A few years ago, my wife and I decided it was time for an upgrade. After living in an older bungalow for several years in downtown Ashland, Oregon, we wanted to build a new home that reflected our green values and gave us a little more elbow room. We found the perfect 5-acre lot in the rolling hills on the outskirts of town, with the southern exposure we needed for our solar-inspired design and the country feel we longed for.
One of our primary objectives was to produce as much energy as we consumed. My work as a conservation consultant partially inspired our mission for a net-zero home and, as it happens, also made it possible for the economics of this venture to work. We were able to take advantage of a mix of residential and commercial rates and incentives, since the new home would also accommodate the office for my consulting business—Larch Company, a for-profit conservation organization. Here’s how we made our PV system pay off.
Having had solar hot water and photovoltaic power systems on former homes, I had some sense of what to expect, but working with new construction came with special challenges. While new construction allows one to freely work on both sides of the supply and demand equation, it also means you have no energy history to work with. I had to guesstimate my annual energy consumption to compute system sizes. The usage history at my former home provided a good starting point, but I had to take into account several new variables.
My new home would be slightly larger, but far better insulated and more energy efficient. Heat losses would be minimized by a highly insulated envelope with triple-pane argon-filled windows and tightly sealed doors. Newer energy-efficient appliances would also lessen the load.
Whereas my old house relied on a natural gas furnace that used electricity to operate the blower, my new house would depend almost entirely on the sun for its heat, with a handful of small convection electric wall heaters providing supplemental heat; an energy recovery ventilator to help keep air fresh; and a propane direct-vent wall heater for backup when the grid goes down. My wife and I decided to forego air-conditioning and central heating, and instead put our faith in a thoughtful passive solar design to moderate the temperature in the house.
I hired an engineer to evaluate my building plan with Energy-10, a building analysis program that factors in passive solar heating and cooling, natural lighting and ventilation, windows, wall insulation, shading, mechanical equipment, and other variables. According to the evaluation, any supplemental heat demand for the new home would be low enough to be satisfied by electric convection/radiant heaters, with no fans. Additionally, I needed to account for a well pump—an additional energy cost of rural living.
Another consideration was the different policies of my new investor-owned utility, Pacific Power. At my former home in Ashland, the city’s municipal utility paid me for excess generation, and it made sense to oversize the system. When I generated and sold more energy to the utility than I bought at the end of the annual accounting period, I received compensation for the surplus, which usually amounted to about $150 per year.
Pacific Power only provides standard net metering as required by law and does not pay customers for excess generation. Rather, it “donates” any surplus to low-income energy-assistance programs. Though generally a charitable person, I wanted to scale my consumption as close as possible to—but not over—my production.
I chose to work backward, from the supply side, and told my installer to “fill it up.” He took the dimensions of the south-facing side of the home’s main roof and devised a plan for two arrays using 42 Mitsubishi 170 W modules.
Knowing that the grid occasionally fails and that I could not afford to be without power for my business and my house—particularly the well pump—I opted to spend extra for a backup battery bank. The added convenience, reliability, and peace of mind were, in my opinion, well worth the extra expense.
Thirty modules are wired in three series strings through a batteryless 5.1 kW grid-tied Fronius inverter that has a weighted efficiency of 94.5%, according to the California Energy Commission. The remaining 12 modules are hooked up to two OutBack inverters, which feed the grid but also charge the 390 amp-hour, 48 V battery bank located next to the inverters in the garage. Production losses from battery charging give the OutBack inverters a slightly lower efficiency, about 91%.
When the grid goes down, the OutBack inverters automatically pick up the loads, including the well pump, refrigerator, and most of the 120 VAC household circuits except the dedicated circuits for the dishwasher and treadmill. The 240 VAC nonessential major appliances—such as the dryer and backup water heater—are not connected to the OutBack inverters so are inoperable during outages. The battery bank is large enough to sustain the household for a few days, depending upon how frugal we are with our electricity use and how much the sun shines.
My initial outlay for the battery backup PV system was $64,000 at the end of 2007. If I had not opted for battery backup, I could have saved about $12,000 and reaped almost another 2% return on investment.
Key to the economics of this system was its ownership by my consulting company. At the time, Oregon state PV subsidies were more generous for systems that are owned by businesses. Funded primarily by a public purposes charge on investor-owned utility energy bills, the Energy Trust of Oregon partially addressed this discrepancy by offering $2 per installed kWh to personal investors, versus $1.25 to $1.50 for commercial installations. The rate has since gone down, though.
Even with this rebate difference, it can still be more advantageous for businesses to own and operate PV systems in Oregon, so I set up my home-based consulting firm as the owner of the PV system. Larch Company essentially pays me (the homeowner) rent for using the south-facing roof of my home for its PV system, and then “sells” the electricity generated by its PV system to my household. As it happens, yearly energy cost is equal to the annual rent I charge Larch Company for rooftop space, so it’s a wash on the books for tax purposes.
