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We live in an era when banks pay next to nothing in interest on certificates of deposit, EE savings bonds pay 1.1%, and even mortgage rates are at or under 4%. Under these conditions, the idea of an investment that will pay about 7% (or more!) for the next 20 or 30 years -- and is tax-free to boot  -- seems way too good to be true, or at least way too risky to seriously consider.   However, not only does such an investment exist today, but also it is one that is extremely safe, readily available, and socially responsible.

What is this suspicious-sounding money-making scheme?  It is nothing more than installing solar panels on your roof to generate electricity.   This isn’t a trick or some phony way of looking at things.  It is simply how having a photovoltaic (PV) system works.   I’ll do the math for you momentarily.

Recent headlines about the trials and tribulations of the bankrupt solar manufacturer Solyndra may have given the impression that the US solar industry is struggling.  Opponents of renewable energy development have been working to convey this impression.  However, the truth is that the American solar industry is booming, growing by 69% in the last year.  At this point, more than 100,000 Americans work in the solar industry, a number that has doubled since 2009.  These people work at more than 5,000 companies, the vast majority being small companies.  This industry growth as well as technology advancement is driving down the cost of solar energy; the price of solar panels has dropped by 30% since the start of 2010 and the average cost of completed systems has dropped 20% during that time.  More Americans than ever are installing solar electric systems:  more than half of the total PV capacity in the US has been installed during the past two years.

But what about in our own area – New York’s Capital Region?  Do we have enough sunshine to make solar power practical?  The answer is yes we do.  While we don’t enjoy the abundant sunshine of many of the western states, we also endure some of the highest electrical rates in the country.  As a result, every kilowatt-hour we don’t have to buy from our utilities provides a bigger savings than in many other places.  With favorable tax credits and incentives provided by NYSERDA in many parts of New York (and by others such as LIPA in Long Island), New Yorkers are increasingly installing PV systems on their roofs.  It is illuminating to note that Germany has the largest capacity of installed PV systems in the world and the only part of the US with less sunshine than Germany is the Olympic Peninsula in Northwest Washington.

So how does all this work?  PV systems are sized according to their power output, measured in kilowatts.  The amount of energy (measured in kilowatt-hours) that a PV system will produce in a year is actually rather well known.  While our weather fluctuates quite a bit over the course of time, the total amount of sunshine that a particular location receives in a year is fairly consistent.  The difference between a sunny year and a cloudy year is generally no more than perhaps a 10% variation in total insolation (the technical term for solar energy striking a place.)   So in the Capital Region, one can expect that a one-kilowatt PV system will provide about 1,100 kilowatt-hours of energy in a typical year.   Some years may yield a little more, some years may yield a little less, but the basic performance of a PV system is quite reliable.

Now how does this translate to dollars?  The answer is that the kilowatt-hours that the PV system generates are kilowatt-hours that you don’t have to buy from National Grid (or whatever utility provides your power.)  For the sake of giving a concrete example, suppose we discuss a 5-kilowatt PV system, which is a reasonable-sized residential system.   That system will produce 5 x 1,100= 5,500 kilowatt hours in a year.   At National Grid’s current rates of about $0.13 per kilowatt-hour in the Capital Region*, that translates to a savings of $715 a year.

What does such a system cost?  The cost of installing PV systems has dropped to $6-6.50 per watt.  In the Capital Region, NYSERDA (the New York State Energy Research and Development Agency) offers a $1.75 per watt incentive rebate for PV systems.  Thus the system cost drops to $4.25-4.75 per watt and our example system would cost approximately $21,000-24,000.   However, things get much better because both the Federal government and the New York State government offer substantial tax credits (not deductions but actual credits) for installing PV systems.  The Federal credit is 30% of the net price (the $21,000-24,000) and the New York credit is 25% of the net price but is capped at $5,000.   After all these machinations, the net, out-of-pocket cost for a 5-kilowatt PV system in the Capital Region will be roughly $9,500-10,500.

This brings us to the money-making claim at the top of the article.  The bottom line is that an investment of $9,500-10,500 for a 5-kilowatt PV system will put $715 in your pocket each year in electric bill savings.  That is either nearly or even well above a 7% return on the money and there are no taxes to pay for having smaller electric bills.  Of course, if electric rates go up (and that is certainly likely over time if not inevitable), then this rate of return will increase accordingly.

So where is the catch in this?  In reality, there is none.   The only difference between doing this and buying a bond or other fixed-income investment is that it is not liquid.  You can’t change your mind and cash out to get your money back.  Your money stays tied up, but ultimately will be multiplied in income generated.  But other that that, as long as the sun continues to rise in the morning and your house is still standing, you will be making good money for many years to come.  You will also lower the amount of carbon being dumped into the atmosphere and reduce some of the strain on our overworked power grid.

It’s worth thinking about!

Randy Simon has over 25 years of experience in renewable energy technology, materials research, superconducting applications, and variety of other technical and management areas. He has been an officer of a publicly-traded Silicon Valley company, worked in government laboratories, the aerospace industry, and at university research institutions. Dr. Simon has authored numerous technical papers, magazine articles, a book, holds seven patents and also composes and arranges jazz. He lives in Schenectady, New York and can be reached by email.

*  The $0.13 per kilowatt charge from National Grid does not included a fixed delivery service charge (roughly $16 per month) that is assessed to residential customers whether you use any electricity or not.  So generating your own power will save the thirteen cents per kilowatt-hour that you don’t buy, but you will still pay the $16.00 each month.


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