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Cost and Performance: A Look at Solar Hot Water in Tucson, Arizona

With an ideal climate and helpful incentives, Tucson, Arizona is poised to become a hot spot for solar water heating. The city boasts near constant sunshine and Tucson Electric Power provides generous incentives: a $750 up front rebate and performance based incentive covering $0.25/kWh of avoided electricity use.

Solar water heaters rarely get the attention they deserve from homeowners and the solar community, even though they have lower price tags, relatively short payback periods, and an immediate impact on home energy use. Installing a solar water heater in Arizona makes good financial sense -- and doing so in the Tucson is a particularly good proposition. Let’s walk through how purchasing one would impact a family of four.

When a family decides to replace their water heating system, a solar water heater -- assuming a gross installed cost of $7,000 -- looks pricey compared to an electric one ($600). However, with estimated power prices of $0.10 per kWh in Arizona, according to the U.S. Department of Energy, solar water heaters can be an attractive investment choice. Let's see how the high upfront cost and annual savings would look over the heater's lifespan:

  • First, the additional cost of the solar hot water heating system is reduced to $6,250 when TEP’s up front incentive comes into play ($7,000-$750=$6,250).
  • With an 80 gallon tank and a OG-300 rated system, our family would avoid using 2,700 kWh annually, saving them $270/year on their utility bill (2700 avoided * $0.10/kWh).
  • With TEP's performance-based incentive (PBI) of $0.25/kWh avoided, our family will earn $675 in the first year (2,700 kWh avoided * $0.25/kWh avoided). The PBI would only apply in the first and second year of ownership, since TEP’s rebates per system are capped at $1750. (This works out to $750 for the upfront rebate, $675 for the first-year PBI, and $325 for the second-year PBI.)
  • The federal and state tax incentives available would also cut down the capital costs significantly. The federal government provides a 30 percent tax credit that would deduct $1,875 in tax costs, and the state of Arizona’s tax credit (25 percent, capped at $1000) would lower costs by another $1000.
  • When all incentives are accounted for, the net cost of installing a solar hot water system instead of a conventional one comes to $3,375.
  • Assuming 5 percent annual inflation in electricity prices and TEP's performance based incentive for solar hot water, the system would pay for itself in roughly seven years.
  • Over the 15 year average lifespan of a water heater, the family would save over $6,000 on their energy bills with and fetch a rate of return of 11.4 percent. Note that this 15-year useful life is a fairly conservative estimate. Your system may well be operational for 20 or more years, in which case your return on investment would only get better.

Clearly, the numbers will vary for individual solar homes -- shading, hot water demand, and the cost of the particular system you purchase all matter. However, the generous incentives provided by TEP, and many other utilities for that matter, make solar hot water well worth investigating.

**Notes: For this exercise we assumed that the family would be replacing an electric water heater and that they would be able to keep their current system as a backup. The expected annual kWh of avoided use for an 80 gallon OG-300 rated system came from an Arizona installer in the GetSolar installer network. Depending on your situation, there may be additional costs. All rebate information came from the DSIRE database and is also accessible through the solar cost section of our website.

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