SOLAR NOT YET STELLAR:

Solar Power Heats Up: State and Federal Incentives Help Lure Consumers (STEPHANIE I. COHEN, 2/10/07, THE WALL STREET JOURNAL)

[D]o residential solar-power systems, also called photovoltaic or PV systems, make economic sense? The answer hinges on how much and how fast solar energy can cut a homeowner's utility bills, and on how long it takes to pay off the initial investment to add solar panels to a home.

Consumers considering solar power tend to focus on the upfront costs. Solar-energy systems for homes begin around $25,000, but can go higher depending on the size of a house and the amount of power generated, says Rhone Resch, president of the Washington-based Solar Energy Industries Association, which represents manufacturers.

In New Jersey, a 10-kilowatt residential solar-power system is estimated to cost $77,500. After a state rebate of $38,000 and a $2,000 federal tax credit, the out-of-pocket cost to the homeowner is $37,500. That will provide an estimated annual savings of $1,500 on electricity bills.

The payback period for such a system is roughly 25 years at current utility rates, according to estimates provided by the New Jersey Board of Public Utilities. The payback period can drop to about 10 years if a system owner sold $2,400 a year in solar renewable-energy certificates -- which are doled out each time a solar-energy system generates 1,000 kilowatts of power -- to electric suppliers, which are required to generate a certain portion of their power from renewable-energy sources.

A key factor in any calculus is the cost of electricity rates for a homeowner, says Jeffrey Bencik, an analyst with Jefferies & Co. in New York. Retail electricity prices can vary from a low of eight cents a kilowatt hour in some parts of the U.S. to as high as 18 cents in San Diego, he says. In some areas, residents have seen rates rise as much as 70% in recent years.

BP PLC offers a cost calculator on its Web site (www.bp.com) that uses a homeowner's Zip code and monthly electric bill to calculate what it would cost to install a system and the rebates that are available.

In a report released in January, CIBC World Markets, a unit of Canadian Imperial Bank of Commerce, looked at the likely payback for residential solar-power systems installed in California and considered the cost of solar-energy systems, government-sponsored incentive programs and electric rates. The returns, it says, weren't "stellar."

CIBC estimates that the cost to install a system in California is about $8.50 per watt. But after a $2.20-per-watt state rebate and a $2,000 federal tax credit, the net cost drops to $5.77 per watt.

This means that buying a solar-power system can yield homeowners a 6% return on their investment. It would take about 16 years to pay the initial investment, though the payback period can vary depending on peak electricity rates in the region, the report's authors said in an interview.

Many states also feature "net metering" programs, which allow homeowners to sell extra power they produce back to their local utilities, potentially lowering the payback period. Ideally the payback period needs to get down to the "lower double digits or the high single digits" to attract more investors, says Jeff Osborne, an analyst at CIBC and co-author of the report.