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Will Solar Energy Finally Catch On?

The idea of using solar power is a popular one. Not only is it eco-friendly, but the hope is that it can also save your household a significant amount of money. But the idea of using solar power is not new. The first solar hot water heater was created by Clarence Kemp of Baltimore who painted a tank black and enclosed it in a wooden box thus creating the first known “batch water heater”.

However, due to the freezing problem, solar water heaters are more practical in warmer climates, so by the 1920’s solar water heaters had become popular in Florida and California. But popularity began to wane with the advent of cheap energy and the aging of the original solar collectors which eventually began to leak giving them a poor image. Their popularity increased again in the 1970’s with the oil crisis causing energy prices to explode. Afterwards, as energy prices fell, interest waned again, although people fearing global warming continued to express interest, even though producing solar energy was not economically advantageous without government tax credits.

Energy Tax Credits

In 2005, George Bush passed the Solar Investment Tax Credit (ITC) allowing people to recoup 30% of the cost of their solar system (with a maximum credit of $2,000). This tax credit was set to expire after a few years but was extended in 2008 as part of the “TARP”  Troubled Assets Relief Program to help stimulate the economy. At that point the $2,000 residential cap on the ITC was removed. It was once again set to expire in 2016 but has once again been extended, this time with a phase out provision. That provision results in a 30% credit from 2016-2019, 26% in 2020, 22% in 2021, and 10% thereafter. Unfortunately, you can’t get a cash refund in excess of your tax liability but the credit does allow you to carry-forward any excess credit that you are unable to use that year for later use.

Replacing Traditional Energy

Fossil fuels and other forms of energy are energy inefficient i.e. it takes manpower and energy to harness these fuels and bring them to your doorstep. There has been some concern that at some point it will take more energy to extract, refine and transport oil than you get out of it.  With solar panels, you can eliminate some of these costs depending on the type of solar power. Transporting electricity is much cheaper than transporting oil. In addition, once the infrastructure is in place the cost of transmitting “one more kilowatt” is minimal.

Types of Solar Power

There are primarily two types of solar power. The first is the direct heating of water and the second is the creation of Photovoltaic Electricity. Heating water is a relatively “low tech” process (thus its early origins) requiring not much more than an absorber plate, a storage tank, a thermostat and a circulator pump. When the absorber gets hot the thermostat turns on and a pump circulates the water into a storage tank for later use. Installing a solar hot water system is significantly less expensive than a solar electric system but it will save you less money in the long run as well.

Photovoltaic electricity on the other hand is a much more complex process of converting light into electricity requiring electronics and expensive battery banks to store the electricity. Rather than storing the power, some states like Florida have passed legislation called “net metering” requiring public utilities to purchase any excess electricity at the same price they sell it to you. While most utilities would prefer to be able to buy at the lower “wholesale” price and sell at “retail”. With “net metering” if you are producing more electricity than you are using in the daytime, it is as if your meter runs backward as electricity flows from your solar panel to the “grid” and then at night it runs forward when you are using more than you produce. In actuality, it is usually accomplished with two meters one for purchased electricity and one for electricity going back to the grid. Using this type of system you can save the expense of buying expensive storage batteries. Solar companies like Renogy offer a variety of solar electric components and tools like Solar panels, Charge controllers, Inverters (to convert DC current to standard AC), batteries, wiring and connectors that allow you to build and install photovoltaic systems.

In a 2016 study, researchers found that solar generated electricity saved homeowners an average of $3000 per year. Over the years, the price of photovoltaic systems have come down significantly. In 1998, the average price of a residential system was $12 per watt; in 2014, it was $4. The key factors to consider when looking at the cost of any solar system whether hot water or photovoltaic are “Payback” and “Return on Investment” or “ROI”.

Calculating Payback

When calculating payback you need to know the cost of the system and how much money it will save you. This is different for every household based on your energy usage, local electricity costs etc. So let’s assume the system does save you $3,000 in electricity costs every year, for its 30 year life expectancy and it cost you $30,000. The pay back not counting interest would be 10 years. $30,000 divided by $3,000 per yr = 10 years. So you break even at 10 years. If the system’s life expectancy is longer than 10 years (which in this case it is) it can considered to be a good investment. Basically, after it has paid for itself it will generate a “profit” of $3,000 per year for you for years 11-30. If however, you have to replace batteries, controllers or panels that will eat into your profits.

Calculating ROI

Return on investment is similar to Payback but it is looked at from a different angle. In this case, we use the same numbers but we take $3,000 and divide it by $30,000 and we get 0.10 or 10% so our return on our $30,000 investment is 10% per year.

Solar Panel Longevity

With the latest technology at their disposal, engineers are designing more efficient solar panels that last longer than ever. There is no need to remove or change these panels on a monthly or yearly basis. Batteries however do need regular replacing, a typical deep cycle “golf cart” battery will last 5-6 years in a solar system while a Hup Solar-One battery will last 18-24 years but costs more initially. The following table from SolarRay will help help break down the cost:

Comparing Battery Types

The Problem and Potential of Solar

The problem with all alternative energy sources from Solar to Wind to Geothermal is and always has been cost and not the technology itself. If and when alternative energy sources become cheaper than conventional energy sources both individuals and corporations will jump on it with both feet.  This can happen one of two ways, if fossil fuels become more expensive or if alternative energy becomes cheaper. Until it becomes cost efficient, it is an ideological decision made by people willing to pay more in an effort to “Save the Planet”.

For the last several years government programs like the Investment Tax Credit have been subsidizing alternative energy in an effort to ramp up demand and thus bring down prices through economies of scale. And as we have seen, this has been somewhat successful as prices have come down substantially since 1998. In addition, in recent years big players like Elon Musk have thrown their weight behind alternative energy, so perhaps the tide is finally turning in its favor. In 2015, Musk and his company Tesla, announced the now industry-famous Tesla Powerwall, a rechargeable lithium ion battery product along with his Gigafactory.

In addition, new advances in solar panel technology could revolutionize the industry.  Over the last two years, Perovskite solar cells (as compared to the silicon cells that are currently in use) have experienced major breakthroughs. This could result in a solar panel that can generate 20+ percent efficiency while still being one of the lowest cost options on the market (currently solar panels average from 14% to 16% efficiency rating). In addition, MIT labs are working on technology that could double the efficiency of solar cells by recapturing waste heat. Doubling efficiency could result in drastic reductions in costs making solar electricity competitive with fossil fuel generated electricity without government subsidies. When this happens solar energy use will explode.

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About Tim McMahon

Work by editor and author, Tim McMahon, has been featured in Bloomberg, CBS News, Wall Street Journal, Christian Science Monitor, Forbes, Washington Post, Drudge Report, The Atlantic, Business Insider, American Thinker, Lew Rockwell, Huffington Post, Rolling Stone, Oakland Press, Free Republic, Education World, Realty Trac, Reason, Coin News, and Council for Economic Education. Connect with Tim on Google+

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