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The Economics of a Solar Water Heater
Solar water heating systems usually cost more to purchase and install than conventional water heating systems. However, a solar
water heater can usually save you money in the long run.
How much money you save depends on the following:
- The amount of hot water you use
- Your system's performance
- Your geographic location and solar resource
- Available financing and incentives
- The cost of conventional fuels (natural gas, oil, and electricity)
- The cost of the fuel you use for your backup water heating system, if you have one.
On average, if you install a solar water heater, your water heating bills should drop 50%-80%. Also, because the sun is free,
you're protected from future fuel shortages and price hikes.
If you're building a new home or refinancing, the economics are even more attractive. Including the price of solar water heater in
a new 30-year mortgage usually amounts to between $13 and $20 per month. The federal income tax deduction for mortgage interest
attributable to the solar system reduces that by about $3-$5 per month. So if your fuel savings are more than $15 per month, the
solar investment is profitable immediately. On a monthly basis, you're saving more than you're paying.
Source: U.S. Department of Energy / Energy Efficiency and Renewable Energy
Articles by Rick Nevin in the Appraisal Journal *, state that an increase in appraisal value for an energy efficiency home is
approximately twenty (20) times the annual reduction in operating costs due to energy efficiency measures. Thus, if a solar system
can reduce your annual electric bill by $1,000, the home's increased appraisable value is about $20,000 more. If the $1,000 is not
spent on electricity, it is available for a larger mortgage payment at no net change in the cost of living. The amount of mortgage
depends on mortgage rates and the tax rate of the borrower.
After-tax mortgage rates have averaged 5% over the long term. At 5%, a $20,000 mortgage costs $1,000 per year, thus the 20:1 ratio.
Since mortgage rates vary, dependent on market conditions, the ratio can range from 10:1 to 30:1. Long term mortgage rates during
March 2004 were at lows of 5.5% before tax, or 3.3% after-tax. At these low rates, the ratio is 30:1. Good resale value for the
solar system is important over the near-term, mid-term and long-term future. Assuming rates will not stay at low levels over the
mid-term and long-term, it is reasonable to agree with Nevin's estimate of 5% after-tax, giving the 20:1 ratio.
* REFERENCES
- Nevin, Rick et al, Evidence of Rational Market Valuations for Home
Energy Efficiency, The Appraisal Journal, The Appraisal Institute.
- Nevin, Rick et al, More Evidence of Rational Market Values for Home
Energy Efficiency, The Appraisal Journal, The Appraisal Institute.
Based on a 2 - 3 person household, at average therm (Natural Gas) and Kilowatt Hour (Electric) costs, an average Solar Hot Water
system will save you from $300.00 to $400.00 annually based on current rates. As rates increase, quicker payback is realized. A
home's increased appraisal value alone pays for the system thus cost savings from day one can be realized as illustrated below.
How much money you save depends on the following 1) the amount of hot water you use 2) your current system's performance 3) the
cost of conventional fuels and 4) the cost of fuel for your backup water heating system. Solar hot water systems can also be
expanded to supplement home heating systems therefore making them more efficient and less costly to run……..more $$ savings!
The ALTERNATIVE is to do nothing and never have a payback nor decrease the environmental impact of your current system.
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AESOP Energy Options covers York County, Chester County and Lancaster County of South Carolina, and the Charlotte NC, North Carolina metro area. AESOP Energy Options can also provide solar, and alternative energy savings products outside our local area.
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