Solar Hot Water

Solar Hot Water
Solar combi system supplimenting radiant floor and domestic hot water

Thursday, February 17, 2011

Financial Benefits of Solar Thermal

Joe with Wise Improvements Blog (@WiseImprovement) asked me to discuss the financial side to solar thermal from a home or business owner's perspective. I will discuss the ROI and financial incentives associated with solar domestic hot water, solar domestic and radiant floor supplement as well as solar hot air (air collectors).


Each state varies on the incentives offered to home or business owners for installing a renewable energy system. A fantastic source for researching State and Federal renewable energy incentives is the Database of State Incentives for Renewables and Efficiency (Dsire). For example, the State of New Mexico offers a 10% tax credit up to $9,000.00 on residential renewable energy systems. This tax credit is off all expenditures of the system including installation. Dsire can also tell you about incentives offered by your local utility although I would recommend contacting your local utility before purchasing a renewable energy system to fully understand their specific programs.

Solar hot water systems qualify for a 30% tax credit from the Federal Government. The important thing to understand about this tax credit is that it is just that, a tax credit, not a rebate. If a homeowner has no tax liability the credit, unfortunately, is of no use to them. If you are a business the story is different. If a business has no tax liability but installs a solar hot water system on their building they can turn the credit into a rebate by petitioning the U.S. Treasury Dept. for a grant. This tax credit is off all expenditures of the system including installation. I always advise all my customers to consult with their accountant.


The return on investment (ROI) for renewable energy systems varies depending on the technologies. For instance a solar hot water system will pay for itself faster than a PV system in most cases and an air collector system will pay for itself faster than a solar hot water system. There are many factors that go into calculating ROI. Some of those factors would be current energy usage patterns by the building occupants, geographical location and the cost of the equipment and installation. On average a PV system will pay for itself within 12-20 years on average. A solar hot water system averages a payback around the 5-10 year mark for domestic hot water and a little more if radiant floor is incorporated and an air collector (solar space heat) will pay for itself in 3-4 heating seasons. The type of fuel used also needs to be taken into consideration. Someone using propane will see the dividends much quicker than someone using natural gas. The one thing you will notice is that the payback of a system is in direct relation to the general upfront costs associated with the technologies.

There are different ways to calculate ROI of a renewable energy system. Clean Power Finance, PV Watts and Andy Black's OnGrid programs which will calculate ROI on a PV system. To calculate ROI on a solar thermal system the best program I have found is a free program put out by the Canadian Government call RETScreen, which is a free program and can help you calculate ROI on just about any renewable energy system as well as energy efficiency upgrades.


In almost all cases, a permit from a local building department is required to install a renewable energy system and qualify for an incentive. This means that solar thermal equipment must be certified by either the SRCC or a similar state authority. For a PV system the equipment must be UL rated.

If you would like to know more about the different renewable energy systems available to you please visit our main website.