solar

On a fall day in 2016, entrepreneur Elon Musk, with great fanfare, introduced a new residential solar shingle from Tesla/Solar City. He stood on a stage situated on a cul-de-sac in an upscale residential neighborhood. Each of the four houses around the stage was fitted with one of four different profiles of roof shingle, from Tuscan to slate.

Those roof tiles were the day’s big reveal. Each shingle on all four homes contained power-producing photovoltaic cells. The message: Tesla was creating a vision for the futurea future in which homeowners around the country opt for a durable roofing product that will also put power back on the grid, and into a Tesla Powerwall 2 battery with enough storage to charge up an electric vehicle and more.

Today, Tesla executives report their solar roofing systems are on a long backorder as they wait for the new shingle and solar factory near Buffalo to get fully up and running. Since last May, they have been taking $1,000 payments from homeowners who want to hold their place in line for a new solar roof.

The power-producing merits of the Tesla shingles and, ultimately, how much homeowners are willing to pay for them is yet to be fully understood. But while they do not yet have the same technical performance of today’s high-performance solar panels, they double as a durable roof with a lifetime warranty.

The company is betting that aesthetics will drive solar decision-making, and the bulkier solar arrays that presently don rooftops around the country might fall out of favor against architectural shingles.

“At the beginning, electric cars were low range and they did not look good,” Musk said at the launch. “Something similar needs to happen to solar. It needs to become as appealing as electric cars have become.”

Indeed, Tesla’s vision is a long-term bet for a bullish future of solar power in the United States—and one day it may come true. But the here and now of today’s changing solar power market is both full of new products and possibilities, and it is one that is often confusing to homeowners. That is why it falls to remodelers to sort out fact from fiction and help guide clients through the solar decision-making process.

Credits, Tariffs and Increasing Demand

Incentives have historically been the key driver of the solar energy market. And they will continue to be in 2018. There is mixed news on this front. A federal tax credit of 30 percent for the purchase of photovoltaic systems has been renewed and remains in effect until 2021. It will phase out over the following three years. In addition, many states offer rebates and incentives on top of those federal credits.

But there has been a reversal as well. On January 22, the United States imposed a 30 percent tariff on imported solar cells and solar modules. It will boost the cost of panels overall, particularly in the first year when the full 30 percent duty will be in effect. The good news is that the tariff is scheduled to decrease 5 percent each consecutive year until it (like the federal credits) phases out in 2021.

Industry experts say cost increases related to the tariffs will be partially offset by the emergence of ever-cheaper solar panels, which have dropped by 6 percent annually for the past several years, reports the website EnergySage.com.

Amidst all of this, demand and interest in solar is growing in all parts of the country, even those areas where the sun shines a lot less frequently, such as the Midwest and East Coast. The reason is simple arithmetic, says Chad Ruhoff, vice president of home improvement services at the Neil Kelly Company, a remodeler in Portland, Oregon, and Seattle.

Three years ago, Neil Kelly purchased a residential solar company. It did so at a time when Oregon had some of the biggest incentives for purchasing solar. The business boomed, but because solar is “commoditized,” Ruhoff says, it tends to ebb and flow.

What Ruhoff means by commoditized is often times buying decisions are made based on cost alone. A homeowner will go out and get a bid for an 8,000 kilowatt system and be able to calculate the cost of the system in terms of installed price per kilowatt. Today, the company is competing at $3.50 per kilowatt, Ruhoff says, where just a few years ago it was able to command prices between $6 and $7 per kilowatt.

“It’s competition. The manufacturers are getting better and more efficient. In addition, the modules are now being built in China and Malaysia, where the cost of labor is lower,” he explains. For remodelers to offer solar, they “need to have systems in place today to be able to compete in a market that is more of a commodity.”

Mukesh Sethi, group manager of solar products for Panasonic, says his company has come into the North American market in a big way over the past two decades. The company markets a line of high-performance solar panels for the residential market. In addition, it has partnered with Tesla to manufacture its photovoltaic shingles.

According to Sethi, there are several factors that drive demand for residential solar energy. The first driver is the local cost-per-kilowatt-hour for electricity from local utilities. Solar tends to pay back quicker in places such as the Northeast, where electricity costs are higher. California has a high cost of electricity, and so does Hawaii. In addition, both states have plenty of what the Northeast lacks—sunshine, which is another key driver of solar energy demand.

“So it is a no-brainer to consider solar power in Hawaii and California,” Sethi says. “And after that it’s New York, New Jersey, Massachusetts, and maybe Nevada and Arizona. Every state is different.”

Based on the falling prices to install systems, the payback can be as low as 3.5 to 5 years in California and Hawaii, while in New York and New Jersey it is 5 to 7 years. And in the Midwest, where the price of electricity is high but lower than out east, the payback can be as long as 8 to 10 years.

According to Sethi, payback is also contingent on the quality of the photovoltaic equipment in question. There are dozens of manufacturers producing solar panels outside and inside the U.S., but the output comes in two tiers. There are conventional solar modules, which are the bulk of what is being installed in the market. Then there are high-performance systems that produce more kilowatts in a smaller square footage.

Ruhoff sees a similar dynamic from his vantage point. Some systems perform better than others based on the individual characteristics of each installation—the pitch of the roof and how much of the array is facing south and southeast. Arrays facing south and southeast at a 30-degree angle perform the best.

Solar panels are priced on the average amount of kilowatts they produce. An 8,000 kilowatt system, Ruhoff notes, performs differently based on where it is installed. It might produce over 9,000 kilowatts per year in Arizona, while it produces 6,800 in Massachusetts. The installed cost per kilowatt is 8,000 but the actual performance is different. That makes the payback different for each house and client. |QR

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