I just read some exciting news. Congressman Dennis Cardoza (D-CA) has introduced, along with 75 co-sponsors, the Empowering America Act of 2006. The bill would change and enhance the current tax credits afforded to citizens who invest in solar technologies such as photovoltaic panels and solar water heats.

Specifically,

Residential Solar Tax Credit: Extends a 30-percent tax credit, created in the Energy Policy Act of 2005, for the purchase of residential solar water heating, photovoltaic equipment, and fuel cell property. Allows the ITC [Investment Tax Credit] to be taken against the alternative minimum tax. Changes the maximum credit to $4,000 for each kilowatt of capacity for solar equipment and $1,000 for each kilowatt of capacity for fuel cells. Expires after December 31, 2015.

It also makes it so that neighborhood covenants cannot block people from adding solar panels to their roofs. All very awesome news!

So lets do the math on this new bill… Will it make photovoltaic panels much more economical? How much more economical will it make solar water heaters?

Update: Added info on solar water heaters.
Update 2: Added info on the environmental impact of this bill.

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Solar Power

To figure out the economics of the new bill we need to make a few assumptions:

• We’ll use an average usage of 1200 kWh/month (Jacksonville, FL average)
• The rate for my local utility is about $0.09/kWh.
• Solar panels cost about $4/watt

• Your new solar panels will generate 504 kWh/month (assuming 30% system loss)

  Now lets try some options… First, grid-tie (still paying utility, but trying to offset the cost):

  You buy:

• 4 kilowatts of solar panels: $16,000
• A decent grid-tie power inverter: $3300
• Misc other equipment (wiring, connectors, etc): $500

You pay a local solar contractor to hook it all up (unless you’re an electrician, don’t mess with the 440-480V incoming power from the utility!): $3000

Total up-front cost: $22800

Under the current tax situation, you get a $2000 credit on your taxes for installing this system (30%, with a maximum of $2000). This means your check back from the government at the end of the year will literally be $2000 more than it normally is for a total cost savings of, well, $2000 on the system.

Total cost after incentives (old): $20800
Payback time: ~37 years (yeouch!)

Under the proposed bill, you get a $4000 credit per kilowatt installed. That is a savings of $16000! It is like not paying your taxes for one year. In fact, if you make $60,000/year you’ll get just about all the money back that you paid in taxes! I’ll give you a moment to clean up the milk you just spit across the room…

Total cost after incentives: $6800
Payback time: 12.3 years

Not bad, but what if you do it yourself and just pay the electrician for hooking up the inverter? That is only $200 of labor. That leaves your total cost after incentives at $4000. Under this scenario, you’ll make up the cost in 7.2 years. If you finance that at a 7% interest rate for 5 years, you’ll pay $79.20/month to pay back the loan but your solar system will be saving you $64.80/month off your electric bill. This means that your solar system will really only cost you about $14.4/month but it will pay for itself in about 7 years (assuming energy prices rise at a steady rate). After that it will be making you money.

Surely this math must be wrong. There must be either an error in my calculations or I’m reading the bill incorrectly. This is quite possible, but take a look for yourself at the text of the bill.

If the cost of solar panels comes down a bit (and it looks like it will), the payback on solar systems will be instantaneous under these new rules.

HUGE Note: None of this pricing includes incentives at the state level. If you live in a state with it’s own tax incentives or in a state that literally pays you to install solar panels (such as CA’s signed-into-law-yesterday million solar roofs program), you could save even more money. In California, depending on how the rebates end up being doled out, you could actually MAKE money from this program.

Also, if you purchase a solar system that outputs more than you use, in some states the utility is required to pay you for your kilowatts! This means it could turn into a profit center once you’ve paid it off.

Solar Hot Water

The proposed bill would raise the maximum tax credit for residential solar water systems to $2000. Assuming you DIY, this means that you can get a solar hot water system essentially for FREE. Considering that you can buy a complete solar hot water system for about $1700, this pushes the incentive into the “you’re insane not to” range.

