A question people ask me often is whether solar energy “makes economic sense”.  The answer, as usual, is not a simple yes/no. I will start from a very tangible example, relevant for residential rooftops: my own system, which I am installing on my Maryland house: 4.32 kW of capacity, generates 5,585 kWh per year (if I cut a few branches from my oak tree). The cost for it is $26,623.  That would be many times more expensive than what I currently pay for electricity.  However, my final price tag comes down to a much more palatable $7,321 for a prepaid 20-yr lease, a good deal considering that it will save me close to $1,000 per year.   How is that possible?  It turns out that you may be paying for a lot of it (thanks):

  • Installer’s Rebate: $800 – this is probably not coming from your pocket.
  • Maryland Solar Grant Program: ~$ 1,800 – if you pay MD taxes, you are contributing to it.
  • Federal Tax Credit: ~ $7,700 – if you pay federal taxes, you are contributing to it.
  • Solar Renewable Energy Certificates (SREC): ~$5,600 – Maryland utilities have a 2% solar power requirement.  SRECs go for $0.2/kWh today.  If you use electricity in Maryland, you pay for it (it gets baked into your electricity rates).
  • “Lease Discount”: ~$3,400 – this is a catch-all category, which includes accelerated depreciation and other installer’s benefits that stem from system ownership.  If you pay federal taxes, you are contributing to some of it (at least the accelerated depreciation).
  • Chinese Subsidies: The installer also purchases subsidized Chinese panels to keep costs in check.  Unless you are paying taxes in China, you are not paying for this (you may be indirectly paying for it, but that would open up a huge macro-economic discussion…).

So, it makes economic sense for me and the installer to install solar panels, but why would it make sense to tax- and rate-payers? One reason is that incentives to the solar industry will drive volume, and therefore decrease costs (already happening quickly), making solar competitive with other sources. Maryland rooftop solar systems may be pretty far from being competitive without incentives, but there are other cases in which solar is already competitive – for example utility-scale California systems, which benefit from a more sunny climate, economies of scale, and expensive electricity.  But you really cannot face the question just in terms of micro-economics, you have to look at the bigger picture, and most notably at the environmental benefits that solar power provides.  The decision of whether solar power makes economic sense depends ultimately on what value you put on its environmental benefits.