems and inverters, but we also had to choose how much of our electricity costs we wanted to try to cover with solar energy. It didn’t occur to us to look for online tools to help in this process. Had we done so, we might have found energysage.com, an Internet company that helps users compare various quotes from pre-screened installers. If only!

Choosing photovoltaic panels

It may be hard for most people to choose panels, but it wasn’t hard for us. Both installers showed us a variety of choices, but only one panel with a look my wife could accept: the SunPower Signature Black X-21 Panels. These are all black — they blend in nicely with the existing asphalt-shingled roof, avoiding the patterned look that seems to call more attention to many PV panels.

My wife’s choice turned out to be the most expensive among our options. But it also satisfied my criteria: these PV panels boasted the highest efficiency ratings, the highest durability ratings, and the highest promise of maintaining most of their production capability beyond 25 years. In fact, the manufacturer’s marketing materials predicted 36% more energy production than the competitors’ panels after 25 years.

Choosing the dealer/installer

It turned out to be easier to choose the technology than the dealer. Both were impressive, with very different presentation styles and ideas for our home.

The salesman from Northeast Solar suggested we cover 80% of our electricity requirements. This way we would get all the benefit without the risk of producing more energy than we needed over the long term. He explained that our electric company would give us a credit for over-production, but we would never see the money from the credit if we didn’t use it up. The utility is not obligated to give you cash for electricity it “buys” from you. There might be an environmental benefit to producing more than we used but there would be no financial benefit. Also, a smaller system would cost less than one that maximized all the roof space.

The PV2 salesman argued for a different solution, counseling us to generate as much energy as our roof could handle. He said that if we generated a lot of credit, we could eventually switch appliances that weren’t electric to electricity: he pointed out our end-of-life propane water heater and suggested that a larger system would give us some flexibility to switch to a “heat pump” water heater. He remembered that I told him I hoped to get a hot tub some day, but had held off because of the electricity costs. And he said that a surplus might allow us to feel better on rare times when we used electric heat in those back rooms, though he cautioned that electric heat could quickly surpass our future system’s generation capability.

While we cared about aesthetics, longevity, efficiency, and cost (cost was certainly a consideration), what ended up mattering most was our feeling about the installer.

The bottom line: comfort and trust

Many companies focus on sales tools, cool web sites and explaining their particular features and benefits. But when addressing a homeowner about a major home-related project, the person doing the selling becomes as important, if not more, than what he or she is selling.

The man from PV2 had a fair amount of gray hair (like us), spoke slowly and softly, and seemed to listen to our concerns and respond to each with careful consideration. He spoke as an owner (everyone’s an owner in his company) and drew on several decades of technical experience to give us examples — he had been with his company for nearly a decade, and had previously been a hydrogeologist involved in a variety of environmental permitting, site assessment, and remediation work with lots of project management responsibilities. He had also studied climate change long before the topic was in the headlines and felt his current job blended his consulting experience with climate change interest/concerns. We could relate to him and his stories, and I could relate to his stringent attitude about installation procedures, project management acumen and ROI considerations. He was the opposite of what I expected from an “employee-owned co-op.”

The man from Northeast Solar was about 25 years younger than my wife and me. While he spoke well and clearly knew his material, it felt like he relied on the sales tools more than his experience in talking with us. He handed us great brochures, and even a sample of PV material which was designed to show its durability. The props were compelling, as were his energy, enthusiasm and understanding of his product.

My wife and I agreed that both seemed competent, but we got a better feeling from the one who focused more on us, our house and the broader issues than his sale. (We actually talked about the environmental cost of manufacturing the panels vs. the benefit). He showed a deep respect for the aesthetics of our old Colonial and explained how important it would be to put on a system with the right proportions and minimal visual impact, the kind of talk that won my wife over. He also won us both over with his suggestion of getting a larger system and eventually switching our other energy-using appliances, such as our water heater, to electric. This was both an economic and environmental argument, which we appreciated.

Many other choices

If you’re getting a PV system for your house or business, don’t expect the choices to end with solar panels. You will have numerous other decisions to make, including:

• What kind of inverter you will have — we went with the dealer’s recommendation;Where inverters and conduits will go — we went with the dealer’s recommendation;
• How you will report your usage to earn SRECs — see below;
• Where your electric sub-panels will go — we went with the dealer’s recommendations;
• Whether to get a new roof under the panels. For this, we faced a dilemma, because our roof was seven years old and in perfect condition. We chose to leave that roof, but re-do the north side of the roof which needed it anyway. A roofer helped us make these decisions. The important thing is that you don’t want your roof to need replacing before the panels do, as it will add enormous cost to remove the panels, replace the roof, and replace the panels. We took an informed risk, and we may be proven wrong in the future.
• How to finance your project — we were both working full-time, and chose to pay for the system ourselves and own it outright. But there are many options which are, arguably, more financially sensible. These range from simple financing to letting someone else use your roof to put on a system, but still getting some benefit buying electricity at better rates from the system owner.

