Powers Unfiltered

Earlier this summer, we marked the one-year anniversary of the connection of our rooftop photovoltaic (PV) system.  Last year I promised a more complete analysis of the economics of this system once we had sufficient history.  Here goes.

First, let’s not bury the lead:  Our PV system generated 36.5% of the electric energy used by our house in the past year, saving 52.8% of the money we would have spent on electricity.  Further, we received a 7.7% return on our investment, tax free, and it looks like that will go up next year.

Now, details.

Energy production

We bought our PV system from Borrego Solar last spring, while we were replacing our leaky roof.  The main components were 18 PV Modules from Sanyo (about 188 Watts each), and one Xantrex power inverter (for converting DC power from the panels to AC power for the house).  The installation went smoothly, and the system has operated without a hitch for the past year.

My calculation of our savings is based on several inputs.  It’s possible to find the amount of energy supplied by PG&E (that’s on our meter, and on our bill every month).  It’s possible to find the total energy supplied by our PV system (the cumulative energy produced to date is available from the LCD on our inverter).  So the amount and percentage of energy supplied by the PV system is straightforward:

9,261 kWh supplied by PG&E + 5,323 kWh supplied by our PV system = 14,584 kWh total consumed by our house, so:

5,323 / 14,584 = 36.5%

Monetary Savings

So far, so good.  Calculating the monetary savings is quite a bit more complex, since the good folks at PG&E and the California Public Utilities Commission have created residential rate structures that are as much about social engineering and income redistribution as they are about electricity, but let’s have a look.

We’re on the usual PG&E residential rate, E-1 (which can be read in all its glorious detail here.)  The most important attribute of this rate is that the price per kWh increases with the amount of energy the customer uses each month.  So you pay less for the first few kWh, more for the next few kWh, and so on until you’re paying A LOT more for your last kWh (especially if you have a big house, three kids, a pool, an air conditioner, multiple computers, electric oven, electric dryer, and so on.)  The rates by “block” of energy consumed are:

Total Energy Rates ($ per kWh)

• Baseline Usage $0.11531
• 101% – 130% of Baseline $0.13109
• 131% – 200% of Baseline $0.25974
• 201% – 300% of Baseline $0.37866
• Over 300% of Baseline $0.44098

The “Baseline” amount varies by region, but it’s small relative to our household usage, so without the PV system, we usually end up using at least some energy in that last “Over 300%…” block, where the price is very high. (Indeed, this rate went up during the year, which complicates the analysis a bit, but it’s just more rows in my spreadsheet — no big deal.  But to give you an idea of how wonderful it is to put up with PG&E as our utility, the price of the top block went up from 35.876 cents per kWh to 44.098 cents per kWh this year, an increase of about 23%.  This year alone.)

This rate structure, known as “increasing block rates,” is California’s way of reminding everyone (again) that it’s expensive to live in California.

On the bright side, it’s also a great way to encourage conservation and the installation of alternative energy systems like our PV system.

As mentioned above, the PV system only generates about 36.5% of our total electric energy consumption — but it displaces our most expensive purchases from PG&E.  Since we’ve installed the PV system, we’ve almost never had to buy any “top block” power from PG&E.  By reducing our consumption of the most expensive power to essentially zero, we saved a much higher percentage of the money we would have spent on power — 52.8% to be exact.

Here’s the month-by-month breakdown:

Investment Analysis

But — is this a good investment?  How does putting up a rooftop PV system stack up against other potential investments?

Well — after a substantial rebate from California and a substantial tax deduction from the US, the total cost of our PV system was almost exactly $23,000.  A savings of $1,770 in one year amounts to a simple annual rate of return of 7.7%, tax free (i.e., we’re saving after-tax money).  No tax-free fixed-income securities are paying close to that right now, although certainly a municipal bond is much more liquid than PV panels stuck to my roof.

Personally, other investment decisions I made early in 2008 did not go nearly as well as this one — negative returns were common.  So I am happy with this investment at this time.

There is also good (?) news on the future value of this investment.  As I mentioned, earlier this year the price of top-block power from PG&E increased significantly.  When I plug in the new higher prices for all of the next 12 months, I estimate savings of more than $2000, for a return of about 8.7%.   Further, these systems are becoming increasingly common throughout the Bay Area, so if we ever sell this house, we’ll likely recoup all or most of the original investment ( home appraisers are learning to incorporate the value of PV systems into the value of properties here in California).

Conclusion

Overall, I’m happy — our PV system has worked without a hitch, and has delivered a decent return on investment.

But I could be happier.

Our system is far too sensitive to shade, delivering less than half of rated capacity whenever even 5-10% of the system is in shade.  There should be a simple engineering fix to this problem, and I’ll be investigating over the next few months.

Our system also has an almost useless user interface; the analysis presented above required a ridiculous amount of manual effort on my part to develop.  For example, the only way to look at the performance of our Xantrex power inverter is to go outside and squint at the two-line LCD output, and bang on the side of the box (literally) to display a handful of statistics, the way our caveman ancestors did back in the 1970s when they did their earliest residential solar analsysis.  For trivial cost, any of four vendors could have included all the technology necessary for me to capture real-time system performance data on my computer via my home network, but apparently among PG&E, Borrego, Xantrex, and GE (maker of my not-so-smart meter), nobody bothered to do so.

This interface issue is particularly frustrating, because anyone in the tech industry knows that this actually matters.  If a PV system is a crude slab of silicon that sits on your roof and pumps electrons into your wires, it’s unappealing to many.  If it’s an elegant system integrated with your network and life, it’s far more likely to become mainstream.

So in my humble opinion as an early adopter, solar power has passed a crucial threshold — it has become reasonably cost effective in the most expensive residential markets.  But some simple technical and market innovations could really help it take off.