Jon Ellenbogen says the best payback for the new solar power system on his house is that he stands taller: "I love watching the meter run backwards during the day because I'm making more clean energy than I'm using. I'm proud to tell people about it—they think it's so cool!" 

Many homeowners like Jon and his partner Rebecca Sachs want to help curb climate change by generating some of their household’s electricity with rooftop solar panels. Today, in most parts of the country, it can cost between $30,000 and $40,000 to purchase and install a basic four-kilowatt photovoltaic (PV) system. If you would love to stand taller with a home solar system, but have assumed that you can’t afford it, take a second look. A variety of available incentives can combine to bring the true price of a solar power system down from the number on the price tag.

A Little Solar Power, or a Lot?

There are three different variables that can determine how large a solar system homeowners should choose, says Neville Williams, founder of Standard Solar, which sells and installs solar home systems in the Mid-Atlantic: “The size of their roof, the size of their pocketbook, and the size of their electric bill.”

He encourages people with smaller roofs or pocketbooks not to feel they have to generate all of their power with a solar system—they can purchase only two or three kilowatts of solar generating capacity. Even a small solar system lowers your energy bill and your carbon footprint.

“Almost everybody can afford some level of solar power,” says Williams. Also, be sure to take all the smart energy efficiency steps first, so your solar system can better cover your now much-lower energy needs.

Federal, State, and Local Incentives for Solar Power

Both national and local governments have put programs in place to sweeten the deal for residents installing solar power. Through the end of 2007, a federal incentive offered a tax credit for 30 percent of the cost of a solar electric system, up to $2,000—which solar advocates are working to get renewed for 2008 and beyond.

All but a handful of states now offer financial incentives for renewable energy and energy conservation.

State incentives may take a variety of forms, including rebates, grants, loans, or tax incentives. To learn about programs in your state, visit the Database of State Incentives for Renewables & Efficiency (DSIRE).

Some cities and counties have their own incentives; check with your state, city, and county’s Department of the Environment.

Decades of Energy Savings

From the day that a solar PV system goes up, it generates energy that reduces the amount of conventional power you’ll pull from the grid. Your current energy rates, as well as any future cost increases in energy rates, determine how much money the system will save you over time. 

“When you buy solar power,” says Williams, “you have bought that power at a fixed price for the next 25 years. It’s hard to calculate utility prices for years into the future, but rates are going to go up.”

In other words, even if infl ation raises the dollar cost of energy over the next two decades, the energy your solar panels provide in 2028 will have been purchased in 2008 dollars, a dramatic longterm savings. And if, as experts expect, new carbon regulation and financing constraints dramatically increase the cost of coal power over the coming three decades, the savings from pre-purchased solar power will be even more significant.

Net Metering

Home solar PV systems rarely make more solar energy than the household uses overall; but they often do make more energy than the household is using during the sunny daytime. About 40 states have laws guaranteeing that a homeowner with a solar system can place “net” extra solar power onto the grid when their panels are over-producing, and then pull the same amount of free power from the grid when they’re under-producing. You'll want to find out if your state has net metering, if the utility pays in full or at a discount for the power you supply, and if the net is calculated annually or monthly. While local details vary, a solar system in a netmetering state can reduce homeowners’ energy bills more dramatically than if they only benefited from the solar power they could use at sunny times. 

Increase in Home Value

One thing that helped the Ellenbogen family justify the expense of their new solar system was that they anticipated that it would increase the value of their home, and with good reason.

“The American Appraisers Association has proven that, on average, every dollar saved on your monthly electric bill” by an energy-saving renovation such as a solar system “adds $20 in value to the house—which can start to add up,” says Williams. And studies in California show that “the houses that have solar sell for much more—by more than the cost of the solar.”

Solar or Home Equity Loans

As with any major home improvement, you can finance a solar system with a loan, generally repayable over a 15-year period. Though home solar systems should in theory be eligible for much more generous financing than, say, a kitchen renovation—because only a solar system will continue to save homeowners money—the major credit providers haven’t created preferential solar loans yet, says Gary Kremen of Clean Power Finance, in San Francisco. Though some mortgage companies market their generic home equity loans or refinancing rates to solar customers, solar customers would be best off for now simply shopping for a favorable home equity loan or mortgage refinancing. Clean Power Finance, for the time being, serves as a broker between solar PV customers, solar installers, and major banks, working to secure good loan rates for customers who want to undertake energy-saving and energy generating renovations. But they, too, are currently shopping among generic loans.

Note, though, that for new homes, you can add the cost of a new solar system directly to your mortgage; and if you are purchasing or refinancing a home using a loan guaranteed by the Federal Housing Administration, you can raise the maximum loan limit by 20 percent if the home has a solar system or you’re planning to install one. Some states, municipalities, and PV providers also have favorable loan programs.

A "Rooftop CD?"

If you are fortunate enough to have $20,000 or more in Certificates of Deposit (CDs), these low-risk, insured financial products will bring around a 3.5% interest rate over a five-year time period. You can think of solar as a rooftop “CD” with a guaranteed return.

A small (2 kw) solar electricity system will cost around $20,000, and federal, state, and local incentives may bring the cost down to $13,500. And assuming you pay average energy prices (about 10.8 cents/kilowatt), the average annual savings from a system of this size will be at least $280 per year, corresponding to a 2% "interest rate." And in regions where energy rates (and therefore savings) are higher, a solar system can start to look like a very reliable, if unconventional, Certificate of Deposit that lives on your roof instead of at the bank.

While the analogy isn't perfect, because the value of the solar installation will decline over time, the increased value of your home due to a solar system can be seen as similar to the initial “principal” placed in a conventional CD.

What About Waiting for Solar Prices to Drop?

Green America’s Solar Catalyst program is working hard to bring down the price of solar power to be competitive with coal power within the coming decade. And rising energy costs will only hasten the day when installing a solar system is a significant, money-saving proposition. If you’re not in a position to put up solar at today’s prices, make major energy-efficiency improvements around your home so your energy needs will already be reduced when solar costs come down in the future. Meanwhile, everyone who is ready to ready to install solar now can play a valuable role in supporting and expanding the solar market.

Solar Appliances

Even if you’re not in a position to invest in a PV solar electricity system right now, you may be able to consider solar-powered appliances to reduce your household energy use.

A solar attic fan, powered by a single PV panel, vents hot air from the top of the house, reducing the load on air conditioners. The fans cost $300–800 and may be eligible for energy conservation rebates in some states (check www.dsireusa.org).

A solar hot water heater can reduce your energy bill by more than half. They come in several different designs, generally cost $1,000–$6,000, with federal and state rebates covering up to a third of the cost. Learn about solar hot water heaters in our previous Real Green article.

Purchasing Green Power

Whether or not you can generate any green energy on your own roof, you can direct your energy dollars towards renewables by purchasing “green power.” This may be an option through your utility (check the EPA’s map), or you may be able to purchase Renewable Energy Certificates (RECs, or “green tags”) that support putting as much wind or other clean energy onto the grid as your household is using. NativeEnergy, for example, sells RECs generated by its wind projects that benefit small farmers and Native American communities. 

Everyone who can afford solar now is sending a big signal to companies and politicians that it’s time to scale up on solar in a big way. (Here is a tool for finding a ballpark estimate of how much it will cost you.) And Williams hopes the day is coming soon when homeowners won’t have to consider solar a luxury expense: “We’re getting closer to the tipping point,” he says. “The minute the economic argument is strong, everyone will do it.” For right now, he says, “Solar is a great long-term, high-value investment.”