Here Comes The Sun: Solar Saves With Incentives

It gets incredibly hot during summer in Sacramento, Calif., but the 95 families who own homes in the Premier Gardens subdivision outside the state capital don't worry about air conditioning. They live in houses whose utility bills are less than half the norm, thanks partly to rooftop solar panels.

These photovoltaic sheets generate so much electricity in the daytime, when most people are away working, that some homes have surplus current to send to the power grid. A net metering system measures how much, so a homeowner can accumulate credits and potentially cut his electric bill to zero by giving as much to the grid as he gets.

Such energy-efficient houses are marketed as zero-energy homes. In typical use they trim power bills, but do not do away with them.

It's no surprise that sunny California is the world's top market for residential solar power. Builders such as Premier Homes of Roseville, Clarum Homes in Palo Alto and Los Angeles' Pardee Homes -- a unit of Weyerhaeuser Co. (NYSE:WY - News) -- are putting up zero-energy houses in California and Nevada.

But the states that are runners-up in adopting solar power aren't known for year-round sunshine: New Jersey, New York, Pennsylvania and Connecticut. In Massachussetts, a $6 million development of 26 solar-powered town houses is going up in Brockton, near Boston.

Toast Of The Coast

Why embrace solar power in New England and Mid-Atlantic states? "Because it's difficult to build new power plants and transmission lines in a place like New Jersey," said Rhone Resch, president of the Solar Energy Industries Association. "Densely populated states are turning to solar because it helps stabilize the power grid."

About 1.1 million U.S. homes rely on some sort of solar power, Department of Energy data show. Most such homes have thermal panels to heat swimming pools. But a growing number are being built with NASA-designed photovoltaic panels. These send direct current to a microwave oven-sized inverter that converts the current to AC electricity, which powers a house.

Eight out of 10 Americans believe home builders should offer solar power as an option in new home construction, according to a Roper survey conducted earlier this year. Half of those surveyed said they would pay up to 10% more for a solar-equipped house. In the past, home buyers were reluctant to opt for solar since the equipment needed to halve energy consumption cost $15,000 to $18,000. But the real cost of solar power is falling, thanks to cash rebates, tax credits and other financial incentives from the Energy Policy Act of 2005.

"Both home builders and consumers can receive up to a $2,000 tax credit, thanks to this legislation," said Emily English, manager of the National Association of Home Builders' Green Building Program. "In New Jersey, state rebates can reduce the cost of solar equipment by 70%."

Doubling Up

State and federal incentives abound. Local governments and utilities often match them. In Virginia, many communities exempt solar energy equipment from local property tax. Maryland offers income tax credits up to 15% of the installed cost of a system. On the Hawaiian island Oahu, homeowners who install a $5,000 solar water- heating system can get tax credits and rebates that trim net cost to about $1,900. Incentives in California can bring the cost of a $15,000 solar system down to $8,000.

"Government tax credits, utility rebates and the soaring price of oil have created a tipping point where residential solar power makes economic sense," said Joyce Mason, a Pardee Homes vice president.

"The return on investment starts with the first utility bill," she said. "I love to watch a new homeowner smile the first time he sees his electric meter spinning backward."

Pursuing A Payoff

A solar electric system raises home values $20,000 for every $1,000 cut in home operating costs, says the Appraisal Institute. Data compiled by analyst Andrew Black for the American Solar Energy Society indicates that spending $17,500 on a 2.6-kilowatt solar setup for a California house trims an $80 monthly electricity bill to $7 and raises home value $17,600. Big solar power systems can recoup 157% of cost vs. 75% for kitchen remodels.

Investors are looking at solar too

"Three of the top high tech IPOs for 2005 were solar companies," Resch said, adding that with investment in the field "we expect solar power to account for 10% to 20% of all new electricity generated within 10 years' time." The initial public offerings were for San Jose, Calif.-based SunPower (NASDAQ:SPWR - News), Chinese firm Suntech Power Holdings Co. (NYSE:STP - News) and German company Q-Cells, traded on the Frankfurt Stock Exchange.

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