A Solar-Power Reawakening

 | Jul 13, 2013 | 3:00 PM EDT
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Solar power is sparking a collective reawakening in North America among consumers as well as policymakers. For consumers, installing solar panels can help cap utility costs and sometimes eliminate utility bills. For governments, solar and wind power provide easy solutions to difficult policy challenges.

Before investing in a solar generating system, homeowners and business owners generally want to know if doing so makes financial sense. The answer is "maybe" -- depending on one's location. Some states, including New Jersey, Ohio and California, encourage residents to build, own and operate solar power systems by offering incentive programs. Other financial factors relate to market conditions, time frame and installation design.

Owning a solar power system gives the consumer or business several options regarding public utilities. They may go off the commercial grid and rely entirely on their own system. They may remain connected to the grid but use their solar generator to reduce utility bills. Or they may mount panels on the ground and connect them directly to the grid, like a small power plant.

For many consumers, becoming energy-self-sufficient and leaving the public utility grid is an attractive option. But it could also be a costly choice. Off-grid solar systems require investment in energy-storage equipment. Also, the process of storing and retrieving power results in the loss of about 20% of the panels' production. Compensating for those losses requires the installation of additional panels.

In order to avoid storage-related expenses and headaches, most panel owners configure their solar systems to coexist with the grid. This gives them the best of both worlds: They lower their overall energy costs while enjoying the reliability of the commercial grid.

Are the savings from a solar energy system worth the investment? To an extent, it depends on how the panels are installed -- their orientation and their angle of placement. In order to maximize power production, solar panels must be perfectly oriented toward the sun. In North America, that means the panels should face true south. This is not possible on many existing homes, so if consumers mount solar panels on their roof, they may be disappointed with the results.

Fixed mounted solar panels must also be tilted at the correct angle, based on geographic latitude and season. For this reason, flat-roofed buildings are best suited for solar installations. But, on most North American homes, the roof is designed to shed rainwater and snow, so it is likely to be tilted in the wrong direction for the placement of solar panels.

An alternative way to build solar-power systems is to mount them on the ground. Their orientation and tilt can then be managed to maximize energy production.

Because of this, ground-mounted systems are the focus of most owners of utility-grade solar farms, such as NextEra Energy (NEE), Duke Energy (DUK), Berkshire Hathaway (BRK.A), Apple (AAPL) and Google (GOOG). These configurations can realize economies of scale by connecting enough panels to reduce energy losses, in addition to producing the most power.

Consumer-owned rooftop solar installations do not pose a serious competitive threat to regulated utilities. However, the utility-grade solar farms could challenge Exelon (EXC), Calpine (CPN), NRG Energy (NRG) and other independent producers. These farms compete in the power markets as small power generators -- and, together with producers of wind power, they have become the industry's new cost leaders.

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