This arrangement allows me to take advantage of tax rules that favor businesses. Because the system is business-owned, the capital and maintenance costs are a depreciable business expense that can be written off against taxable income—which can be taken either in one year or spread out, depending on the situation.
In addition to five years’ worth of state income tax credits and the federal income tax credit of 30%, I was able to take accelerated depreciation on the cost of the system, which allowed me to deduct nearly the entire cost of the system from the consulting company’s gross income for that year.
“Simple payback” is an unsophisticated financial accounting technique that determines the length of time required to recover your initial investment through reduced or avoided energy costs. My system achieves simple payback by the end of 2010, with a “profit” of $2,136 (see “Revenues” table.)
Using an internal rate of return, my estimated return on investment from the PV system is almost 20%. My financial model is 10 years, a common length for business investments. The system will be operational for the duration, as the modules are warranted for 25 years and will continue to produce energy that I don’t have to pay for. After the payback period, it doesn’t matter if electricity prices rise: 100% of my electricity costs will be fixed since the sun will continue to shine on my house without charge.
My model presumes the inverters and the batteries will last 10 years without repair or replacement. Since the batteries will only be used during times of grid failures, they will likely go the distance—and possibly longer. While inverters are complex electronics that can fail, the Fronius inverters are protected by a 10-year warranty.
In guesstimating the electricity demands of my new house, I started with the loads of my old house (which also included my home office) and then added a 10% factor for creeping loads—adding more electrical appliances over time. After modeling supplemental electric heating loads and water-pumping demands, I forecast a consumption of 8,400 kWh annually—and my planned PV system would produce 106% of my electrical power needs each year.
After the first year, it was time to see how my guesstimates measured up. Determining consumption requires data from meters installed for just that purpose: (1) the amount of power purchased from the utility; (2) the amount of PV power sold to the utility; and (3) the total annual production of the PV system versus actual consumption. At the end of the system’s first year, I used 6,652 kWh from the utility and sent back to them 7,491 kWh—a surplus of 839 kWh. My system produced 9,867 kWh for the year—some of which the house consumed immediately.
After subtracting the 839 kWh net surplus, my total consumption was 9,028 kWh, or 7.5% more than I had originally estimated. That put the system’s production at 109% of consumption in the first year—and in Oregon, any excess generation helps support underprivileged households through Pacific Power’s low-income assistance programs.
As a business venture, the estimated internal rate of return is 19.25%. If it was a personal venture, it would be an estimated -1.35% internal rate of return. The primary reasons for the disparity are that Oregon’s subsidies for PV systems installed by businesses are much better than for those installed by individuals and that a business can deduct the capital and maintenance costs of the system as a business expense.
As it turns out, the demand and the supply of my new system are about as balanced as one can get, even with the variability of sunshine and heat demand each year. If the slight surplus holds, I could always choose to set the thermostat at 72°F rather than 68°F next year.
Andy Kerr is a conservationist, writer, and analyst. He heads up the Larch Company (www.andykerr.net), a non-membership, for-profit conservation organization with offices in Ashland, Oregon, and Washington, DC. All profits are dedicated to the conservation and restoration of nature.
Direct Power & Water Corp. • www.power-fab.com • PV mounts
Discover • www.discover-energy.com • Batteries
Fronius • www.fronius-usa.com • Inverter
Mitsubishi • www.mitsubishielectricsolar.com • PV modules
OutBack Power • www.outbackpower.com • Inverters & controller
3Degrees Energy • www.3degreesinc.com • REC broker
Bonneville Environmental Foundation • www.b-e-f.org
Cascade Solar Consulting • www.cascadesolar.com • PV system installer
Database of State Incentives for Renewables & Efficiency • www.dsireusa.org • Incentive information
Tax Incentives Assistance Project • www.energytaxincentives.org • Federal & state government solar incentives
“Grid-Tied Solar in Small-Town, USA,” Andy Kerr, HP101
“Mixing Business & Pleasure,” Andy Kerr, HP117
“Making PV Pay: It’s Just Good Business Sense,” Andy Kerr, HP117
“Doing Well While Doing Good,” Andy Kerr, HP86
“Financial Payback on Residential California Solar Electric Systems After the State Rebates Are Gone,” Andrew J. Black. Presented at Solar 2004, Portland, Oregon, July 2004 for the American Solar Energy Society.
“Evidence of Rational Market Valuations for Home Energy Efficiency.” Rick Neven and Gregory Watson. The Appraisal Journal. October 1998.
“More Evidence of Rational Market Values for Home Energy Efficiency.” Rick Neven, Christopher Bender and Heather Garzan. The Appraisal Journal. October 1999.