Residential Solar in DC - The Ins & Outs

Considering solar?!? A friend and former client, Peter Wong, has kindly offered to be a guest writer for us on just this subject. He has done extensive research into the world of solar, specifically here in the District of Columbia, since he plans to install a solar system on his own home. Thanks for sharing this great information, Peter!

Want to go solar? The time is right in Washington, D.C.

Author’s Note: While much of the content of this article can pertain to residential solar systems in any jurisdiction, this article focuses on some specific advantages of residential solar systems as a D.C. homeowner and resident.

Residential solar has been available for years, but it seems that it only recently blossomed in Washington, D.C.  I increasingly see solar panel arrays on the roofs of houses, and anecdotally hear about new installations on a multitude of row houses (where the solar panels are typically not visible from street level).  This growth in adoption of solar power across the District is due not only to the persistent sense of social and environmental responsibility but also to increased maturity of solar technologies and favorable Federal and local incentives for going solar.

As with any large investment, it is useful to understand all of the major costs and benefits of residential solar.  There are several key considerations here:

·         Buy, Lease, or Finance? – The cost of buying a residential solar system has decreased significantly as the materials and components have become more affordable and economies of scale have decreased the cost of installation.  As a rough starting point, buying a system will require the upfront investment of $3-4 per watt (W).  Of course, the exact cost will depend on a number of factors, including the type and slope of the roof, the size of the system, and the specific components (e.g., higher-efficiency panels can be significantly more expensive, but are useful for maximizing the power generation on smaller roofs).  The other primary option is to lease a system.  Instead of buying the system upfront, you enter a Power Purchase Agreement (PPA); there is no upfront cost for the system, but you pay for the power you use that is generated by the system.

·         Annual Energy Savings – If you purchase a solar system, all electricity you use from the solar array is free.  If you produce extra electricity, that power is distributed across the power grid, and you get a credit that carries over to following Pepco statements (tracked via net metering).  If you use more than your system produces, you only pay Pepco for the amount of excess electricity you use.  If you lease a system and are in a PPA, the rate you pay per kWh is typically less than from Pepco (whose residential rates are in the 9-11 cent/kWh range).

·         Residential Renewable Energy Tax Credit – Congress recently extended the 30% tax credit for residential solar systems.  Previously set to expire at the end of 2016, solar systems placed in service by the end of 2019 are now eligible for a 30% tax credit.  After 2019, the value of the credit decreases.  This 30% tax credit can effectively reduce the initial cost per W to $2-3, though you’ll generally have to wait until tax season to recoup that initial outlay. For more information: Energy.gov: Residential Renewable Energy Tax Credit

·         Solar Renewable Energy Certificates (SRECs) – While not a unique concept to the District, the DC SREC market is very unique and significantly enhances the advantages of choosing to go solar.  As an owner of a residential solar system, you receive one SREC for every 1,000 kWh (or 1 MWh) generated.  Power providers purchase SRECs on the market to help meet solar power requirements (and to avoid paying compliance penalties).  Given this dynamic, SRECs are typically valued slightly below the compliance penalty rates.  Currently, the penalty is at $500 per MWh through 2016, and SRECs are similarly valued around $480.  Recent legislation that has been signed by the Mayor extends the $500 penalty rate through 2023 (previously set to decrease after 2016), after which it decreases at a gradual rate.  These SRECs provide a significant advantage for those who choose to purchase a residential solar system.  At a high-level, these SRECs can be sold on an individual basis on various exchanges at the prevailing rate; sold for a fixed term (e.g., 3 or 5 years) for a guaranteed rate to brokers; or sold upfront for perpetuity to help defray the initial cost of the system (prior to the new legislation, SREC rights could be sold upfront for roughly $1,100 per SREC).

·         Home Value – Adding a residential solar system can also increase the value of your home.   Some studies have shown that homes with owned solar systems can garner a premium on the market.  The effect of leased systems on property values is ambiguous at this point.

It is difficult to lay out all the considerations relevant to whether or not going solar is the right choice.  However, the five listed above are perhaps the most important and tangible considerations.  In general, while owning a solar system is a large, upfront investment, there are numerous mechanisms that make this a very attractive financial investment in Washington, D.C.  There are also numerous grant and incentive programs not identified here – generally catering to low-income families – to assist in the transition to solar.

If you’re sold on solar and want more specific information to help with the decision-making process, here are some important next steps:

·         Track your power usage, preferably over a 12-month period.

·         Get a rough estimate of how much solar power your roof could potentially provide using the DC Solar Tool.  There are still many variables that this tool cannot necessarily account for, including the pitch of your roof, the size and number of panels, the panel efficiency, shading not visible via satellite imagery, etc.

·         Decide how much of your annual power usage you would like to generate with your solar system

·         Perform initial calculations to understand your potential upfront cost and annual income, credits, and energy savings (and then adjust your prospective system accordingly).

Understanding this information ahead of time will also make conversations with potential contractors/installers more productive and meaningful.  Here’s a sample calculation for buying a solar system with a variety of assumptions.

Estimated Annual Energy Usage (kWh):	8,000
Target % of Annual Energy Usage from Solar:	100%
Required kWh Production:	8,000
Estimated Solar System Size (kW):	7.27
Estimated Upfront Cost per W:	$3.50
Total Upfront Cost:	$25,455
Income/Credits/Savings:
30% Federal Income Tax Credit (one-time):	$7,636
Annual Energy Savings (8,000 kWh at 9 cents per kWh):	$720
Annual Value of SRECs (8 SRECs/year at $480 per SREC)	$3,840

As you can see, the SRECs play a significant role in making solar a financially-viable solution.  The possibility of extending the high value of SRECs for another seven years through the recently signed law only makes residential solar more attractive.

Once you are comfortable with the financial aspects of solar, the last step in the planning process is to pick a contractor.  As with picking any contractor, be sure to interview a handful and decide who you are most comfortable working with.  Beyond the standard metrics of price and reputation/quality of work, there are two additional considerations that should not be overlooked.  While system components generally carry similar warranties, contractor warranties on the workmanship can vary.  Similarly, the value of that warranty is limited by the longevity of the contractor.  A 25-year warranty isn’t worth much if the company has folded in the interim.  Given that the solar market includes many startups and fledgling businesses, this is also a very important consideration.

There are a lot of moving parts in evaluating residential solar, and this article tries to address the bulk of them.  There are numerous resources out there that can go into specific areas in much greater detail.  If you are considering solar for the future, given the current market environment in the District, you may want to look into it in greater detail now.  The technology is mature, and it would be hard to believe that the solar-related incentives could get any better.

Good luck!