For more articles like this, please join our Newsletter.
Does Solar Power Make Sense for Property Owners?
by Annette West, CCIM, MBA, CPA
The recent Energy Policy Act of 2005, signed right here in New Mexico at Sandia National Laboratories on August 9, gives tax credits to consumers and tax deductions to businesses who make energy conservation improvements. (It also gives credits for buying hybrid gas/electric cars, but with a catch, as we will discuss later.) Remember-a tax credit reduces your income tax bill dollar for dollar, as opposed to a tax deduction, which reduces taxable income and thus to a lesser extent your tax bill.
In order for understand the tax credits and deductions, an explanation of solar energy terminology is useful. Homeowners can get tax credits on two different types of systems: photovoltaic systems and thermal systems.
A photovoltaic system creates electricity that you can use for lighting, and commonly consists of solar panels.
A thermal system heats water pumped through pipes on your roof and stores this water in an insulated tank. The hot water can then be used not only for bathing and dish and clothes washing but also for radiant heat and to heat your swimming pool. (Note: systems heating swimming pool and hot tubs exclusively are not eligible for tax credits.)
Since we have lots of sunshine in Las Cruces, I thought it would be fun to calculate the cost and savings of a photovoltaic system for a 1300 square foot house. (If you would like to do this for your house, I recommend going to http://www.altenergystore.com/.)
The first step is to determine how much energy you use by adding the watts of power consumed by your appliances. I quickly learned that I could save myself the cost of a solar panel if I dry my clothes outside. An electric dryer uses a whopping 4,000 watts per hour, as opposed to a typical refrigerator which uses 475 watts per hour. Our 2 person no children (but computer intensive) household uses approximately 1,680 watt-hours per day.
The second step is to divide the watts used per day by the lowest number of sunshine hours per day predicted for your city, or the closest city in their system. The resulting number gives you the total watts your solar panels will need to generate; in my case, 3500 watts.
The last step is to look at the solar panels available and determine how many panels you need based on their watt output. I would need to buy 21 panels that generate 170 watts per panel for a cost of $17,427.
How much would this save me? The National Renewable Energy Laboratory offers a calculator called PVWATTS that computes energy savings by city and state.
I would save an estimated $585.08 per year by installing the $17,427 system.
But wait-I get a tax credit. The federal tax credit applies for systems installed in 2006 and 2007, and gives you back 30 cents on every dollar you spend up to a total credit of $2,000 for a photovoltaic system. This reduces my cost to $17,427 less $2,000 or $15,427; the system would pay for itself in 28 years.
When you consider that the average homeowner moves every 5 years or less, installing a system with a 28 year payback does not make much economic sense. Even with the federal tax credit, solar energy does not seem cost effective. Until New Mexico offers state energy tax credits to homeowners, the 30% off sale may be one sale you want to miss.