A friend of mine living in the Bay area recently asked me how much he’d have to cough up for a PV system. While there are far too many variables involved to provide a spot-on estimate, I promised him I’d try to come up with something. So without further ado, I bring you the California example residential case study.

For starters, the state of California offers some of the country’s best incentive programs for solar power. I’ll assume that Dave is looking for a solid system that’s big enough to make it worth his while, but not so big that his neighbors think a spaceship has landed on his roof. A 3-kW system is pretty standard for residential systems. Average cost for installed PV in California is currently around $8.73 per watt, which yields about $26,200 for Dave’s 3-kW system.

Now, here comes the first somewhat tricky part. Like most situations of supply and demand, electricity is more expensive when demand is high—during so-called “peak hours.” This is important to know, because it has implications for (1) the amount of electricity you can avoid using at times when it’s most expensive, and (2) the rate at which you can sell any net excess generation (NEG) from your PV system back to the utility. Peak hours are from 12pm to 6pm. Luckily, it just so happens that PV systems pump out the most juice around mid-day and in the afternoon. Put simply, you can save a lot of cash by avoiding peak-demand surcharges.

Anyway, assuming for now that Dave is a PG&E customer, he’ll likely find it best to be on their Time of Use Schedule (PDF). Essentially this means that his PG&E account will be credited more for the energy he produces during peak hours. Since he works during the day, his house draws very little power during these hours. This is a great time for his system to be “selling” electricity back to PG&E. Solarpowerrocks provides a great look at how to go about picking the interconnection agreement that’s best for you.

So now for the rebates. Under the California Solar Initiative, the California Public Utilities Commission (CPUC) has set out to provide $3 billion in incentives for PV power. The goal is to get 3,000 megawatts of PV up on people’s roofs by 2016. To do so, CPUC offered a residential rebate of $2.50 per watt of installed AC power, based on expected performance. As the state closes in on the 3,000 mW goal, this rebate decreases in predictable steps, outlined here. As you’ll see, PG&E is on the fourth step, which means that Dave can expect to get $1.90 per watt. Assuming that the 3-kW system has an expected performance of 80% means that there will be 2400 watts (0.8 x 3,000 watts) eligible for rebates. Thus, Dave can expect to receive $4,560 in state rebates.

So far so good. Subtracting $4,560 from total project costs, and figuring in the $2,000 federal tax credit, we’re at $19,640. Still a good chunk of change. Putting this is perspective, though, Solarpowerrocks encourages us to consider that a PV system increases property value by an average of 20 times first year energy savings. Since Dave can expect to save about $90 with his new system, this means that (on paper, at least) he’s already in the green: $90 x 12 months = $1080 x 20 = $21,600—about $1,000 more than final project costs. Also, remember that California has a property tax exemption for PV panels. This means you can install PV power without increasing your property tax liability. Finally, note that electricity prices in California are ever on the increase. Thus, to paint a truly accurate picture of the system’s net benefits, the net present value of avoiding peak-demand charges five years from now must be taken into account.

Of course, if Dave isn’t planning on selling his home any time soon, he’ll still have to finance upfront costs approaching $20,000—no small feat. I’ll tackle this issue in my next post. Essentially, if you’re able to secure a loan that has lower monthly payments than the amount that you’d otherwise be spending on electricity, you’d be a bonehead not to take the loan, install the panels and start generating your own power.