Our Solar Solution

We chose to cover most of the back part of the house — the former barn — with solar panels, ending up with:

• 1.38mWh in a year or 13,796 kWh per year produced from 34 panels covering 612 square feet
• We used a flush roof mount system, which was the least visually impactful
• The inclination, for you techno-geeks, is 32 degrees
• Our inverters offer a 10 kW AC output
• The cost of the system: $55,158

Predicted energy generation

Our installer’s software predicted we would get the following energy generation:

• Summer average: 1312 kW AC hour/month
• Winter average: 790 kW AC hour/month
• Estimated annual output: 1,3796 kW AC hr/year
• Estimated retail grid value of energy produced: $2,069 per year at $0.15/kW hr. At the time of this writing, our rates have gone up above $0.16/kW hr, and it looks like rate hikes will continue to exceed the installer’s conservative estimate for the future.

Predicted revenue and savings — how It works

There are four categories of savings and revenue generation when you install a solar system — or at least when we did:

• Rebates: These are any rebates you get right away simply for purchasing the system. Just like a cash rebate on a car: you buy a new car for $26,000 and you might get a $2,000 cash rebate from the dealer. In some years and some regions, there might be rebates from the state, or even the federal government, for buying certain types of cars. In the solar case, your installer applies for the rebate and gets it directly from the state, reducing your cost by that amount. This is a one-time thing, and in Massachusetts at the time of our install, it was a $2,000 maximum, which we attained with our system.
• Tax Credits: This is also likely to be a one-time thing. At the time of our installation, Massachusetts offered a one-time, 15% credit capped at $1,000. The federal government offered a one-time tax credit valued at 30% of qualified expenditures.
• SRECs (Solar Renewable Energy Credits): These credits are sold at auction, and companies buy them to claim they operate on a certain amount of green energy. At the time of our purchase in Massachusetts, you were allowed to collect and sell SRECs for 10 years from the installation of your system. The SRECs are managed by aggregators, who will take a percentage of your revenue for the work they do grouping loads of SRECs together and trying to get a good price at auction (see below for more on choosing an aggregator). There is theoretically a floor for the price set by the state, but it’s important to know that the rules and logistics for the SREC market are relatively complicated and subject to change. SRECs were expected to be worth $3,725/year.
• Net-metering utility credits, which is what the electric company credits to your bill as it receives electricity from your system. These were predicted to be $2,069/year, or roughly $500 more than we spent previously — paying for over 30% more electricity than we consumed in the first years of owning our house.

The financial expectations

Here’s what we were expecting, based on the model that our PV2 created for us:

• Initial cost of System $55,158
• State rebate and tax credit $3,000
• Federal tax credit $16,547
• SRECs — year 1 $3,725
• Utility cost/net-metering savings $2,069
• First year total cost $29, 817
• Annual returns after first year SRECs/year for 9 more years $3,725/year
• Utility cost/net-metering savings $2,069/year or more
• Number of years that we would need to gain back the first year’s investment: 5.14 years… or not? See below.

Ways to think about solar system ROI

The dealer/installers like to say you’re getting certain percentage return for your money, and they might compare it to other investments or stock market returns. For instance, if after my rebates we had spent $29,817, and you add my SRECs and net-metering credits together, we’re getting 19.4% return on our investment… a handsome return by most measures.

The problem with this way of looking at ROI is that in many other investments, your $29,817 is still around in relatively liquid form. For instance, if you invest in relatively stable stocks or a mutual fund, you have a relatively liquid asset with the principal invested. With solar panels, you don’t have the principal anymore — it’s sitting on your roof. So the way I looked at it, I had to figure how many years were needed to return the investment, in addition to the years of returns we would not be getting on that $29,817. Supposing we could have earned 5% on that money for the first 5.14 years, this would add another $7,663 of lost revenue to the total cost. In other words, I have $7,663 of “opportunity cost,” assuming I had been able to get 5% on that money invested elsewhere. At the anticipated returns, this would be covered in another 17 months of electricity credits and SRECs.

Another thing that not everybody tells you: as you’ll see below, selling SRECs, if you do it through an aggregator, requires that you pay a fee. We found a very good deal at 4%. Supposing we generate $3,725/year for a decade, as predicted, then the fees for selling the SRECs would amount to another $1,490, or roughly 3 more months to break even. PV2 was good about indicating this in an email correspondence, explaining why it was misleading to think of SRECs as having a floor value of $285 each — it would actually be about $270 if you calculated an aggregator fee of 5%.

Based on all of this, I have a new understanding of the time it will take to return my first year investment, including SREC aggregator fees and opportunity costs: just shy of 7 years. (If you’re reading this and you have expertise that points to a different conclusion, please comment!)

NONE of the companies we talked to considered how long it takes to recover both the invested capital and the return it might have generated in other investments if we had kept it liquid. And only one discussed the fees charged by SREC aggregators. To me, these were critical parts of the equation, adding nearly 2 years to our total “payback” period.

I was okay with that time frame, though I would have been hard-pressed to make the investment if the payback period crept up to 8 or 10 years.