…but what about having a contractor do it? Well, last time I priced it out (mere months ago) a local contractor here in Jacksonville was charging $3700 for a complete install (closed-loop system, includes equipment). However, our local utility company (JEA) will pay $800 of that cost, leaving you having to pay $2900. This leaves the after-incentives price at $900. How long will that take to make up?

• This system should supply 90% of a typical household’s hot water needs.
• The average family of four uses 80 gallons of hot water a day. 2400 gallons a month.
• Using my previous calculations the total cost to heat of 2400 gallons of hot water is: $29.76 (Gas), $39.84 (Electric), and $51.84 (Propane).

• To make up the $900 cost under these calculations, it would take: 2.8 years for Natural Gas, 2.09 years for Electric, and 1.6 years for Propane.

  That is a very fast turn-around. Hopefully the cost of solar panels will come down considerably in the near future and it will obtain a similar payback time.

  Environmental Impact

  How much of a positive effect will this have on global warming? It depends on where you get your electricity from:

• Coal power plants emit about 2 pounds of CO2 per kilowatt-hour
• Natural Gas power plants, 1 pound of CO2 per kilowatt-hour

• Oil power plants, 1.7 pounds of CO2 per kilowatt-hour

  This means that my example of a 4kW solar system will save:

• Coal: 17,520 pounds of CO2/year
• Natural Gas: 8,760 pounds of CO2/year

• Oil: 14,892 pounds of CO2/year

  Not too shabby! How about the solar water heater? This one is much more complicated… First of all, It takes 14,483,200 BTUs to heat 29,200 (80/day * 365) gallons of water 62 degrees. This is our baseline. Now we need to calculate the electricity just like above and account for the inefficiencies of hot water heaters (Propane models max out at 87% efficient, Gas: 83%, Oil: 85%). Here’s the constants:

• Electricity = 3,412 BTUs per kilowatt
• Propane = 92,310 BTUs per gallon (2550 BTUs per CU ft)
• Oil = 139,600 BTUs per gallon

• Natural Gas = 1,000 BTUs per CU ft (950-1150 BTU range)

  Here’s how much they emit (we already know electric):

• Propane = 12.4 pounds/gallon
• Oil = 22.39 pounds/gallon

• Natural Gas = 0.12 pounds/CU ft.

  Based on that information, 14,483,200 BTUs of heat creates the following amounts of CO2:

• Electricity (the easy one): 4244.78 kW = 8,489.57 pounds of CO2 for Coal, 4244.78 pounds for Natural Gas, and 7216.13 pounds for Oil.
• Propane: 180.34 gallons = 2,236 pounds of CO2
• Oil: 122 gallons = 2,733 pounds of CO2

• Natural Gas: 2,094 pounds of CO2.

  Why do electric hot water systems emit so much more CO2? Answer: Because of the inefficiencies associated with generators and the power grid. By the time it gets to your house from the power plant, electricity has lost 70% of its original energy!

  If you combine both solar water and power systems, you will save:

  (Averaged Solar Electric + Average Hot Water Electric): 20,374 pounds of CO2/year
  (Averaged Solar Electric + Averaged others): 16,078 pounds of CO2/year

  If every American household (~110 million) took advantage of this new tax bill in a similar fashion (the two above figures averaged), it will save:

• 2,004,860,000,000 pounds of CO2/year
• 501,215,000 tons of CO2/year
• 501 million tons of CO2/year
• 454,694,599 metric tons of CO2/year

• 455 million metric tons (MMT) of CO2/year

  Note: These are all the same. It is for effect. =)

  …but how much of a percentage would that reduce the overall U.S. emissions of CO2? I’m glad you asked! (hehe)

• The United States emitted 5,973.0 million metric tons (MMT) of CO2 in 2004 (most recent figure I could find)
• Thus, assuming every American household took advantage of this bill it would reduce our carbon dioxide emissions by 0.076%

• We still have a lot more work to do