Q&A: Are there any tax credits for installing a residential solar-energy system?

Hoping to save on our energy bills, we're considering installing a solar water heater at our home. Does the federal government offer any tax breaks for these systems?

Given the high upfront expense of solar photovoltaic (PV) systems and solar water heaters, it's no wonder you're interested in financial incentives to alleviate some of the cost. Federal tax credits for PV systems and solar water heaters do exist, though you'll need to move quickly because they expire this December 31. (OCTOBER 2008 UPDATE: The $700 billion Emergency Economic Stabilization Act of 2008 extended and expanded the tax credits for residential solar systems. Read more in this post from the Consumer Reports Money blog.)

Advocates of solar energy fear the end of the tax credits will discourage adoption of these promising technologies. "If the federal solar credits expire as planned, it will definitely put a huge damper on the market, and we'll see a large drop in installations," says Larry Sherwood, a consultant to the Interstate Renewable Energy Council, a nonprofit that promotes renewable energy.

Federal tax credits for solar power have helped double the number of commercial and residential installations of PV and solar-water-heater systems since taking effect in 2006, according to the new "U.S. Solar Market Trends" report by Sherwood. Rising energy prices and state incentives have also played a role in spurring the market, particularly in states where those incentives have the biggest payoff.

California, with the largest state incentive program for PV systems, dominates the market with 69 percent of all installations. Similarly, Hawaii, with its generous incentives, accounts for half of the solar-water-heater market. (Read this blog post for more on solar water heaters in Hawaii.)

Still, most Americans own neither type of system since they remain prohibitively expensive. Check out this listing of state incentives for solar power; select "Solar (All)" in the drop-down menu. You'll find more information on renewable-energy incentives on the same site.

A PV system capable of fully powering the average U.S. home costs $64,000 to $80,000 installed, says the Solar Energy Industries Association trade group. While much cheaper, solar water heaters still cost $5,000 to $7,000, including installation. Such steep prices make renewable-energy incentives attractive.

The existing federal incentives allow you to take a 30 percent tax credit up to $2,000 for the purchase and installation of a PV system or solar water heater. But even that's not enough, says the SEIA, which is pushing for an eight-year extension of the federal credits and to eliminate the existing $2,000 limit for residential buyers.

Some progress toward that goal has been made. Last May, the U.S. House of Representatives passed the Renewable Energy and Job Creation Act of 2008, which extends the credits for eight years and also doubles the cap to $4,000 for residential buyers. But after eight attempts, the Senate has failed to pass a bill of its own.

Given the need for more secure, clean-energy technologies, we shouldn't let the sun set on these important incentives.—Kristi Wiedemann, Science and Policy Analyst, GreenerChoices.org

Essential information: Find out how solar and other renewable-energy technologies are greening the workforce, get the latest buzz on backyard wind power, and learn about tax credits and rebates for energy-efficient appliances. Also read what Consumers Union has to say about the hidden price you pay for energy.—Kristi Wiedemann, Science and Policy Analyst, GreenerChoices.org

Shower or bath: Which uses more water?

“Take showers instead of baths to save energy,” is an oft-repeated adage of water and energy conservation advocates. But the Department of Energy’s water-heater-sizing pages now list the average shower as consuming 12 gallons and the average bath only 9 gallons of hot water. 

The DOE is also saying that homeowners are using from 15 to 30 percent of their total energy budget just to heat water—up from an earlier 14 to 25 percent estimate. So is soaking instead of scrubbing the way to go?

A spokeswoman for the EPA (which provided the figures to the DOE) says the new figures were based on a study it commissioned in 2000 by independent water-engineering-and-management firm Aquacraft. Ten homes in Seattle were fitted with data loggers on the main water meters a separate meter was placed on the feed line to the water heater and the results measured over two separate two-week periods.

“The nine gallons was actually the actual average draw of water into a bathtub, but you’re talking about an event that can involve more than one draw of hot water,” says Aquacraft President Bill DeOreo. “So that’s not an accurate measure of total average use.”

Consumer Reports’ own experts believe the previous 20 gallons of hot water per bath that the EPA was using (which was in turn based on a studies done by the Gas Appliance Manufacturers Association) to be still a better benchmark.

They also stress that the best way to save hot water is to take showers rather than baths, limit the time of showers, use a low-flow showerhead, and turn off any supplemental showerheads in each shower stall.

Many utilities and municipalities are following this advice. The Portland, Oregon Water Bureau has given away over 4,500 1.5- gallon-per-minute showerheads and 4,000 five-minute “Shower Timer” hourglasses to its customers.

“The hourglasses aren’t as functional as the low-flow showerheads and aerators we give away; they’re more of a behavioral tool,” says Sarah Statner of the Portland Water Bureau. “But we get a lot of positive feedback and hear they inspire more conversations about conservation than any showerhead every will.”

Also backing the move for water economy is the popular eco-blogger Crunchy Domestic Goddess, who has issued her own Five-Minute Shower Challenge that’s drawn numerous responses.—Gian Trotta

Essential information: Find out about the wide variety of high- and low-flow spraying options available Showerheads special. Our GreenerChoices.org Web site offers "50 Ways to Save Water." And see our October issue for a special comparing the performance of tankless, or on-demand, and conventional storage-tank heaters.

Hawaii to require solar water heaters in new homes

Late last month, Hawaii became the first state in the nation to require solar water heaters in new homes. With few exceptions, solar water heaters will be required in all newly built single-family homes beginning January 1, 2010.