What’s an aggregator and how do you choose one?

An aggregator is basically a broker who gathers SRECs from a variety of producers (you are an energy producer once your system is up and running), and sells them at auction. I think there are two valuable aspects to aggregators.

• First, they handle the selling so you don’t have to.
• Second, because they have more SRECs to sell than you would alone, they might be able to negotiate a better price than you could alone.

When you get your system, you are responsible for choosing your aggregator. If your system is under 10kw, you must also choose between reporting your own generation (the cheaper way), or having automated reporting over the Internet. If your system is over 10kw, which our system is, you must choose automated reporting.

Your installer might give you a list with the names of many aggregators, and you will need to interview several until you feel you have a sense of their priorities, their philosophy, their methodology, and what they will charge you to bundle and sell your SRECS.

Some aggregators claim that they handle a greater volume of SRECs and can negotiate better prices. Some claim a more intimate relationship with the authorities that work the auctions, and can therefore better advise you whether to sell or hold for the next auction (there are rules around how long you can hold your SRECs, and it’s not very long). Some aggregators might charge a lower fee for handling your SRECs, but their volume is low and may not give them the most leverage in the market. Some might be doing it for themselves as well as their customers, which means they are self-interested in the result of their sales beyond the percentage they take from their clients. You should ask yourself if you care whether:

• the aggregator has his/her own solar production;
• the percentage fee needs to be at a certain level;
• you want an aggregator who waits as long as possible to get the right price, or sells SRECs when available because you need the cash;
• your aggregator is local and has links to local businesses and homeowners;
• your aggregator is easily available to answer questions; and whether
• the aggregator is small enough treat you with respect if you don’t have commercial-scale energy generation, yet large enough to negotiate good prices and committed enough to be around for the next decade.

We chose a local aggregator, Rural Aggregators of New England (RANE), which runs a local farm producing solar energy in addition to vegetables. RANE handles a comparatively large volume of solar production from residential and commercial facilities, and has a decent negotiating position in the market, though not the biggest we interviewed. When I interviewed the owner, I really liked the fact that he owns a local farm and produces his own solar energy. I also appreciated his relatively low fee of 4%, particularly after interviewing some aggregators whose fees were as high as 12%.

A year later — good news and not-so-good news

Check it out — after less than a year, we were seriously entering negative territory, and the little smiley face tells you how my wife was feeling about our system!

In fact, our system generated 13,794.78 kWh from January 1 to December 31 2014 — remarkably close to the 1,3796 kW AC hr/year predicted!

So what’s the not-so-good news?

In the following months, we made some changes. We replaced our propane water heater with a heat-pump water heater, and it added a bit of usage to our electricity. And then I got the hot tub. I haven’t yet calculated our annual costs, but we can already tell from our last electricity invoice that we will no longer have negative annual electricity usage.

Environmentally bad behavior

One of the reasons we got the system is because we would feel good about it. As it turns out, we will end up using more energy because we have this system than if we didn’t (I would have never bought the hot tub if we didn’t produce more electricity than we use). This makes me question my own motivations as someone who cares about our environment. Clearly when the numbers worked in my favor, I became far less concerned about using energy.

Revenue from electricity sales

The SREC market had a bit of a slump in 2013 and 2014, as expected. Our system yielded over $3,000 in cash, but not quite the $3,750 predicted. Apparently we can look forward to a better SREC market in the coming years, and given hikes in rates our credits are worth more than anticipated, but we’re slightly off the model.

Change in home value

One thing I didn’t mention is that this system is likely to make a difference in the value of our old house. Several realtors confirmed this — we have a strange and big old house, but the solar system makes it attractive, particularly because it generates enough electricity to cover lights, hot water and our pool. But, as I wrote before, not the hot tub!

According to a 2011 study published by the National Bureau of Economic Research, solar panels added to the sale value of the house an average amount equal to 97% of the original cost to the homeowner. A 2013 study found a $5,900 resale value increase per installed kilowatt (this would mean nearly $67,000 for us, which is hard to believe). However, the study also showed that this premium decreased for each year of the system’s age far more quickly than the actual decrease in energy output from the solar panels.

We anticipate selling in 9 years, and hopefully the extra money invested in high-quality panels pays off at that time.

If and when we do sell, we’ll be glad to have an easy-to-understand and comprehensive guide to the system, which PV2 provided.

The bottom line

We believe that because our house is visible from the road, our solar system helps influence others to think about it for themselves. We’ve had several inquiries to date, and we feel good about each one.

Finally, while better systems are being developed all the time, and most likely those systems will reduce the total amount of energy used to create the renewable energy mechanism (solar panels, shingles or other building materials), we believe in doing what we can to support a better, cleaner world today. Even with the hot tub, we’re consuming much less grid-provided energy than we did in the first years we had the house. Better, more efficient solutions will come, but you can’t always wait for the perfect solution before taking action. Toward that end, state and federal incentives continue to make solar worthwhile.

So what are you waiting for?