Federal tax credits offer consumers energy incentives

Consumer Reports News: December 08, 2008 01:28 PM

Congress included a wide array of tax breaks for solar-, wind-. and geothermal-energy systems in the $700 billion bailout bill for the financial-services industry. Can these rebates provide cheaper, cleaner cost-effective energy systems for your home?

That depends. Alternative-energy systems are still expensive, but you can offset the high up-front costs by combining federal, state or utility rebates with a U.S. Department of Housing and Urban Development energy-efficient mortgage.

Also, keep in mind that payback periods will depend on where you live, the style of your home and key components like windows, insulation, and ductwork, and current prices for electricity, home heating oil, and natural gas. Here's a look at the systems

Solar-photovoltaic systems: 30 percent tax credit
Congress not only instituted the credit but also removed a $2,000 cap on the total credit. That's a key move, since a solar-photovoltaic system capable of fully powering the average U.S. home costs $64,000 to $80,000 installed, according to the Solar Energy Industries Association trade group.

That's a steep cost for consumers, but "without the rebates for solar photovoltaic, its cost would be out of the ballpark," says Jim Wright, vice president of Hudson Valley Clean Energy in Rhinebeck, New York. One alternative program is under way in Connecticut, where the CT Solar Lease program, a partnership between government agencies and lenders, will give an entire solar-photovoltaic system to qualifying homeowners, who in turn commit to a monthly lease payment of about $120 for 15 years.

Solar-thermal systems: 30 percent tax credit, $2,000 maximum cap removed
Using solar energy just to heat your water should provide a much faster return on investment than for a whole-house system. A basic, open-loop system with one 4x10-foot collection panel and an 80-gallon water tank will cost about $2,000, although this will prove feasible only in warm, sunny climates like Hawaii and southern Florida. (Earlier this year, Hawaii became the first state to require solar water heaters in all new homes.

Colder climates require costlier systems that empty the rooftop panels when low temperatures are detected or use an antifreeze solution. A conventional water heating system to provide backup on cloudy days is also needed.

Closed-loop solar-thermal systems with two collection panels, an 80 gallon tank and heat exchanger costs approximately $5,000. (Consumer Reports has purchased several systems, including the FAFCO system shown, for testing. The $2,000 FAFCO system, designed for DIY installation, consists of two polymer panels that sit on the roof and two 1/4-inch plastic tubes that carry water to a heating plate linked to an indoor storage tank.) Installation will double or triple the cost, depending on the contractor's markup. "If a contractor is only putting in one or two systems a year, he's going to get top dollar," says Les Nelson, executive director of the Solar Rating and Certification Corporation.

Tankless water heaters: $300 credit
Many experts say tankless water heaters are the best solution for providing hot water when a solar-thermal system alone cannot. "The sun can preheat the water going to the tankless heater so it's only heating the difference in temperature needed for residential hot water," says Amy Beaudet of the Hudson, Massachusetts-based Alternative Energy Store.

Our recent report on tankless water heaters showed that these appliances are 22 percent more efficient than storage-tank heaters, but whether they are more economical will depend on the cost of upgraded pipes and vents your model might require. "Even if one factors in the energy tax credit, the payback for the tankless heaters we looked at would still require 10 to 15 years, down from 15 to 22 years," says Jim Nanni, manager of the Consumer Reports appliances, recreation, and home-improvement department.

Wind power: 30 percent tax credit; cap at $4,000
The average U.S. home consumes about 1,000 kWh per month. To generate that much electricity with wind power, you're looking at a $60,000 to $80,000 investment, according to Mick Sagrillo, a wind-energy specialist for Wisconsin's Focus on Energy program.

Sagrillo says his colleagues in the wind industry were disappointed the cap was maintained on wind systems but removed on solar-photovoltaic systems. "Small wind has been trying to get some kind of federal funding for years, and they were working with the solar folks, but feel they kind of abandoned by them. Congress decided they were going to fund solar-photovoltaic systems, which are mostly made out of the country, rather than wind systems, which are," he says. The current incentives, he admits, "are a foot in the door; something to get the ball rolling." However, at the state level, California, Massachusetts, Nevada, New Jersey, and Oregon are offering additional incentives for wind energy.

Geothermal systems: 30 percent tax credit; $2,000 cap
Also known as "earth-energy systems," these use a network of horizontal or vertically buried plastic pipes to carry the earth's relatively constant temperature to a heat pump inside or outside of your home to provide heating, cooling, and hot water.

A  complete heat-pump HVAC system and the piping runs about $15 for every square foot of your home, says Craig Mann of Ralph Mann and Sons in Ansonia, Connecticut. Using a home's existing ductwork will cut the cost to $10 per square foot, and spending an additional $3,000 for a desuperheater (a device that channels heat to produce hot water) and a storage tank will provide hot water for an entire home. How soon you can defray this up-front cost of $20,000 to $30,000 will depend on how high your winter heating, summer cooling and year-round costs to produce hot water are in total.

"In the past, geothermal has been cost efficient against propane and electric heating but not against natural gas until this year," says Mark Morelli of Santa Rosa, California-based Air Connection, which has installed 200 ground-source heat-pump systems in the Bay Area.

Some installers are also using a hybrid approach. "Here in Oklahoma, a lot of people are using wind power to provide the electricity needed for the ground source heat pump," says Greg Dudley of Oklahoma's Earth Energy Systems, Inc. But Nanni warms that hybrid systems duplicate or adds equipment which means higher installed costs which means longer paybacks.

Residential energy-efficient property: $500 tax credit
You can receive a tax credit of up to $500 for investing in energy-efficient improvements, including a wide array of insulation, advanced air-circulating fans, windows, doors, and natural-gas, propane or oil-fired heating systems. The federal government is also offering accelerated 10-year depreciation for smart electric meters and smart-electric-grid systems.

"You can save much more energy by adding insulation than by replacing windows, doors, and heating systems," Nanni notes.

Essential information: "Save Energy, Save Money" offers many more ways to lower your utility bills. Also read more about the incentives that federal, state, and local governments and utility companies are offering for energy-efficient appliances and HVAC systems.

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