"This solar power legislation is another important step in our long-term plan for energy independence in Hawaii," said Governor Linda Lingle. "In addition to solar, it is critical that we continue to develop innovative energy solutions that capitalize on our natural renewable resource advantages in order to achieve our goal of having 70 percent clean energy in Hawaii by 2030."

The Hawaii law allows builders to install gas-powered water heaters if the home includes another gas appliance. Hawaii's Public Utilities Commission will set standards for solar water heaters, and counties in the state will create implementation procedures. (The illustration above, courtesy of the U.S. Department of Energy, shows an active closed-loop solar water heater.)

Water heating accounts for 15 to 30 percent of a typical household's energy use, according to the DOE. Solar water heaters, while significantly more expensive than their conventional counterparts, can reduce water-heating bills by at least 15 to 25 percent, depending on the efficiency of the system and local climate conditions, the DOE estimates.

A typical two-collector solar water heater costs $5,000 to $7,000, installation included. But after incentives like rebates and tax credits, that cost could drop to $1,400 to $2,100, according to Hawaii's Department of Business, Economic Development and Tourism. (Download the PDF here for more details.)

For Hawaiians, who largely rely on imported fuel and pay among the nation's highest energy prices but enjoy abundant sunshine year-round, solar water heaters could bring long-term financial benefits.—Kristi Wiedemann, Science and Policy Analyst, GreenerChoices.org

Essential information: Read "Save hundreds on energy costs" for more expert advice on slashing your utility bills. Don't miss our reports on thermostats and windows for more information on products that can help you reduce energy consumption.

Q&A: Should we fix or replace our old water heater?

Our storage-tank water heater is on the fritz. Should we get it fixed or buy a new one?

It depends on the nature of the problem and whether your water heater is still under warranty.

Storage-tank water heaters are fairly long-lived, and most are backed by a 10-year or longer warranty. But when one does give out, it usually happens suddenly; you’ll probably notice water leaking out through a corroded spot in the tank. (Note to self: The typical storage-tank water heater holds 40 gallons of water, and a hole in the tank is really the same as an open spigot—the water will keep flowing until you shut off the supply So consider buying a wet/dry vacuum to deal with this type of mess.)

While you can’t salvage a corroded, leaking tank, a leaky drain valve or temperature/pressure-relief valve or a worn-out electric heating element can be repaired. But replacing the heater might make more sense.

First, get a repair estimate. Then weigh that amount against the $500 to $600 you’ll pay for a new heater and its installation. The $100 per hour you’ll pay a plumber for a repair will quickly add up to the cost of a new water heater. So put your money toward installing a new unit, especially if the warranty on your current model has expired.

Essential information: Learn more water heaters, including details on buying a new model. Read about actor/activist Ed Begley Jr.'s energy-efficiency efforts, and look for our report on tankless water heaters in the October 2008 issue of Consumer Reports.

Own a tankless water heater? Take our survey

Consumer Reports is currently testing tankless water heaters for a report in our October 2008 issue, and we’d like to hear about consumers' experiences with tankless water heaters. If you have installed a tankless water heater at your home, please take our survey.

Thanks in advance, and look for our report in the October issue. Please note that we value your privacy and will keep all of your information confidential. (Read our privacy policy here.)

Ed Begley Jr. promotes energy efficiency

Many Hollywood types have hopped on the green bandwagon in recent years, but Ed Begley Jr. gets credit for having been on board for decades. I caught up with the 58-year-old actor and environmental activist at the International Builders’ Show on Friday, February 15, to talk about things green and a product he was pitching. (Celebs rarely show up at trade shows unless their hawking something.)

“Growing up in smoggy L.A., by 1970 I’d had a bellyful, and I wanted to do something about it,” says Begley, perhaps best known for his role as Dr. Victor Ehrlich on the 1980s TV show St. Elsewhere, about his initial interest in green matters.

His first move was the purchase of a Taylor-Dunn electric car in 1970s. The vehicle, recalls Begley, “was little more than a golf cart with windshield wipers and a horn.” These days, Begley walks and bikes to his destinations and also drives a fully electric Toyota RAV4, which he charges using solar power at his home in Studio City, California.

His house is equipped with all kinds of eco-friendly gear, including solar roof panels that can track the sun, a solar oven, and a rainwater-collection system. (See just how green Begley is at the Web site of his HGTV show, Living With Ed.)

The house also has the new A.O. Smith Vertex 100 power-vent gas water heater, the product Begley was promoting at the Builders’ Show. The Vertex uses an unusual helix configuration, basically 30 feet of coil that transfers gas-fired heat to the water (shown). This 100,000-Btu unit operates at 95 percent efficiency, according to the manufacturer, besting the 80 percent level of the most-efficient traditional water heaters. It is supposed to produce as much hot water as a typical 75-gallon model.

With a suggested retail price of around $2,000, the Vertex 100 (available only through wholesalers) isn’t cheap, though the manufacturer says it’s comparable in cost to premium water heaters. That price tag puts it above what Begley calls the “low-hanging fruit” of household energy conservation, products like compact fluorescent lightbulbs and thermostats. But, Begley reasons, the money people save using those products can eventually go toward more-expensive items.

“We’re heading in the right direction,” Begley says about making homes greener. “We haven’t completed all the tasks [toward building truly energy-efficient homes], but we’ve proved we can get there.”—Daniel DiClerico

Essential information: If you’re in the market for a new water heater, use our free buying advice. Read our expert advice for 10 easy ways to save hundreds of dollars on energy costs at your house, and visit our Energy-Saving Guide for expert advice on saving energy—and money—everyday.