Photo-voltaic Power Generation System

Calculation of the financial implications is a challenge. There are huge initial costs, significant up-front short term tax advantages that offset that cost, medium term green energy credits, and the very long term savings from power generation. Many assumptions must be made such as:

• The future of the market for solar renewable energy credits (sRECs) that subsidize PV power generation

• Future utility electric power costs

• Comparative rates of return and risk on other investments during the same time period

Cost elements

Different cost factors must be considered over different time periods:

• Initial installation cost. The big lump ($80,000 for this system) as it must be paid all at once up front.

• The federal tax credit. This is the one that matters most, a full 30% credit (not deduction, but a credit which directly reduces our Federal income tax bill). This credit can also be realized quickly by adjusting federal income tax withholdings appropriately (as I'm self employed that is merely a matter of prviding my accountant with the approrpiate numbers)

• The Maryland Clean Energy Grant Program. Once much more generous, this very paperwork intensive program is barely worth the substantial effort required to claim the grant of $500.

• Solar Renewable Energy Credits (SRECs). In brief SRECs are a green energy trading scheme where utilities can purchase credits corresponding to units of green energy power production (one SREC = 1,000 KWh) in order to satify regulatory requirements. SRECs are traded on an open commodities style market and so the price will fluctuate, with a definite downward trend over time as additional green capacity comes on the market. In addition there is the significant risk of government redefinition of the requirements that drive this market. At present the value of 18 SRECs is about $2,000 per year.

  SRECs involve a fair amount of paperwork. Once installed the PV system must be certified by the Maryland Public Service Commission (PSC) and then registered with the PJM Environmental Information Services (PJM-GATS). Then every month actual kilowatt readings must be recorded.

• Generated electricity. Our current annual electric power consumption is difficult to estimate directly (see historical power consumption, but at present electric rates the estimated 18 MWh consumption will cost $1,800 per year, a cost which will be avoided with the PV system in operation.

  Note that initially this contribution is quite modest compared to the capitol costs, tax subsidies, and even the SRECs, but over the multi-decade life span of the system it becomes significant, especially if (as anticipated) utility electric rates rise substantially.

• Avoided costs. An interruptable backup power capability capable of sustaining key computer systems is an important consideration for this particular installation. An autostart diesel generator sufficiently quiet to be tolerable for extended use (i.e., watercooled with an acoustic suppression enclosure) would cost about $10,000 installed. A UPS system with sufficient capacity to sustain the critical systems for an eight hour period (roughly dusk to dawn, when we don't want to run the noisy and thirsty gasoline generator) would cost at least $6,000. The PV system will provide the necessary uninterruptible backup and so avoid those separate expenditures.

• At the time of planning this system we assumed that an installed PV system would raise the value of the property by far less than the installation cost. Since we have no plans to sell in the forseeable future that was not a major consideration, but after signing the contract we ran across an interesting study that says the initial cost of the PV system will be recovered when the property.

As is obvious from this accounting, without the tax subsidies this system would economically infeasible. Even with those subsidies the benefits are long term, with a decade required just to recover the initial net capitol costs. An investment like this is only marginally justifiable on a purely financial basis. In our case the considerations that tipped the balance were 1) the desire for a limited degree of energy independence, low rates of return for other investment opportunties (stocks, bonds, real estate), and a conviction that electric power rates will increase substantially in the future. Check back in a couple of decades and ask if we made the right decison.

Risks

Since the hardware has a reputation for durability and impressive manufacturer warranties to match (up to 25 years for the PV panels), we saw the primary risk as any circumstance that would force us to sell the property before significant gains have been realized from operation of the system, i.e. within 10 to 15 years of installation.

If the system were to fail completely and irreparably after ten years, we would still have broken even.

Sophisticated computer models appear to allow fairly accurate estimates of the system power output, the value of which will be directly proportional to the utility cost for electricity. The current net loaded cost of electric power (all charges and fees divided by kilowatt-hours consumed) is $0.10, lower than the national average. We are confident that rate will not decline substantially over the next few decades, and in fact s significant increase is likely.

We assume the value of the SRECs, if not the entire SREC scheme, will decline to zero within ten years. The tax break that matters most, the federal income tax credit, will be collected in full the first year.

There is some risk that the regulatory environment will change to the point where "net metering" is no longer allowed (or rather, no longer required of the electric utility). Since the "net zero" aspect of this design utilizes the grid as an infinite capacity battery, loss of net zero metering would mean the bulk of the generated power (or potentially generated power; we wouldn't donate it to the grid) would be wasted. We could and probably would purchase more battery capacity, but with current battery technology the economics do not favor that approach for fully replacing a grid connection.

The odds of significantly superior battery technology being available in a few years (such as repurposed electric vehicle battery packs already appearing on the market) are probably good, but we did not make any such presumption in our planning. Note also that unlike the PV panels and inverters, batteries of any design have a much more limited useful lifespan.